The 6 PM Recap With Gary Wagner: Having It Both Ways (Not!)

Having It Both Ways (Not!)

Third quarter U.S. GDP was revised upward to show that the economy expanded by 3.9%. Consumer sentiment, however, fell during November. These two data points seems to be contradictory, when in fact, behind the consumer’s thinking lies an unfortunate reality.

Wages are stagnant. That will cast a damper on anyone’s view of his or her personal economy. Worse, it means that there is more borrowing pressure on struggling families. Even worse than that, the subtext is that more and more wealth is being concentrated in the hands of the few. That does not bode well for a consumer society – and we say this not from an ideological but rather practical viewpoint.

The dollar fell on that news in part, but also on the foot dragging by the E.U. on their stimulus program. The dollar was also dinged by an upbeat report from the Bank of Japan about their country’s generally more positive prospects.

More news is due out tomorrow on the U.S. economy, although given the truncated trading day we’re not sure how much that will mean to market movement.

Weekly jobless claims, durable goods, personal income, the Chicago Purchasing Managers’ Index, new home sales and pending home sales are all on deck.

Also on the minds of traders are the OPEC meetings that are scheduled to start Thursday. West Texas Intermediate crude is threatening to settle below $74 per barrel. And that’s with no push from a higher dollar, which makes oil cheaper. Brent oil is going to close below $79, a figure once thought inviolable.

If OPEC somehow corrals its members into cutting production, prices could temporarily go back up. If constituent members of the struggling cartel go their own way and keep producing however much oil they want, prices will continue to drop. If prices do go back up, they won’t stay there long. The big-dog in just about everything else, the United States, is expanding its output steadily and grandly.

So, we have the equities mostly up on the day. Oil and the bond yield are down. The dollar is down. Gold is barely up, and has struggled to find direction. All the other outside influences tell us gold ought to be lower. But it isn’t.

End-of-the-month position squaring is at work, as well the peace-of-mind factor. Who wants to be worried while sitting with their bellies stuffed and your least favorite uncle who lost everything in ’08, give you advice on trading?

Very few people on the New York desks believe us.

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Nov 25 The Clock is Ticking in Switzerland Peter Schiff

The Clock is Ticking in Switzerland

Peter Schiff

For most of my career in international investing, I had always placed a great deal of faith in Switzerland's financial markets. In recent years, however, as the Swiss government has sought to hitch its wagon to the flailing euro currency and kowtow increasingly to U.S.-based financial requirements, this faith has been shaken. But this week (November 30th) a referendum in Switzerland on whether its central bank will be required to hold at least 20% of its reserves in gold, will offer ordinary Swiss citizens a rare opportunity to reclaim their country's strong economic heritage. It's a vote that few outside Switzerland are following, but the outcome could make an enormous impact on the global economy.
Traditionally, the Swiss franc had always attracted international investors looking for a long-term store of value. That's because the Swiss government had always kept sacred the idea of conservative central banking and fiscal balance. When the idea of the European common currency was first proposed, the Swiss were wise to stay out. They did not want to exchange the franc for an unknown and untried pan-national currency. The creators of the euro had suggested that it would become the heir to the strong Deutsche mark. Instead, it has become the step-child of the troubled Italian lira and the Greek drachma. In retrospect, the Swiss were wise to take no part in the experiment.
But the decision of the Swiss government in 2011 to peg the franc to the euro, in order to prevent the franc from rising, has meant that the nation has adopted the euro de facto. In order to effect this peg, the Swiss government has had to intervene massively in the currency exchange market to buy and stockpile euros, thereby weakening the franc. The raw numbers are so staggering that rank and file Swiss have taken notice. Over the last few years the Swiss economy has stagnated along with the rest of Europe, and Swiss citizens have come to understand that the current policy will require an open-ended commitment to keep doing more of the same. This frustration has given birth to the referendum movement.
In 1999, Switzerland became the last industrial nation to go off the gold standard, a system that had served the world well for centuries. At that time, the Swiss National Bank held about 2,600 tons of gold, representing about 41% of its total currency reserves. By the end of 2008 its gold holdings had dwindled to just 21% of reserves. And as of August this year, they had fallen to just 7.9%. The raw tonnage has fallen over that time to just 1,040 tons, a 60% decline from 1999.
But the real action can be seen in the Swiss National Bank's holding of foreign currencies, mostly the euro, which now sits at a whopping 453 billion francs' ($495 billion). That's about 56,000 francs ($61,000) per man, woman and child in the country, almost 90% of which have been accumulated in just the past six years. The stated aim of all these purchases is to depress the value of the franc against the euro. Currency valuation directly translates into purchasing power, which means that the Swiss are poorer for these efforts. For a family of four that means the Swiss government has diverted almost $33,000 worth of purchasing power every year for the past six years to citizens of other European countries who had mistakenly adopted the euro. That's a lot of money, even for a rich country.
Swiss politicians have said that purchases have been needed to protect the citizenry from falling prices and from the diminished exports that would result from a rising currency (In my latest newsletter, read how this central bank concern about deflation is strictly a 21st century paranoia). Putting aside the evidence to suggest that the Swiss economy has prospered under a rising currency, this idea assumes that exports are a means, rather than an end. The purpose of exports is to pay for the stuff that you import and consume. There are many things that the Swiss people want that they don't make. To get those things, they export the things that they do make (i.e. watches, chocolate, cheese, etc.). The beauty of a strong currency means that you don't need to export as much of the stuff you make to get the stuff you want. In other words, you don't have to work as hard to enjoy greater consumption. Swiss living standards could have been much higher today if Swiss bankers and politicians had not tethered the franc to the euro.
A 20% gold reserve requirement would severely limit the ability of the Swiss government to continue its pegging policy. In order to reach the new target reserve levels, the Bank would either have to sell hundreds of billions of currency reserves or buy thousands of tons of gold on the open market. Critics contend that this would be a disaster for Switzerland. But the large amount of gold reserves before 1999 did not weigh on the Swiss economy. In fact, before that time, it was the envy of the world. While other countries were undermined by the promises politicians made with a printing press, the Swiss economy prospered thanks to the discipline provided by gold. Economists and politicians who are urging the Swiss to reject the proposal make the case that inflation is a prerequisite for growth, but many Swiss know that that is a lie.
While the pundits see little chance of success for the gold vote, I am encouraged by the recent results of another recent Swiss referendum that rejected the imposition of what would have been the highest minimum wage in the world. Swiss voters were smart enough to understand that an arbitrarily high wage costs would simply destroy employment opportunities without offering any tangible benefits in return. Perhaps they will be equally wise about the usefulness of sound and stable currency.
As an American, I envy the choice that the Swiss have given themselves. If successful, the vote could be seen as the first major counterattack against the forces of fiat currencies and unlimited global QE. A successful outcome may also mean the requirement for the Swiss government to buy gold would add significant demand in the gold market and should thereby help put the metal back on track.

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Nov 25 Can Gold Extend Its Rally? Stewart Thomson

Can Gold Extend Its Rally?

Stewart Thomson

1. While it hasn’t affected gold significantly, the price of oil has fallen quite dramatically over the past couple of months, and that’s bad news for oil companies. Profit margins are shrinking and layoffs could be coming, if the situation doesn’t improve.
   
2. If oil continues to decline, the shale oil producers could get into serious trouble, and that could send America back into recession.
   
3. Mainstream media promotes the idea that lower oil prices are good for consumers, but most consumers are deeply in debt, and it’s questionable whether lower oil prices are going to lead to any increase in consumer spending.
   
4. All investor eyes should be focused on the upcoming OPEC meeting in Austria. It takes place on Thursday, which is Thanksgiving Day for Americans.
   
5. Please click here now. That’s an oil options chart from Goldman Sachs. It suggests that the price of oil will move up or down by about $3.60 a barrel, as the OPEC production decision is announced.
   
6. Please click here now. This chart shows US oil production reaching nine million barrels a day.
   
7. High prices are needed to keep that production growth in a rising trend.
   
8. Even if OPEC were to announce a major cut in production, that would only create a further rise in US oil production, putting renewed pressure on OPEC to cut production again.
   
9. It’s a self-defeating exercise for OPEC to keep cutting production, while America increases production. Thus, I expect only token action to be taken by OPEC this week.
   
10. How would a failure by OPEC to cut production affect the price of gold? 
    
11. For the possible answer, please click here now. That’s the daily gold chart. Note the position of the 14,7,7 Stochastics oscillator. The lead line is near 80, suggesting the gold rally from the $1130 area lows is “long in the tooth”.
    
12. If OPEC disappoints commodity bulls, I think gold could decline, but only modestly, to the $1170 - $1180 area, and it might do so in anticipation of the OPEC decision.
    
13. For any market to continue to rally in a technically overbought situation like gold is entering into now, it needs a catalyst to do so. Is there such a catalyst on the horizon?
    
14. Well, please click here now. That’s the daily chart of the US dollar versus the Japanese yen. There’s a 14,7,7 Stochastics sell signal in play, and the dollar has definitely lost upside momentum over the past week.
    
15. In the big picture, gold has performed admirably, while both the yen and oil have collapsed. 
    
16. If the yen can begin to rally, gold could gallop higher, to the $1250 - $1255 area, even while being technically overbought.
    
17. It’s important for Western investors not to get overly-obsessed with the fear trade for gold, and ignore the love trade. Please click here now.
    
18. The city of Dubai has long been recognized as the “city of gold”, and rightfully so. Five hundred jewellers are now in forces to build the world’s longest piece of gold jewellery, to promote the industry.
    
19. The love trade (gold jewellery) has always been the biggest and most consistent driver of the gold price. I don’t expect that to change,regardless of what happens in America.
    
20.  The good news is that jewellers in China, India, and Dubai are inexpansion mode, and it’s clear that Western mining stock shareholders stand to reap substantial reward from the relentless growth in gold jewellery demand.
    
21. Please click here now. That’s the daily chart for GDX. It’s performing “according to plan”. There’s clear sell-side HSR (horizontal support and resistance) in play in the $20 area, and the rally has stopped there.
    
22. Simply put, the traffic light has turned red, and the gold stocks sports car has stopped. After a brief rest, I expect higher prices. There’s nothing I see here that is fundamentally negative for gold stocks. Nothing.
    
23. Gold stocks are well supported by the enormous expansion in the global gold jewellery business, and so is silver. To view the daily chart, please click here now.
    
24. Silver tends to substantially outperform gold in the later stages of a rally, regardless of whether that rally is short term or long term. A move above the black downtrend line should attract lots of hedge fund buying, and extend the rally. A two day close above $16.75, should get that job done!

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Gold Still Has Plenty Of Upside - Capital Economics

With gold hovering around $1,200 an ounce, commodity analysts at Capital Economics see plenty of long-term potential for the yellow metal as they stick with their call that prices will hit $1,400 an ounce by year-end 2016.

“A rebound to US$1,400 would represent a sizeable 17% gain from current levels at a time when the valuations of many other assets, notably developed market equities and bonds, are looking increasingly stretched,” said Julian Jessop, head of commodity research at Capital Economics.

That target is unchanged from their previous report in October when the analysts said they expect gold hit $1,300 an ounce by the end of next year. In the report, Jessop said gold still has plenty of upside potential as a lot of bad news is already priced in.

“Indeed, given the unfavorable market conditions this year, gold has actually held up remarkably well,” he said in the research note published Monday. “The downside for the gold price from current levels is surely now limited.”

Some of the negatives Jessop lists that have dampened gold recently include a strong U.S. dollar as the Federal Reserve exited its quantitative easing program, the collapse in crude oil prices, reducing inflation fears and stronger equity markets.

“Despite all these negatives, the price of gold has repeatedly found strong support at, or slightly below, the US$1,200 level,” he said.

Jessop said the big unknown and potentially bearish for the gold market is the first Federal Reserve interest rate hike. Capital Economics forecasts that the U.S. central bank could hike rates as early as March, which is much earlier than is currently priced into the market.

However, he said even the first rate hike will have limited impact on the gold market as interest rates are expected to only rise gradually and remain below historical standards.

“The peak in the next interest rate cycle could be less than 4%, a level which previously might have been thought of as a floor for rates. This is unlikely to be a game-changer for gold demand,” he said.

Demand should strengthen among emerging economies as income increases, helping to support gold, Jessop said. Western investors could also jump back into the gold market as a safe-haven investment as geopolitical risks and global economic uncertainty rise, particularly within the Eurozone, he said.

He added that they are also expecting central banks from developing country to continue to add the precious metal to their official foreign reserves. Jessop said that although unlikely he would not completely rule out buying from the ECB as part of its quantitative easing strategy or from the Swiss National Bank. Swiss voters will decide in a Nov. 30 referendum whether or not to force the SNB to increase its gold holdings to 20% of its official reserves within five years.

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Restarting The Atomic Age? Lockheed Martin Announces Break-Through In Nuclear Fusion

In post-war USA, “Skunk Works” was Lockheed Martin’s near-autonomous research and development group that gave the country products like the “U-2” spy plane or the “SR-71 Blackbird”, pushing technology to limits no one else had dared to explore before.

A “Skunk Works” team headed by Thomas McGuire, MIT graduate and aeronautical engineer at a division humbly named “Revolutionary Technology Programs” recently presented their new “Compact Fusion Reactor” (CFR), a device which Lockheed claims will be small enough to fit on an eighteen-wheeler and be capable of providing enough power for a  city of a hundred thousand people.

Nuclear fusion is, in a way, the opposite of nuclear fission, the process used in nuclear power plants around the world today. Nuclear fusion has been a long-time dream of scientists, oft attempted but never accomplished, the challenge being to obtain more energy from the reaction constantly than is afforded to run it. It’s, as Lockheed points out, what the sun has been doing for us for a very long time.

In recent years we did, however, see promising results by many different research organizations around the world working different angles to find a solution. The different processes typically use deuterium which can be obtained from water, and tritium which is obtained from lithium meaning that resources are abundant. These developments are relevant to technology metals in several of ways:

• A process presented by the Lawrence Livermore National Laboratory earlier this year uses gold as containment vessel;
• Magnets used for plasma confinement, although secret in their individual composition, are likely to contain significant amounts of magnetic rare earth elements such as neodymium.
• Related technologies like low energy nuclear reaction and transmutation utilize precious metals, or claim to produce technology metals as reaction byproducts.

In simple words, this is how nuclear fusion works: two hydrogen isotopes, in this case deuterium and tritium, are released into a container under vacuum. When a sufficient amount of energy is added, the gas breaks up into ions and electrons, creating “plasma.” This plasma is incredibly hot; too hot for the containment vessel to withst and. Therefore, very strong magnets are used to prevent it from touching the container walls. This, in theory, causes the ions to collide and fuse together. The process then frees up neutrons that carry the released energy through the magnetic field to the reactor wall, where heat exchangers make it usable to power a turbine generator.

To be clear, what the Lockheed team achieved so far is to contain the plasma within the magnetic field. They did not accomplish an “ignition” of the reaction which is the self-sustaining reaction required to make a practical energy source. This latter part is considered the much bigger challenge according to those who have failed. McGuire is optimistic, though: “We would like to get to a prototype in five generations. If we can meet our plan of doing a design-build-test generation every year, that will put us at about five years…,” he said in an interview. If all goes well, the technology may be ready for production in about 10-15 years.

Lockheed estimates that less than 25kg of fuel would be required to run the device for an entire year. What is more, the units produce only very small amounts of radioactivity contained in steel elements of the shell, radioactivity that will reach safe levels after approximately 100 years, compared to the much longer decay periods of radioactive waste material from conventional nuclear power reactors.

Has the energy crisis been solved? Of course it is too soon to tell – despite the demonstrative optimism the Skunk Works team has a long way to go. One thing is clear: if they win, technology metals win.

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Gold Ends Steady-Weak as Bull Run in Equities Continues to Limit Buying Interest

P.M. Kitco Metals Roundup: Gold Ends Steady-Weak as Bull Run in Equities Continues to Limit Buying Interest

Gold prices ended the U.S. day session steady to modestly lower Monday. The yellow metal did move up from its daily lows by the close, as the U.S. dollar index moved below unchanged to its daily low. February Comex gold was last down $0.70 at $1,197.70 an ounce. Spot gold was last down $4.80 at $1,197.75. March Comex silver last traded up $0.011 at $16.47 an ounce.

U.S. stock indexes were firmer to start the trading week and hovering near their recent record or multi-year highs. The major bull run in equities worldwide is a major negative for the competing asset class raw commodities, including precious metals.

Bulls  continue to find it very difficult to shake off the negative impact of a stronger U.S. dollar against the other major world currencies. The U.S. dollar index notched another four-year high in overnight trading, before some mild profit taking set in during the U.S. trading session.

It could be a quieter trading week in the U.S. as the Thanksgiving holiday is Thursday.

European shares rallied overnight on the lingering bullish impact of fresh monetary stimulus announced by the European Central Bank late last week. Most world stock market bulls were also cheered by Friday’s surprise monetary policy easing by China’s central bank. With the world’s major economies awash in liquidity, the stock markets have been the main beneficiaries of such. But many veteran market watchers remain worried about the specter of problematic price inflation arising at some point down the road. I would be very surprised to find that years of very easy money policies by the major central banks find their economies going unpunished for such.

In overnight news the closely watched German Ifo Institute’s business confidence survey showed a rise to 104.7 in November from 103.2 in October. This was the first rise in months. The market place expected a reading of 103.0.

The market place is looking ahead to Thursday’s OPEC meeting. Some believe the beleaguered oil cartel could reduce its overall daily oil production quota, or at least call for strict adherence to existing quotas, most of which are ignored by OPEC nations. Nymex crude oil futures are trading not far above the recent three-year low. This could be a “make-or-break meeting for OPEC. Saudi Arabia and Iran will be the key players at the OPEC meeting.

The much-anticipated Swiss gold referendum vote is on Nov. 30. The “Save Our Gold” measure would require the Swiss National Bank to hold 20% of its assets in gold reserves. Early polls suggest the measure will not pass.

The London P.M. gold fix was $1,197.50 versus the previous London A.M. fixing of $1,196.00.

Technically, February gold futures prices closed near mid-range. Bears still have the overall near-term technical advantage. Prices are in a 4.5-month-old downtrend on the daily bar chart. However, the bulls are working on establishing a near-term uptrend from the November low. The gold bulls’ next upside near-term price breakout objective is to produce a close above solid technical resistance at $1,225.00. Bears' next near-term downside breakout price objective is closing prices below solid technical support at last week’s low of $1,174.70. First resistance is seen at $1,200.00 and then at today’s high of $1,204.50. First support is seen at today’s low of $1,192.80 and then at Friday’s low of $1,186.70. Wyckoff’s Market Rating: 3.0

March silver futures prices closed nearer the session high. The silver bears have the overall near-term technical advantage. Prices are in a four-month-old downtrend on the daily bar chart. However, the bulls are working on establishing a near-term price uptrend from the November low. Silver bulls’ next upside price breakout objective is closing prices above solid technical resistance at $17.00 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at the November low of $15.085. First resistance is seen at last week’s high of $16.66 and then at $16.715. Next support is seen at Friday’s low of $16.16 and then at $16.00. Wyckoff's Market Rating: 2.5.

March N.Y. copper closed down 220 points at 300.70 cents today. Prices closed nearer the session low. The bears have the near-term technical advantage. Copper bulls' next upside breakout objective is pushing and closing prices above solid technical resistance at last week’s high of 307.20 cents. The next downside price breakout objective for the bears is closing prices below solid technical support at the October low of 295.00 cents. First resistance is seen at 302.50 cents and then at today’s high of 304.55 cents. First support is seen at 300.00 cents and then at 299.15 cents. Wyckoff's Market Rating: 2.5.

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The 6 P.M. Recap With Gary Wagner: Certain Uncertainty

Certain Uncertainty

After trying to hold the $1200 level, gold has shied back and is hovering right below that psychological mark. The continued strength in equities has helped limit gold’s upside, although silver, due to industrial factors, found a tiny bit of power – well, a spark, is more like it.

Some of the uncertainty in gold is the nature of this week’s holiday aura. It is a short trading week in the United States. Formally, Thursday is the holiday, but Wednesday and Friday will end up being lighter days in New York trading because people tend to slip out early Wednesday and simply not work on Friday.

That should make gold enthusiasts wary, though, because any large move may inject volatility into the pricing of precious metals. Friday – and therefore Wednesday – is the end of the month, so accounts may be squared up ahead of Thanksgiving.

Tuesday will give us two economic indicator readings. U.S. leading economic indicators and consumer confidence reports are due out, and while the former may show some wavering on growth, the latter will probably at least hold steady. But, the uncertainty will hold back any bold moves until the dust from the gauges’ release settles.

An unexpected surge in business sentiment in Germany also gave some strength to the euro, sending the dollar down and lending support to the price of gold.

What, exactly, the European Central Bank will do regarding stimulus still remains a mystery. If they are serious about pushing the union’s economy over the top, that will probably mean renewed strength for the dollar, and therefore lower gold prices.

Also adding uncertainty is the Swiss referendum concerning the mandating of a certain amount of its reserves in physical gold. While the amount seems indeterminate at this point, the actual amount in dollars will not be far off the amount, by percentage held by other major western economies. So, this seems to us a tempest in a teapot.

One last element of volatility remains on our radar: Ukraine and the Russian invasions of that country’s territory. Today, another former Russian-dominated country, Lithuania, offered military assistance to Ukraine.  While Lithuania is a small country with limited military resources, it is a member of NATO.

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Nov 24 Setting the stage for the next recession

SETTING THE STAGE FOR THE NEXT RECESSION

After two years of insane money printing designed to rescue its failing economy, Japan has now been rewarded with… another recession.

So what went wrong you ask? The same thing that always goes wrong when a central bank resorts to money printing to rescue an economy instead of allowing a cleansing period and a return to real productive growth. All they accomplished with their massive QE program was to spike inflation.

As I have pointed out many times in the past, any time the price of energy spikes 80-100% within a short period of time it will almost always cause a recession. As you can see on the chart below when Japan began their foolish money printing campaign it spiked the price of oil 83% as priced in yen. Add to that the increase in sales tax and ultimately this was just too much for the Japanese economy to withstand, and it has now turned back down into another recession.

Unfortunately all the pieces are falling into place for the Federal Reserve to follow the precedent of the Bank of Japan and ultimately push the US into the next recession. How is that you ask? The economy seems to be rolling along fairly steadily here in the United States.

It always starts with the bubble. In the short run Keynesian economic policies work, but the end result is that they create bubbles. In 2000 we had a tech bubble. In 2005/06 we had a real estate bubble. In 2008 we had a bubble in oil and a severe inflationary event (which of course led to a recession). And now in 2014 we are beginning the initial stages of the next bubble. Notice in the chart below that the S&P is now stretched 33% above its 200 week moving average.

Notice how we have very similar conditions to the 1998 period. In 98 the Fed rescued LTCM and sent the signal to the market that the Greenspan put was in place. The market recovered very quickly from the sharp correction and then entered an orgy of speculation with the knowledge that Greenspan would protect the stock market against any serious declines. That culminated in the NASDAQ bubble.

In October the stock market suffered another sharp correction similar to 1998 and again the Fed sent signals that they would restart QE if needed. This caused the market to slingshot back to new highs, and I believe we are now beginning the initial bubble phase that will culminate with the S&P breaking out of its two-year trend channel, and stretching 15-20% above its 200 day moving average. There is even a possibility this could happen quickly if the NASDAQ were to surge straight up to 5100 in the month of December. Otherwise it may take longer and we get our final top sometime next year. Either way, for a bubble to form the market has to stretch a long ways above the 200 day moving average. That is the confirmation that a bubble has formed. We don’t have that yet, and until we do I don’t think we can have a final bull market top.

So how does this cause a recession you ask?

Let me show you how I think this is going to play out in the months and years ahead. At this point the bubble in the stock market is probably unstoppable. The mistakes have already been made and QE to the tune of multiple trillions of dollars is going to have consequences. The bubble in the stock market will continue to rise and grow, until like all bubbles it pops. This is where the plot thickens. I expect the initial crash will take stocks back down to retest the 2000 and 2007 high. I’ve drawn the chart below with the bubble phase occurring next month, but like I said this could easily stretch out into the middle or even fall of next year before the bubble pops. I’ve noted before that it often takes eight months to a year for a bubble to develop and pop. That’s about how long it takes for the public to catch on and every last buyer to enter the market. If we assume that the bubble began at the October low then we could conceivably see this continue until next fall.

Once the bubble pops we all know what the Feds response is going to be. They are going to restart QE and print money at an absolutely mind-boggling rate to try and reflate asset markets. The problem is when a bubble pops, and a parabola collapses, nothing the Fed can do will rescue it. The inflation will come out of stocks and look for something else to land on. Just like it did in 2008 when the stock market topped, the inflation is going to move into the commodity markets, and it will without doubt spike the price of energy at least 100% in a year causing the US economy to follow Japan down into the next recession.

This end game has been unavoidable and unstoppable ever sense the Fed began QE3. When Bullard and Williams went public in mid-October to reassure the markets that more QE would be delivered if needed, it initiated the beginning of the final parabolic bubble phase in the stock market. Now it’s just a question of when will the bubble pop and the terrible consequences of these insane monetary policies begin?

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Nov 24 BBBBB This past week in gold Jack Chan

This past week in gold

Jack Chan

GLD – on buy signal.
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SLV – on buy signal.
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GDX – on buy signal.
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XGD.TO – on buy signal.
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CEF – on buy signal.

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Our ratio confirms with a buy signal. Stocks are now outperforming gold.
Summary
Long term – on major sell signal since Mar 2012 when $HUI was at 550.
Short term – on buy signals.
Gold sector cycle – up as of 11/14.
COT data suggests a major bottom is not in yet for the metals.

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Nov 24 The Stealth Bull Market in Gold Bob Moriarty

The Stealth Bull Market in Gold

Bob Moriarty

Right under the nose of skeptical investors gold and silver resource shares have been in a wild rally for nearly three weeks. Since early November, the XAU rose 12.38 points or over 20%. The HUI rose 29.42 points for a 20% gain and the GDXJ soared by 29%. All while bruised and battered investors were crying into their beer.
As Rick Rule recently said, you need to buy into fear and sell into complacency. Investors in resources are terrified; investors in the DOW and bonds are complacent. Do they really think the DOW is going up for the next five years in the same way it did the last five years? Do they think bonds are going to the moon? They have already gone to the moon and gravity is about to take effect.
I missed a real opportunity two years ago when I talked to the management of Enterprise Group (E-V) early in 2013. The stock was about $.24 a share. They had a model of buying small companies in the energy space in Alberta and needed attention. We never came to any kind of agreement, they wanted to pay in options and I don’t like doing that.
The shares went from $.12 in 2012 to $1.20 in two years. One of the brains behind Enterprise determined he should copy their business model so he built another company with a similar business plan. I paid a lot more attention this time. The company just got listed.
QE2 Acquisition Corporation (QE-V) buys and develops small and well managed, asset backed infrastructure and utility service businesses in Alberta. They are going to integrate these businesses both vertically and horizontally to add synergy and reduce costs. Their timing couldn’t possibly be better.
QE2 is a new company literally designed around the same game plan as Enterprise Group. They began trading on the 5th of November, which just happened to be when the HUI and XAU hit their low points, and you couldn’t give away resource shares.
The CEO of QE2, Mike Belantis, has 15 years experience in investing and consulting both public and private companies. He is doing nothing more than copying the Enterprise model. The COO of the Enterprise Group, Dug Bachman, recently joined the Board of Directors of QE2. Enterprise managed to increase their revenue by 150% in the last year.
Actually with the recent decline in the price of oil, QE2 is even better positioned to enter the energy space than was Enterprise. The price of oil is down from where it was six months ago but so are the prices for buying energy related and infrastructure companies.
For the last 20 years, Alberta grew faster than any other province in Canada. The government is aggressive in their plan to continue building infrastructure. Alberta government figures show the economic expansion for 2014 should grow above 3.3% after four straight years of growth above 3%.
QE2 purchased Pillar Contracting in late 2013. Pillar has been operating in Alberta for over 16 years installing street lighting and post painting services. Street lighting sounds like one of those businesses that make you want to snore, but given the energy impact of LED lighting it’s the place to be right now. LED lights cost more money but use 20-30% of the energy of the bulbs they replace and last far longer. Communities are waking up to the incredible cost savings they can make by installing LED light bulbs.
In 2013, Pillar grossed over $3.7 million and netted about $500,000. QE2 anticipates building the company to $6.6 million in sales in three years and doubling earnings. The company may expand their services into neighboring provinces, Saskatchewan and Manitoba.
QE2’s latest acquisition is the Candesto Enterprises Company. Candesto assembles and installs highway signs. They also build guardrails and install fencing. QE2 bought them in April of 2014. The company has a 20-year operating history and management is willing to stay an additional five years to provide continuity.
In 2013 Candesto did $4.4 million in sales and earned over $1.5 million. Given their efficiency and experience any potential direct competitors are likely to subcontract with Candesto.
QE2 aims to grow both organically and through acquisitions. Their goal is to grow revenue to $100 million by 2018. They will be free cash flow positive in 2015. You can expect to see new companies being brought into the QE2 fold on a regular basis.
The economy of the world operates on a foundation of carbon-based energy. For all the smoke and mirrors about alternative energy sources, they remain a 3% solution. We need oil. I believe the new normal range for the price of oil is $75 to $100 and potentially higher given some of the possible black swans. Alberta is growing and will continue to grow and to expand infrastructure for the foreseeable future.
QE2 has a tiny 28.5 million shares outstanding with an additional six million warrants at $.50. With the shares at $.15 as of last Friday, naturally $.50 warrants are non-dilutive. With a $4.3 million dollar market cap, for the share price only the sky is the limit.
There is a giant opportunity in QE2 right now similar to that of the HUI and XAU in early November. One overseas shareholder needs to sell shares. He sold into an illiquid market on Thursday and Friday of last week and cratered the shares from $.20 to $.15, down some 25% in two days. It’s an individual shareholder issue, not a company issue. I expect the shares to rebound just as soon as the remaining shares are sucked up. So if you like the company you may want to put in a stink bid and hope that you get filled.
I missed the opportunity of investing in Enterprise. I don’t intend to miss the opportunity to invest in QE2. I just learned over the weekend about the shares being dumped and literally the market hasn’t been open to buy shares yet.

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