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Is deflation going to hit all the markets?

August 4, 2015

Doc is on with us today chatting about his outlook for the markets and commodities. We see the biggest threat to the markets being deflation which has yet to truly take charge.

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Discussion
39 Comments
    Aug 04, 2015 04:21 AM

    I do not see deflation in Asia,whatsoever.
    I see massive building and construction all over.
    China GDP increased 7.1% in the second quarter.
    American banks have been bolstered with Fed monies and that is represented in your stock markets and now with insiders bailing and having bailed,the bogey man has to be trotted out.
    According to Morgan Stanley,world cement consumption is up in 2015,led by India.
    China used more cement in three years(2011-2013) than America did in the entire 20th century.
    China is buying and consuming the worlds gold and one day the North American centric pundits will be awakened to the new world reality.

      Aug 04, 2015 04:07 PM

      They are managing inflation expectation not inflation itself. Our people and expects are brain dead to believe everything they are fed. Like Hitler said, repeat lie a thousand times, people will treat it as fact. This lie has been repeated for million times.

        Aug 04, 2015 04:20 PM

        Completely agree, Lawrence!

        Aug 04, 2015 04:44 PM

        Hitler was not referring to any real or imagined lies of his own but those of the Jews and the rest of his opposition. It is entirely possible that part of the reason why the Jews and the allies hated Hitler so much is that he was an honest man. Like Hitler, Jesus the son of God spoke the truth to those who could not tolerate hearing it.

      Aug 04, 2015 04:19 PM

      Matt, I would agree with you about Chinese buying of gold. A number of the pundits would; however, disagree.

    LPG
    Aug 04, 2015 04:31 AM

    Hope everyone is well.

    I think it’s easiER for the power-that-be to have a good grip on markets when the NARRATIVE is “all’s fine” and that is somehow accepted.

    The less the narrative is accepted, the more difficult it becomes to have a grip on markets.

    I found it amazing that with all the measures taken by the Fed and the Congress in 2008 and early 2009, the market kept going down. However, the low in March for the SPY was struck only within 1 week of a change in accounting rules by the international accounting board re: mark to market of financial instruments held by financial institutions. Coincidence ? Maybe. Maybe not. Elliott Wave International had a brilliant chart on the matter a few days ago – giving credit where it’s due.

    So back to my point: when the narrative is accepted, having a grip on markets is “easy”. When the narrative is much less believed… it’s much, much tougher.

    My 2cts.

    LPG

      Aug 04, 2015 04:21 PM

      Sure, it is then much tougher.

      Hope all is well with you and your family.

      Aug 05, 2015 05:15 AM

      Good thoughts LPG. I agree that when the narrative is peachy and everyone feels the recovery is in full swing, that it is easier for the powers that be to keep the market moving down the tracks. However, when things get wonky, they struggle as market forces and fear overwhelm what effect their behind the scenes buying and Fed speak can maintain.

      One thing I am looking at is how the jobs report comes in this Friday, to see if things are really improving or sliding backwards. Normally I don’t post Kitco interviews, because so many on this site are vocally against Kitco, but I have respect for Bill Baruch over at iitrader and he also covers the importance to Gold pricing if the jobs number misses 200,000. He covers some interesting support and resistance numbers on this interview. Worth the 5 minutes to watch – the end is best.

      http://www.kitco.com/news/video/show/Kitco-News/1037/2015-08-04/Fridays-Jobs-Will-Be-Huge-For-Gold-Market-Strategist

        Aug 05, 2015 05:24 AM

        For those that don’t want to watch the video, here’s the transcript with the main points Bill makes. The fed rate hike is still up for debate, but I think since he is often trading at the CME that his thoughts are in line with the larger institution investors in the pits (for better or for worse):
        —————————————————————————————–
        Friday’s Jobs Will Be Huge For Gold: Market Strategist
        Aug 04, 2015
        Guest(s): Bill Baruch

        Should Friday’s non-farm payroll miss expectations, it could be the break gold is waiting for, said one senior market strategist. “It is going to be huge,” said Bill Baruch, senior strategist at Chicago-based iiTrader, in regards to the potential impact on gold. “Our line in the sand is 200,000 jobs created, the expectation is 223,000 –- so you want to see a better number than that for the dollar to excel. If we miss that, look for gold to get out above $1,100 an ounce and hit the $1,300 area as shorts look to start covering,” he told Kitco News. On Tuesday, gold was recovering from an overnight low of $1080.20 — Kitco’s spot gold price showed the metal up $5.00 and trading at $1091.10 an ounce.

        Baruch added that present economic data was not helping the yellow metal’s case, including Friday’s dire wage growth data. The metal has not been able to achieve a close above $1,100 an ounce since July 21. “The U.S. is still the best house on a bad block. The dollar is still remaining strong despite weak economic data, not helping gold’s case,” said Baruch. He added that expectations remain for a U.S. Fed rate hike in September. “For Gold it is not a matter of when exactly the rate hike will be, it is simply the fact that we are approaching normalization at some point in the near future. That can help explain why Gold has not been able to hold rallies upon poor economic data,” he said. Baruch highlighted that every single gold rally has been subdued, indicating the sellers are there and have priced in a rate hike. “If you are holding big positions you have to plan six, nine and even 18 months out and that’s what these guys are looking at,” he explained.

    Aug 04, 2015 04:34 AM

    What’s interesting right now is the baltic dry index which has been moving up since June

      CFS
      Aug 04, 2015 04:39 AM

      Not only that, Doc, it just had a golden cross.

    CFS
    Aug 04, 2015 04:37 AM

    Matt, very interesting.

    I have been looking at the balance sheets of gold companies and what I am seeing is incredible, just looking at price to book ratios.

    Some gold companies are at price to book ratios about 0.3
    i.e. ripe for takeover, simply because buying the company for their equipment is cheaper than buying it on the open market.

      LPG
      Aug 04, 2015 04:05 PM

      CFS,

      Hope all’s well.

      Typically, used equipment is cheaper than “on the open market” (ie brand new – which is what you meant I assume). 🙂 🙂 🙂

      Now, i believe the question here is:
      what’s the point of buying equipment for a project IFFFF the ROE on the project is lower than the Cost of Equity
      or
      if the ROIC is expected to be lower than the Cost of Capital…?
      So the lower P/B ratio you are referring to discounts/reflects a lot of that…The question is: does it fully discount “what’s coming” ?

      My 2cts.

      LPG

      Aug 04, 2015 04:22 PM

      Isn’t that interesting, Professor!

    bb
    Aug 04, 2015 04:41 AM

    And people ponder Caterpillar sales being down.

    CFS
    Aug 04, 2015 04:45 AM

    bb, I think it has to be a factor that second-hand is much cheaper than new, but Caterpillar is attributing lack of sales as primarily due to general market malaise and over-capacity.

    LPG
    Aug 04, 2015 04:00 PM

    Some smart guys such as J. Chanos have had their doubt on CAT for 2yrs+ already, fwiw.
    Best to all, and GL investing/trading.
    LPG

      Aug 04, 2015 04:24 PM

      A good friend is an exec. with Kewitt. He said Cat used to be their number one supplier and then they got sloppy. Result – More products from John Deere.

      Aug 04, 2015 04:01 PM

      Caterpillar bought Bucyrus which now links CAT heavily to mining. The markets attitude is to sell the commodity basket.

        Aug 04, 2015 04:20 PM

        good point.

    Aug 04, 2015 04:59 PM

    Whew, I remember last year I was considering CORVF and thought I might grab it for a buck. Something in my gut told me not to. Today It’s still on my watchlist at 0.38 and I’m thinkin’ man, such a deal >> Or man, hold off just a little longer.

      Aug 04, 2015 04:24 PM

      We will be discussing CORVF again on the Weekend Show.

        Aug 05, 2015 05:45 AM

        Ah fantastic, Big Al! My timing is impeccable 🙂 Well, I’m looking forward to it and I’ll definitely be all ears.

      CFS
      Aug 04, 2015 04:36 PM

      It is very gold price-sensitive:
      From release 8/4/2015
      Pre-Tax Total Cash Flow: $479M at $1,200 gold, IRR of 53%
      NPV(5% post-tax): $246M at $1,200 gold, IRR of 38%
      NPV(5% post-tax): $103M at $1,000 gold, IRR of 20.5%
      Projected average annual production: 149 k ounces gold per year for first 6 years dropping to 68.5 k ounces gold per year for the remaining 4 years
      Projected silver production of 2.49 M ounces Life of Mine (LOM)
      Cash Cost per gold ounce: $635
      Project Total Capital Cost per gold ounce: $206
      Initial Capex: $175M (LOM sustaining Capital $83M)
      Strip ratio of 0.6-1 (waste to ore)
      Gold recoveries of 87% mill and 74% heap leach
      Mill resource grade increase of +100% to 2.1g/t gold

        Aug 04, 2015 04:14 PM

        I have been to North Bullfrog a couple of times and I personally think that it is a great buyout candidate. Not investment advice CFS. But then again, you hardly need it!

        Aug 05, 2015 05:49 AM

        Duly noted, thanks very much CFS for the info. Much appreciated.

    LPG
    Aug 04, 2015 04:06 PM

    Chips,
    FWIW and IN CASE you missed it, they had some news out today.
    Best & GL investing/trading,
    LPG

      Aug 04, 2015 04:25 PM

      Yep, a new 43-101.

      Aug 05, 2015 05:03 AM

      LPG, thanks! Although I’m coming up empty when searching FWIW stock.

          Aug 06, 2015 06:36 AM

          Excellent, Matthew! (thanks)

          [QUOTE] “When we link the current existing North Bullfrog project value with the Districts exceptional exploration potential, we believe the Corvus Gold investment opportunity shines very bright.”

          Could be a winner…

    Aug 04, 2015 04:14 PM

    Just like you Big Al, I’m “from Missouri” when it comes to charting. I want to believe and understand but with the world fighting deflation, the gold market being controlled by the world of paper contracts and the banksters forecasting “gold is doomed and will move to below $900 how could cycles, MACD’s, pivots etc ever be used with confidence. You feel like you got it figured out, then nothing happens and the same trend continues, new guesstimates are given and the charts set new records of “haven’t never seen that before”. It is what it is!!!
    When the black swan or black elephant hits, all the charts will go haywire again and everything to that day will be erased and new technicals will be established. Technicals are forward-looking statements and we all know what that means.

    Doc, Gary, Rick and a host of others provide their opinions, knowledge and experience which I very much appreciate but they are sometimes out of whack with each other which confuses the rookie in me. Different perspectives on the same line in the sand, certainly confirms that being on the side lines is the best strategy.

      Aug 04, 2015 04:17 PM

      You think that you are a rookie when it comes to technicals, DGHH? At this point I am the dunce sitting in the corner.

      Give me a bit of time though and I will be moving out of the corner.

    Aug 04, 2015 04:08 PM

    Hello Group,
    Very good fundamental interview. This same market behavior was present going into the end of QE in 2011. Like a deflationary pulse. I like the point that the average person simply does not have the discretionary income anymore to invest. That is true based on the cost of living increases that occurred over the past decade. Also the uncertainties in cost of living increases moving forward, like health insurance increasing 10-30%.
    As for the markets, it’s an index fund market. Cash is going into index funds and that is it. I too noticed the price to book values of the mining shares, unbelievable. Seems like they are pricing in $500-$700 gold.

    Aug 04, 2015 04:08 PM

    number 1 LPG

      Aug 04, 2015 04:21 PM

      agreed. LPG is da man….

        Aug 04, 2015 04:32 PM

        Pretty bright, now make that very bright man!