The Sax Angle

If the Middle East flares up- watch out for the price of oil

Posted on 20. May, 2013 by Harvey Sax.

In case no one noticed it, the tensions in the region are almost unbearable. Egypt is near financial collapse.  Syria already has collapsed.  Hezbollah was drawn deeper into Syria’s civil war as 28 fighters from the group were killed and dozens more wounded while fighting rebels, opposition activists said Monday. Russia is moving its fleet of war vessels into the sea off of Lebanon.  Well you might say there is no oil there so it doesn’t matter.  But it all seems to be connected in this cauldron of religious tensions and cultural mistrust.  Iraq, the big prize is rapidly deteriorating.  A wave of attacks killed at least 95 people in Shiite and Sunni areas of Iraq, pushing the death toll over the past week to more than 240 and extending one of the most sustained bouts of sectarian violence the country has seen in years.  Iraq is the 3rd largest exporter of oil in the region and turmoil there will definitely have an impact on global oil price.

There will be an election for President  in Iran on June 14th.  It’s a farce of an election because the Supreme leader there calls all the shots including who can even run.  None the less, expect the unexpected with Israel willing to tighten the screws on the Iranian nuclear bomb program.  The International Energy Agency expects weaker demand growth for oil in 2013, along with higher supply. With all the talk of the glut of oil developing in the U.S., the Middle East seems an unstable source of supply that could put a quick end to the conversation.

Is it time to buy gold and silver? These insiders at mining companies certainly think so

Posted on 20. May, 2013 by Harvey Sax.

There is something eternal, beautiful and innate to the human psyche when it comes to gold and silver. It’s been a store of wealth forever and with the massive manipulation of the monetary system by central bankers, you have to wonder when that bill is coming due.  No doubt gold and silver will hold some value but like everyone else, I have no precise idea of what that is.  As I sit staring at the 10 oz .999 silver bar paperweight in front of me, I was thinking about how much it has declined in value.  In fact I started to order another one as it is quite gorgeous and quite cheap now.   I was even thinking about ordering a gold one but I thought better about spending $14,000 on a paperweight.  10 ounces of pure gold would cost roughly about that at $1400 per ounce.  That’s just too much money to trust lying around on my desk.  Besides, I think gold could go lower.  Somewhere in my head I have a vision of gold cracking $1000 and silver bouncing around at $15-18 per ounce.  Who knows if it will ever get there?  I certainly don’t.

But then I noticed some large insider buys in a couple of companies that mine the metals.  As I looked into it the drop of the miners’ stocks has been more precipitous than even the underlying precious metals.  Perhaps they are already reflecting these prices floating around in my head.  There is no way to know but based on the 10K’s I read they can both make money even at those draconian price points.  And they have pretty darn good financials.

It was announced after the market closed today that Allied Nevada Gold Corp., a gold and silver producer, focuses on the mining, development, and exploration of properties in Nevada. The company’s principal products include unrefined gold and silver bars. It operates the Hycroft Mine, an open pit gold and silver heap leach operation located to the west of Winnemucca, Nevada. The company also has six properties, which include Maverick Springs, Mountain View, Hasbrouck, Three Hills, Wildcat, and Pony Creek/Elliot Dome. In addition, the company has approximately 90 other exploration properties. Allied Nevada Gold Corp. was incorporated in 2006 and is headquartered in Reno, Nevada.

Allied Nevada Gold

ANV recently completed a secondary offering in which it sold $150 million worth of stock at $10.75 per share.  ANV Allied Nevada CEO Buchan bought $2.2 million dollars worth at an average price of $10.75 on 5-17-13.  That increased his holdings by 9%.  The stock closed at $7.70 today so that was not a lot of fun for those bag holders.  The Company expects the net proceeds of this offering will be approximately $141,700,000after deducting underwriting commissions and estimated expenses of the offering payable by us. They intend to use the net proceeds of this offering to fund capital expenditures for our Hycroft Mine expansion project and for general corporate purposes. to the prospectus their adjusted cash cost of gold sold was $638 ounce.  ANV expects to sell approximately 225,000 to 250,000 ounces of gold and 1.5 million to 1.8 million ounces of silver.

The number of shares outstanding after this deal will be 103,887,966.  At todays price of $7.75 it puts the Company’s market cap at $895.13 million.  As of March 31, the Company had total liabilities of $689 million.  That puts its enterprise value at $976 million.  As of December 31, 2012, ANV had reported a proven and probable mineral reserve at the Hycroft Mine of 11.9 million ounces of gold and 509.6 million ounces of silver. In 2012, the Hycroft Mine produced 136,930 ounces of gold and 794,097 ounces of silver.  Just doing the back of the napkin math with $1400 gold and $20 silver around $16.6 billion in gold and $15.8 million in silver. Based on their costs of $628 per ounce gold, that makes the value of the gold worth more than $9 billion.  That’s more than nine times what the stock is trading for.

Hecla Mining HL is the other name we have seen some buying in. Hecla Mining Company, together with its subsidiaries, discovers, acquires, develops, produces, and markets precious and base metals worldwide. he company owns 100% interests in the Greens Creek unit located on Admiralty Island, near Juneau, Alaska; and the Lucky Friday unit located in northern Idaho. Hecla Mining Company was founded in 1891 and is based in Coeur d’Alene, Idaho. This is a more complicated situation. The CEO Phillips Baker purchased 150,000 shares at $3.19 on 5-14-13.  HL has had some issues for some time due to its problems with the Lucky Friday silver mine in Idaho which has been shut down since 2010.  When other mining stocks rallied or held their own, HL did not participate.  It appears though that the Lucky Friday problems are behind it now.   It offers unrefined gold and silver bullion bars to precious metals traders; and lead, zinc, and bulk concentrates to custom smelters.

Hecla Mining

At December 31, 2012, the book value of HL’s property, plant, equipment and mineral interests, net of accumulated depreciation, was approximately $996.7 million .  Their market cap and enterprise value as of March 31, 2013 are listed are $963 million and $758 million respectively.  On April 16, 2008, Hecla completed the acquisition of all of the equity of two Rio Tinto subsidiaries holding a 70.3% interest in the Greens Creek mine for approximately $758.5 million.  Mostly a silver mine, Green Creek has 94 million proved ounces of silver reserve or at today’s prices about $1.9 billion dollars with silver at $20 ounce.  Considering the cost of getting it out of the ground and the fact that silver is higher in price today than in 2008, it looks like a reasonable price but nothing like the discount seen in Allied Nevada’s stock.

HL might be more about returning the  Lucky Friday mine to full production during 2013 than the price of silver dropping to three-year lows.  Limited production recommenced at Lucky Friday in the first quarter of 2013 after the temporary suspension of operations in December 2011. Full production levels by are expected to return by approximately mid-2013. Lucky Silver is estimated to have 54.4 million ounces of proved silver reserves.

The financial terms of settlement of the Coeur d’Alene Basin environmental litigation and other claims may materially impact their cash resources and our access to additional financing.  The bulk of this payment, approximately $55.5 million by August 2014,  appears to be coming from in the money exercise of warrants.  If the warrants are not exercised the Company could use a lot of its cash up making good on the obligation.

These are two large mining companies that we own.  We purchased ANV today and will probably buy more.  We initiated a position in HL a few days ago and added to it today.  There is a certain herd-like feeling about the sell-off in gold and silver.  I’ve been around long enough to know margin liquidation when I see it.  I expect both metals to rally soon although longer term, who knows, except that I can say with certainty that gold and silver will capture eyeballs long after Google and Apple are forgotten.  It might just be time for the miners to glisten.

The week ahead May 20th

Posted on 19. May, 2013 by Harvey Sax.

One of the things we talk about in the Investment Survival Workshop is developing the mindset to think ahead.   When I first moved out to Park City, Utah from Atlanta, Georgia I was admittedly a bit anxious about the idea of getting up at 5:00AM every day to start researching the stock market.  After all, that’s exactly what I was doing back East except it was 7:00AM and I had a full 2 ½ hours before the market opened at 9:30EST.

I did this for some time until I came to the realization that if I was trying to figure out what was happening today, I was already way too late.  What was going to happen today already happened early this morning in Europe or even earlier in Asia. Maybe it was just a form of rationalization but if you are trying to figure out what is going to happen today, you are late to the game.  You have to develop a mindset of thinking about something other than today.  Now that will vary for everyone.  I mean if you look at this as a mental exercise, much like physical exercise, are you training for a half marathon, a 5k walk fund-raiser ,or just to be more fit for your family and fun?

The point being is that when you have a regular exercise routine, you have goals in mind.  When you are planning an investment strategy, it’s no different.  What’s your time period?  Are you a long-term investor or someone who is just trading week to week or even a day trader?  As part of a routine, find time to anticipate what’s going to happen for some period in the future.Everyone’s time frame will be different.   With that in mind, here are a few of my ideas for the following week, beginning May 20^th.

Not necessarily in alphabetical order:

Monday May 20th Chicago National Activity Index.  Market participants will look at this clue in the economic puzzle and derive no direction.  Basically a quiet day in the market.  I can’t think of a thing that will happen Monday that will amount to squat.

Tuesday May 21: Lots of talking Fed heads: More hawkish Bullard speaks in Frankfurt US and Dudley speaks in New York.  Let’s hope they keep their thoughts and sayings vague and cryptic as central bankers are prone to do.

Wednesday May 22nd Bernanke testifies on the economic outlook and Fed releases minutes from April 30-May 1st FOMC.

As Warren Buffett was quoted on CNBC a couple of weeks ago, that when the Fed takes it’s pedal off  the gas, it’s going to be the short heard around the world.  The bond market as represented by the 30 yr. Treasury bond futures has been on a steady decline (rates rise bonds decline) since May 20th.Wednesday is set to be a high impact day this week.

Also oil inventories at Cushing are announced.  This weekly indicator is not much good for trading more than  a few minutes of oil futures.  Are we developing an oil glut in this country.  Not likely as it’s too darn expensive to drill for oil but I still expect WTI to be under pressure.  Commodity related oil and gas stocks have been relative poor performers.  Any change in sentiment about the developing oil glut in this country could ignite this moribund group.

Thursday May 23rd  undoubtedly the most anxious day in the market this week. U.S initial jobless claims will be closely watched as for clues on the future of employment in the U.S. According to Reuters Sunday May 19th “ The beginning of the end of the Federal Reserve’s massive bond-buying program might come sooner than many investors think if recent gains in the U.S. labor market do not prove fleeting.

Much will depend on how economic data, which has given mixed signals for growth prospects, develops over the next few months. Reports on job growth in particular will go a long way in helping Fed officials determine whether the time is right to trim the pace of their $85 billion in monthly purchases.”

New home sales are set to be released with improved expectations for starts to 425k. Existing home sales not normally a big deal are increasingly important as this is the most likely industry to pick up labor slack.  If it doesn’t happen from housing starts it’s not going to happen IMHO.

Natural gas storage figures set to be released.  Natural gas has rallied 20% this past year.  I expect this commodity to strengthen as more and more capital drilling programs are switched to NGL and oily versus dry gas.

via Job market gains could lead Fed to taper QE3 early | Reuters.

Friday May 24th

German Dross Domestic Demand.  The whole Euro austerity Austrian thinking versus prime the pump American Keynesian worldview will be full on display Friday.  Expect the U.S version to trump German prudence. Print Print Print is what the doctor ordered.  U.S durable good orders might not show much triumph though.What is beginning to worry me is the rise of the US dollar and the impact it will have on U.S. multinationals like P&G and the price of oil quoted in U.S. dollars.  What kind of advantage does Toyota have now over Ford with the plummeting yen?  Will the Chinese allow this devaluation of the Japanese yen to go on?  How about Hyundai in South Korea

The insanity continues

Posted on 19. May, 2013 by Harvey Sax.

SAN FRANCISCO | Sun May 19, 2013 4:36pm EDT

(Reuters) – Yahoo Inc’s board has approved a deal to buy blogging and social networking site Tumblr for $1.1 billion in cash, the Wall Street Journal cited people familiar with the matter as saying on Sunday.

Such an acquisition would be Marissa Mayer’s largest deal since taking the helm of the once-iconic Internet company in July 2012. Yahoo is keen on fast-growing Tumblr because its younger user base would bolster the older website’s “cool factor,” the technology blog AllThingsD cited the sources as saying.

via Yahoo’s board approves $1.1 billion Tumblr acquisition: WSJ | Reuters.

George Soros’ Latest Moves Suggest Tech Stocks Are In And Financial Stocks Are Out

Posted on 19. May, 2013 by Harvey Sax.

Surveying the latest stock transactions of billionaire George Soros, observers would have to surmise tech stocks are in and financial stocks — not to mention some industrials — are out.

Soros went even bigger on Google (NASDAQ:GOOG) and bought into Netflix (NASDAQ:NFLX), Qualcomm (NASDAQ:QCOM) and LinkedIn (NYSE:LNKD), according to filings detailing his fund’s activity.

Soros’s buying and selling activity is always of note, and he proved yet again he’s into Google for the long term. For a stock that continues growing, Google has the distinct advantage in that employees believe the company is going to continue innovating. Google topped the lit of companies with the “Best Business Outlook in the Next 6 Months,” a survey taken by Glassdoor.com. Perhaps not coindientally, Qualcomm came in second on the same list.

The introduction of LinkedIn and Netflix to the Soros portfolio marks a substantial increase in the billionaire’s tech holdings. All told, the technology sector constitutes over 16 percent of Soros’s portfolio while the number of financial services stocks slipped to just 2.3 percent. The Soros fund sold holdings in Citigroup (NYSE:C) and AIG (NYSE:AIG), along with its entire holdings of General Motors (NYSE:GM).

via Business Insider.

Jeff Gundlach: “We Are Drowning In Central Banking” | Zero Hedge

Posted on 19. May, 2013 by Harvey Sax.

Jeff Gundlach: “We Are Drowning In Central Banking”

Submitted by Tyler Durden on 05/19/2013 13:15 -0400

Bill Gross Bond China Gundlach Jeff Gundlach Market Share None Quantitative Easing Trade Wars

Last week, Bill Gross did not mince his words when he said that he now “sees bubbles everywhere” and that “when that stops there will be repercussions” but for now Benny and the Inkjets, not to mention his band of merry statist men, who take from the poor and give to the wealthy, are playing the music on Max, and so one must dance and dance and dance. And after one legacy bond king, it was the turn of that other, ascendant one – Jeff Gundlach – to share his perspectives Bernanke’s amazing bubble machine. His response, to nobody’s surprise: “there is a bubble in central banking. We are drowning in central banking and quantitative easing…. And it’s not ending until there are some negative consequences.”

via Jeff Gundlach: “We Are Drowning In Central Banking” | Zero Hedge.

The Risk of Low Interest Rates

Posted on 17. May, 2013 by Harvey Sax.

This is an article from Briefing that I found interesting.  The conclusion is that low low interest rates are very good for investors.  That may be true but I think everyone knows there is no free lunch.  I’m not sure what the consequences of easy money and the Fed’s QE program are but it sure has helped juice the stock market.  If it’s such a good thing, I have to ask a simple question.  Why haven’t we been doing this forever?  The reality is there is an ugly side to this policy.  Some of these ramifications are being felt already. For example,  renters find shelter costs are rising.  People living on fixed income are being forced into meager returns or risky assets just to survive.

Read more: http://www.briefing.com/GeneralContent/Platinum/Active/ArticlePopup/ArticlePopup.aspx?ArticleId=NS20130517164222AheadOfTheCurve&SiteName=PopUp&debug=1#ixzz2TcLQaZlj
Under Creative Commons License: Attribution
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S&P 1666 | Zero Hedge

Posted on 17. May, 2013 by Harvey Sax.

Submitted by Tyler Durden on 05/17/2013 16:08

Whoever orchestrated the last two hour closing ramp sure has a satanic sense of humor, opting to close the S&P at 1666 or exactly 1000 points above the “generational” low. A late-day desperation to buy-buy-buy, triggered by an avalanche of stops being triggered in the DAX futures market as it broke all time highs, sent stocks soaring. Treasuries had been weak all day giving back yesterdays gains and more. The equity spurt was not accompanied by VIX or Credit or Oil or Copper but JPYs break of 103 was another trigger supporting the rise. But that doesnt matter. The release of weak IP and in-line CPI data on Wednesday seemed to trigger the change as gold and silver diverged lower from copper and oils surge, Treasuries rallied, and stocks and the USD surged thereafter. WTI crude ends the week unchanged against a USD gain of 1.37% with PMs down 6-7%. Volume was light today but that doesnt matter either.

via S&P 1666 | Zero Hedge.

U.S. Officials Deal Blow to Bitcoin – WSJ.com

Posted on 16. May, 2013 by Harvey Sax.

Bit coin bit the dust

By JEFFREY SPARSHOTT And ROBIN SIDEL

WASHINGTON—U.S. officials dealt a blow to the fledgling digital currency called Bitcoin, freezing an account tied to the largest Bitcoin exchange just months after regulators warned such entities should follow traditional anti-money laundering rules.

U.S. officials dealt a blow to the fledgling digital currency called Bitcoin, freezing an account that is tied to the largest Bitcoin exchange just months after regulators warned that such entities should follow traditional rules on money laundering. Jeffrey Sparshott joins digits. Photo: Getty Images.

The Department of Homeland Security obtained a warrant Tuesday to seize an account tied to Mt. Gox, a Tokyo-based exchange that says it handles 80% of all Bitcoin trading. The warrant alleges the company and a subsidiary were conducting transactions “as part of an unlicensed money service business.

via U.S. Officials Deal Blow to Bitcoin – WSJ.com.

I believe this is today-

Posted on 15. May, 2013 by Harvey Sax.

In the dull run up to the Memorial Day weekend, and the official start of Summer, one piece of market moving news is the ritual of the Form F.  These are filings that reveal what the secretive and fabulously wealthy hedge fund managers have bought, sold and own for the previous quarter.  Unfortunately it’s stale on arrival ( can be 45 days old) but none the less the market will make a big deal of the big kahuna moves.

Form 13F—Reports Filed by Institutional Investment Managers An institutional investment manager that uses the U.S. mail or other means or instrumentality of interstate commerce in the course of its business, and exercises investment discretion over $100 million or more in Section 13f securities explained below must report its holdings on Form 13F with the Securities and Exchange Commission SEC.In general, an institutional investment manager is: 1 an entity that invests in, or buys and sells, securities for its own account; or 2 a natural person or an entity that exercises investment discretion over the account of any other natural person or entity. Institutional investment managers can include investment advisers, banks, insurance companies, broker-dealers, pension funds, and corporations.Form 13F is required to be filed within 45 days of the end of a calendar quarter. The Form 13F report requires disclosure of the name of the institutional investment manager that files the report, and, with respect to each section 13f security over which it exercises investment discretion, the name and class, the CUSIP number, the number of shares as of the end of the calendar quarter for which the report is filed, and the total market value.

via Form 13F—Reports Filed by Institutional Investment Managers.

Headlines like this will make investors nervous Monday-Fed Maps Exit From Stimulus – WSJ.com

Posted on 11. May, 2013 by Harvey Sax.

Fed Maps Exit From Stimulus

Timing of Wind-Down Is Uncertain, but Focus Is on Managing Unpredictable Market Expectations

Article

By JON HILSENRATH

Federal Reserve officials have mapped out a strategy for winding down an unprecedented $85 billion-a-month bond-buying program meant to spur the economy—an effort to preserve flexibility and manage highly unpredictable market expectations.

via Fed Maps Exit From Stimulus – WSJ.com.

Billionaire Leon Cooperman’s Newest Favorites: A Focus On Mobile – Seeking Alpha

Posted on 11. May, 2013 by Harvey Sax.

By Alex Oleinic

Leon Cooperman is one of the most successful investors of our generation. He is the Chairman and CEO of Omega Advisors, a hedge fund with an equity portfolio of over $5.0 billion. Some of the largest holdings in previous 13Fs have been Sprint Nextel (S), American International Group (AIG) and SLM Corp (SLM). While we don’t have Cooperman’s latest first quarter 13F, we do have a recent CNBC interview given on Thursday May 9, that can be seen here, here and here.

To satisfy the dreams of all ardent piggy-backers, Mr. Cooperman discussed some of the latest stocks he’s bullish on, and almost every pick was a surprise in some form. It’s crucial to pay attention to hedge fund managers like Cooperman, because empirical studies show that the best picks of the best hedgies can beat the market by as much as 18 percentage points a year (discover the secrets of this strategy here).

via Billionaire Leon Cooperman’s Newest Favorites: A Focus On Mobile – Seeking Alpha.

You should also note that Leon has had some dogs too.  Qualcomm is one of his largest holders and has been disappointing.  He is also a big shareholder in SandRidge, the troubled oil and gas company that has recently put the CEO on notice to be fired.  All that said, we are long Monitise, PLC.  It’s not a penny stock, it just so happens to trade below a $1 because it’s listed on the London market and this is the OTC symbol MONIF.

 It’s a real company with real revenues and Visa is the largest shareholder.  It seems like a no brainer to me that Visa is going to have a big say in who succeeds in the digital wallet of the future although betting against Google and Paypal might be foolhardy.  Are there enough wallets for everyone?  I doubt it.  But this isn’t quite a level playing field and I think the closed network that Visa owns will provide a good enough edge for a scrappy upstart like Monitise.  At a last resort they could sell it to PayPal or Google just to throw in the towel.  

The first legitimate publicly traded marijuana company GWPH

Posted on 06. May, 2013 by Harvey Sax.

While doing my reading over the weekend, I noticed a company that went public last week that was strikingly different.  It’s GW Pharmaceuticals and I can definitively say this is the first legitimate marijuana investment I have seen.  There have been other penny stocks listed but this is actually an ADS listed on Nasdaq.  Oddly enough it’s not even a hot IPO.  You can purchase shares at the IPO price of $8.90 per ADS.  That’s probably not a good thing as smart investors always smell out hot new companies.  I won’t comment on the merits of this investment other to say that I have been involved in many biotech startup IPOs and this one looks as promising and as risky as any I have seen.  They actually are making money (they expect that to change this year as they fund more of their research and trials), have a good balance sheet and name brand pharmaceutical partners like Bayer and Novartis.

Check out this video from Bloomberg where they interviewed the CEO

http://www.bloomberg.com/video/making-prescription-based-cannabinoid-medications-buVSJ9OMSoKpXL5MA0D3xA.html

Also I urge you to read the prospectus thoroughly if you are contemplating an investment. It’s complicated, checkered, and revealing.  Deloitte is the auditor.  Some times you can get on these things and have a nice ride.  Just be sure to sell along the way.  For more analysis, read http://seekingalpha.com/article/1312541-the-original-marijuana-stock-files-for-u-s-ipo