- Can gold save the nation’s biggest pension plan?
- Big money from mining takeovers: An on-site report from Byron King
- Manufacturing revival on hold: “Durables” number looks fragile
- Cash is king: Investors discover the Apple story our readers already know
- Broken windows and a stadium boondoggle
- Goldman Sachs, the New York Fed and “a proven way to get sent to prison” — ha!
As bad off as the nation’s biggest public pension plan is… the situation would be even worse were it not for gold stocks.
We’ve mentioned a couple of times in recent days how CalPERS, the giant plan that covers 1.7 million Californians, recently notched its worst performance since the Panic of 2008 — a meager 0.6% gain on its investments in the year ended June 30.
Fortunately for CalPERS, managers added 49,700 shares of Newmont Mining (NEM) to the portfolio during the first quarter, bringing the total to 1.83 million shares. Newmont is up 130% year to date.
Turns out gold stocks were the least risky place to be during the first half of 2016.
That’s according to Bloomberg, which broke down the performance of all 1,645 stocks in the MSCI World Index.
The reasons aren’t hard to divine: “Producers got a boost,” Bloomberg summarizes, “after bullion futures had their best first half of the year in almost four decades. The metal regained its appeal as a store of value amid a slowing global economy, yields below zero on more than $9 trillion in government debt and signs that U.S. borrowing costs will remain low longer than previously forecast.”
In addition to CalPERS loading up on Newmont shares, we’ve previously noted George Soros piling into Barrick Gold (ABX), also in the first quarter.
Barrick, Newmont and Goldcorp (GG) amount to the “Big Three” of gold mining.
But the Big Three will stay big only if they pull off judicious takeovers — a situation that can prove immensely lucrative if you hold shares of a takeover target.
Charter subscribers to Jim Rickards’ Gold Speculator With Byron King learned that in short order last May… when Goldcorp bought out Kaminak Resources only three days after we launched the service. It was good for a quick 37% gain.
But just what was Goldcorp’s rationale? The answer would furnish insight into future takeover targets. “It’s beneficial,” says Byron King, “to learn exactly what large mining companies like Goldcorp want to see in a takeover play. Wouldn’t it be great if they would just tell us?”
Earlier this month, they did.
“I visited the Kaminak Gold property in Yukon territory,” says Byron. “It’s a project called Coffee. I spent much of one day on-site with Kaminak and Goldcorp reps. They were all open and straightforward.”
First, we step back and look at the big picture: “Goldcorp management believes that future gold production will be constrained,” says Byron, “for a variety of reasons. The Goldcorp people call it the ‘Peak Gold’ approach to running a mining play.”
It all comes back to a chart we shared with you last November — only a few weeks before the bullion price put in its bottom around $1,050 and raced past $1,300 in six months.
Here’s an updated edition. On the left side of the chart, you see how discovery of gold deposits peaked in the mid-1990s… and you see that gold production peaked last year.
Key point: It takes about 20 years to go from discovery to production…
… which means for gold production, it’s mostly downhill from here.
“We have to get ahead of the curve,” one of the Goldcorp reps told Byron.
“Right away,” says Byron, “one can understand why Goldcorp was interested in Kaminak. “The Coffee project is well along in terms of identifying a serious resource and obtaining permits to build. Plus, it’s right in the heart of the storied Yukon, with a mining history of over a century.”
But that’s sort of obvious: What would the Goldcorp people tell Byron about their takeover criteria?
“I wasn’t sure how open the Goldcorp reps would be,” he tells us. “Some information is proprietary, and I understand that. Still, I was able to glean quite a bit.
“Goldcorp likes Yukon territory because it’s a well-regarded, safe jurisdiction. The legal regime is secure. Rule of law prevails. The government is willing to work with mining firms. Apparently, Goldcorp is wary of political developments and unfavorable trends in many other places. Thus, Goldcorp is looking for great deposits in locales with low political risk, like Yukon.”
Then there was the Kaminak team, the people who discovered this fabulous deposit in 2010, with probable reserves of 2.1 million ounces. “I learned that Goldcorp has retained almost all Kaminak technical staff, and it’s no wonder,” says Byron. “The Kaminak people are extremely good at their respective jobs. I met several geologists and technical staff, all of whom are sharp as tacks and totally committed to making Coffee work as a future gold mine.
“My takeaway from Coffee was that Goldcorp bought Kaminak for the gold resource (naturally), the jurisdiction, the overall low-risk profile, the ‘doability’ of the project within reasonable time and technical and professional excellence up and down the line.”
In other words, Goldcorp applied many of the same criteria Byron uses with his M.I.D.A.S. system — which stands for “Mining Information to Develop Assets and Secure gold production.” It’s a five-step procedure Byron uses to evaluate every pick for Rickards’ Gold Speculator.
And it’s working great: The service is less than three months old and the average play is up 49%. Byron’s convinced that’s just the beginning. Click here and he’ll show you why.
To the markets… where traders are shrugging off a miserable report on durable goods orders.
This monthly figure from the Commerce Department tracks demand for anything designed to last longer than three years — whether it’s washing machines or bulldozers.
Orders tumbled 4% in June, the biggest monthly drop in nearly two years. Oops, the average guess among dozens of economists polled by Bloomberg was a fall of 1.3%.
True, there’s a lot of noise in the number in the sense that aircraft orders are notoriously “lumpy” from month to month. But even if you factor that out, the number is terrible.
Other economic statistics this summer were pointing to a mild revival in manufacturing headed into the second half of the year; at the very least, today’s figure does not provide confirmation.
But as we write, the major U.S. stock indexes are modestly in the green, the Dow at 18,522.
Treasury yields are backing down, the 10-year note at 1.55%. Gold is rallying a bit, up to $1,326. All in all, a quiet morning.
It’s possible traders are merely marking time until the Federal Reserve issues its every-six-weeks policy statement, due around the time this episode of The 5 hits your inbox. No one expects an increase in the fed funds rate this time around, but traders will surely parse every semicolon for clues to the Fed’s intentions in the fall.
We’ll spare you the suspense right now: There’s no way they raise until at least December, once the election’s done.
Among the big movers today — Apple, up 7.6% as we write. Seems investors are catching on to something our income specialist Zach Scheidt has been saying for months.
The catalyst for today’s move is the company’s quarterly numbers: While revenue is down, profits are down and sales of its flagship iPhone are down… none of the numbers are down as much as the analyst crowd was expecting.
By itself, that’s a stupid reason to hit the “buy” button. But Zach says investors are figuring out that Apple is transitioning from a go-go growth company into a mature stalwart — which he’s been saying ever since he recommended AAPL in Lifetime Income Report late last year.
“Growth companies typically have a huge need for cash to pay for things like manufacturing facilities, to hire top talent and for marketing. Mature companies generally don’t need as much cash. These companies have already built their infrastructure.”
Result: Investors have more realistic expectations about AAPL than they used to… and it’s trading for about 12.4 times expected earnings. That’s low by historical standards and lower than the S&P 500 as a whole.
“The really impressive thing to notice,” Zach goes on, “is that while Apple has been boosting its dividend, and Apple stock has been bought back, Apple’s cash balance continues to grow.
“This is a great problem for a mature company to have. And I believe that Apple is going to solve this problem over time by doing the same thing it has been doing over the last three years. Increasing dividend payments and buying back shares. I still like Apple stock for income investors.”
The Minnesota Vikings’ shiny new stadium is “a giant testament to the enduring power of the broken windows fallacy,” writes Eric Boehm from the Franklin Center for Government and Public Integrity.
You might be familiar with that economic fallacy, spotlighted in 1850 by the French writer Frédéric Bastiat: A shopkeeper’s window is broken, and he spends six francs to have it replaced. Good news for the glazier the shopkeeper hires. But “if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library… Society loses the value of things which are uselessly destroyed.”
And so it goes with U.S. Bank Stadium, as it’s called — which cost Minnesota taxpayers $348 million. “What could have been done with those millions of dollars had they remained in the hands of Minnesota families and businesses?” Boehm writes. “We’ll never know.”
Stadiums are notorious boondoggles: In 2010, researchers at the University of Michigan concluded taxpayers across the country have frittered away $31 billion in net economic costs to build 121 professional sports stadiums.
Shiny boondoggle [Photo by Wikimedia Commons user Darb02]
Hilarious postscript: Last week, a vandal smashed a rock through one of U.S. Bank Stadium’s many glass panels. No word on the replacement cost… but each of the panels is custom-made.
[Full disclosure: Your editor is a fan of the Vikings’ divisional rivals, the Green Bay Packers. And yes, taxpayer funds have been used for sundry improvements to Lambeau Field over the years. But under the Packers’ “public” ownership structure, at least the money doesn’t go straight into the pockets of a gazillionaire like Vikings owner Zygi Wilf.]
“The reader who criticized teachers should have a three-hour rendezvous with the tapir,” writes one of our regulars in response to yesterday’s mailbag.
“Teachers and nurses have the highest ratio of doing good work/low pay of ANY profession.
The good teachers do not just work 9–3. They spend prep time on weekends and during the summer. Most of them spend an amount of money well over the $250 Form 1040 deduction for teachers. Maybe this doofus should have paid attention in class.”
“Dave, it’s great to know the Fed is preparing to take ‘enforcement action’ against Government Sachs,” a reader writes after yesterday’s episode, tongue firmly in cheek. “It’s about time they did something about their unholy alliance with the vampire squid.
“I’m sure the establishment will really hold somebody’s feet to the fire for leaking confidential documents to William Dudley’s cronies — I mean ‘regulated bankers’ — at 200 West Street. And this time, some middle manager won’t be able to plea-bargain his way to community service and a paltry fine. No, indeed, there will be hell to pay at the highest levels, with admissions of guilt!
“Or not. Hey, it ain’t like anybody got caught sending classified emails from an unsecured server. That’s a proven way to get sent to prison, right?
“Now if someone would just smuggle the Fed’s balance sheet out of the building and leak that to the world, they’d be up for knighthood…”
The 5: Yeah. As usual, Jim Rickards made the most of his available 140 characters on Twitter after we went to virtual press yesterday…
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. Speaking of Jim, his IMPACT system already gave some investors the chance to as much as double their money…
Now his CIA-based intelligence system is predicting a brand-new currency crisis…
Some investors will win. Most will lose…
Here’s your chance to be among the big winners (click to see).
