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Marco G.
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A veteran of the small cap wars, the Goombarh has survived both the glory and collapse of the internet boom and the 2008 bust. Now he is focused on oil, mining and commodity junior stocks. The world has evolved with the rising tide of demand from the emerging markets growth of their middle... More
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  • Fighting Low Inflation Gold Bottoms!

    The author was perusing news whilst devouring his breakfast steak (well, maybe not breakfast, but real thick beef loin, as I had been surviving on only coffee for 5 hours this morning), and came across this: 

    The Federal Reserve's total asset base has risen to $2.5 trillion dollars in their treasury purchases as the second round of its quantitative easing program.  The objective was to spur economic growth and prevent "inflation from falling too low" (emphasis author's). 

    This got me thinking and wondering how Gold was doing in this weird combat of low inflation; I stumbled across this startling chart for my bellweather Gold stock, Goldcorp (GG, TSX: G), displayed following:  (click to enlarge)

    G.TO (Daily)

    The large white candle for this prime Prima Donna Gold stock yesterday stands in stark contrast to the declining red candles since December.  Though today, there was red, the fact remains, that quite possibly sentiment has changed for the Gold and precious metals sector.  Okay, not so fast, maybe not changed, and just one stock, but indicating some early thinkers have initiated change, and the correction may have bottomed.  Looking above the price chart, the PPO (Percentage Price Oscillator) is showing the faster average (black line) poised to cross over the slower average (red line).  The PPO is similar to the MACD (Moving Average Convergence Divergence) but uses percentages rather than absolute prices).  The PPO black indicator is poised to cross the slower red line supporting the idea of bottoming of prices and the change of sentiment.  At the bottom of the chart, the CMF(Chaikin Money Flow) has gone less negative, again indicating less money leaving this stock than previous.  (Eh, Marco, grasping at straws here --less negative, rather than turning positive, tut..tut!). 

    Goldcorp is a high quality recognized Gold stock, and if smart money is moving in, then this bears paying attention to, I thought to myself.  In addition to fighting low inflation, the earnings report and fiscal year for all these large cap producer stocks is just around the corner.  The precious metals miners that are not hedged should be enjoying rather high prices for their commodities sold this past fall and winter, with the burgeoning Gold prices.  Is this stock positioning for the good news expected?

    Okay, the bellweather Gold stock is moving, but what about the Silver sector?  Perhaps the author's call for Silver bottom last week was a little bit early.  The chart for SIL, the ETF of the top Silver miners in the world follows:  (click to enlarge)

    SIL (Daily)

    The chart for SIL above is also displaying a long white candle yesterday, and red for today.  The SIL stock price has declined almost 30% since the beginning of the year. 

    I wonder, is not Silver expected to move more than Gold?  Are not the Silver mining equities expected to leverage upon the Silver price moves?  (Yes, the equities also leverage the Silver price moves downwards)  The early smart money seems to be investing now in the Silver equities.  The author posted  a previous listing of possible suspects a few postings back, here.  Yes Silver can be used to fight "Low Inflation" also.

    Finally, just to ensure, that we are not just out in left field all alone, let us examine the health of the Canadian Venture Exchange, the home of the majority of Junior mining stocks.  Note that Seeking Alpha contributor J. S. Kim has just posted an exemplary article about investing in mining juniors here.  The chart of the Venture Composite Index follows:  (click to enlarge)

    $CDNX (Daily)

    The chart for the Venture appears to have idled since the 2011 year started, but is showing a low 3 days ago and a white candle for yesterday.  The chart looks healthy, though some detractors may say the chart appears to be topping. 

    Perhaps, this may be a wise time to position oneself in selected Precious Metals Junior mining stocks to aid in this fight against "Low Inflation"?

     

    Disclosure: The author is long Junior mining stocks.

    Important Disclaimer

    The information and opinions contained within this document reflect the personal views of the author and should be viewed as food for thought and amusement only. The author may from time to time have a position in any of the securities mentioned. There are no guarantees of the accuracy, reliability or completeness of the information contained herein. Independent due diligence and discussions with one’s own investment and business advisor is strongly recommended. These writings are not to be construed as an offer or solicitation with respect to the purchase or sale of any security or as an endorsement of any product or service. We do not request or receive compensation in any form in order to feature companies in this publication. It is prohibited to copy or redistribute this document to any type of third party without the express permission of the author. This document may be quoted, in context, provided proper credit is given.

     



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: I am long Junior mining equities
    Jan 27 8:12 PM | Link | Comment!
  • China's Construction Boom - Another View

    Have you heard of the modern ghost city in China built for one million inhabitants that is presently empty?  Time and CNN with their photos and stories have raised the profile of the city of Ordos, a newly constructed city near some major resource projects in Inner Mongolia.  Other commentators fascinated with the photos have served to help spread the notoriety.  The implications were that this was a Chinese construction bubble in the extreme, working on overdrive, with a possible crash in the works.

    This concern sparked a special interest from this writer, as part of the economic drivers for the world-wide commodities and metals boom, which I am concentrated upon in investing,  is the large demand from the construction activities that are happening within China.  If the demand is not real, or if the demand falters, then there may be serious impacts on the pricing of commodities, metals and by extension in the equities in stock markets around the world.

    As the writer has spent time living in China, a decade apart, the views presented here may be a bit more cognizant of the disconnects from the Chinese culture to the usual western contexts.   China is a land of immense contrasts to western culture.  Firstly, is the scale, as China is home to 1,300 million people, 900 million still living in rural areas as of 2009 (Xinhua, 2010).  I still recall, my visit to an hydroelectric installation near the isolated village of Gutian in Fujian province, as stated my hosts.   Well, I was expecting a small town of a few hundred people.  Actually Gutian is a bustling city of 500,000 people (to my western eyes).

    Another example of scale is when I first visited the farming community of Shenzhen which bordered Hong Kong, 15 years ago to straighten out my expired visitor's visa.  There were only a few tall buildings such as the public security building and the electric power utility building.  Now you know Shenzhen, as the most dynamic city in China with a population of over 20,000,000 inhabitants.  Possibly over half are migrant workers, who only came to work.  China has over 250,000,000 migrant workers in the larger cities, that have come from the rural areas (Xinhua, 2010).

    I am informed that the majority of the present Chinese leadership are engineers by training.  As the central government had determined during their adolescent years, that the county would benefit the most with more trained engineers to build the country.  Therefore the brightest and best students were shuttled into the engineering streams, as this was the highest calling in education.

    One characteristic of engineers, you may be aware of, is that they are extremely pragmatic.  It was impressed upon me that when a new highway went through an urban district, the highway wins.  Buildings that were in the way were not demolished, but modified to accommodate the highway, in other words, half the building was demolished and then re-bricked back up.  It was quite interesting driving along the new route seeing all these buildings with gaping holes in them.

    It never fails to amuse me, that so many commentators and news mongers fail to research the topic that they are presenting and they thereby distort the audience perception.  To try and prevent myself from falling into this same trap, I performed some personal research into the question of building construction in China.  I asked a few people from China about their views. 

    First was my trusted associate, Dr. Judy (pseudonym).  Her first response was, "take a look at Pudong, originally it was empty".  Pudong is the present site of China's busiest airport, (3rd busiest in the world for freight) 19 miles from downtown Shanghai on the bund (Wikipedia, 2011).  The airport is connected to downtown by a magnetic levitation train that makes the trip in 7 minutes.  Presently Pudong is home to 1.5 million inhabitants (Wikipedia, 2011).  Yet in the beginning in the early 1990's, Pudong was empty and had many detractors as there was nothing there to attract inhabitants.

    Dr. Judy's second point is that there needs to be a critical mass before things start happening.  People inhabiting an area need food, transit, local services, local eateries and entertainment all within walking distance.  Until that critical mass is reached, most people will stay away, because unlike North America, the average person in China does not drive.  Therefore not only do the buildings need to be finished, but the whole social economic environment of the area needs to be started up before people come.

    About Ordos, I asked another friend, Mr. Li who's home town is in Inner Mongolia.  He was quite proud of the fact that in the Ordos area, they boast the 2nd highest per capital income in China next to Shanghai (Time, 2010).  He says, they have money, from the resource development projects.  All the larger cities in Inner Mongolia have had new residential developments, it just happened that the Ordos project was the largest.  Apparently, as the new homes and buildings are paid for, he did not see any problems.  The Chinese either put their savings in the bank or in hard assets such as buildings.  Another point is the fact that some of the building are not owned by individuals but by family groups.

    Another friend and business associate Mr. Handsome lives in Kumming, Yunnan province, and he commutes to North America frequently.  He sees no issues with the property markets in China and states that the real demand is there.  There is that huge shift of an estimated 450,000,000 people from rural populations to the cities within the next 30 years (Xinhua, 2010). 

    It is a cultural imperative in China, that when you own property you achieve success in life.  That is what appears to be driving the construction boom in China.

    References:

    Time. (2010). Ordos, China: A Modern Ghost Town. Retrieved January 27, 2011, from time.com: www.time.com/time/photogallery/0,29307,1...

    Wikipedia. (2011). Pudong. Retrieved January 27, 2011, from en.wikipedia.org: en.wikipedia.org/wiki/Pudong

    Wikipedia. (2011). Shanghai Pudong International Airport. Retrieved January 27, 2011, from en.wikipedia.org: en.wikipedia.org/wiki/Shanghai_Pudong_In...

    Xinhua. (2010, February 24). China's rural population to halve in 30 years: economist. Retrieved January 27, 2011, from english.peopledaily.com: english.peopledaily.com.cn/90001/90776/9...

     

    Disclosure: The author is long Junior mining stocks.

    Important Disclaimer

    The information and opinions contained within this document reflect the personal views of the author and should be viewed as food for thought and amusement only. The author may from time to time have a position in any of the securities mentioned. There are no guarantees of the accuracy, reliability or completeness of the information contained herein. Independent due diligence and discussions with one’s own investment and business advisor is strongly recommended. These writings are not to be construed as an offer or solicitation with respect to the purchase or sale of any security or as an endorsement of any product or service. We do not request or receive compensation in any form in order to feature companies in this publication. It is prohibited to copy or redistribute this document to any type of third party without the express permission of the author. This document may be quoted, in context, provided proper credit is given.

     



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: The author is long junior mining stocks
    Jan 27 7:15 PM | Link | Comment!
  • Precious Metal's Sentiment Changes and Bottoms!

    The author was perusing charts whilst devouring his breakfast steak (well, maybe not breakfast, but real thick beef loin, as I had been surviving on only coffee for 5 hours this morning), and I came across this startling chart for my bellweather Gold stock, Goldcorp (GG, TSX: G), displayed following:  (click to enlarge)

    G.TO (Daily)

    The large white candle for this prime Prima Donna Gold stock yesterday stands in stark contrast to the declining red candles since December.  Though today, there was red, the fact remains, that quite possibly sentiment has changed for the Gold and precious metals sector.  Okay, not so fast, maybe not changed, and just one stock, but indicating some early thinkers have initiated change, and the correction may have bottomed.  Looking above the price chart, the PPO (Percentage Price Oscillator) is showing the faster average (black line) poised to cross over the slower average (red line).  The PPO is similar to the MACD (Moving Average Convergence Divergence) but uses percentages rather than absolute prices).  The PPO black indicator is poised to cross the slower red line supporting the idea of bottoming of prices and the change of sentiment.  At the bottom of the chart, the CMF(Chaikin Money Flow) has gone less negative, again indicating less money leaving this stock than previous.  (Eh, Marco, grasping at straws here --less negative, rather than turning positive, tut..tut!). 

    Goldcorp is a high quality recognized Gold stock, and if smart money is moving in, then this bears paying attention to.  Note that earnings season and end of fiscal year for these large cap producer stocks is just around the corner, and the precious metals miners that are not hedged should be enjoying rather high prices for their commodities sold this past fall and winter.  Is this stock positioning for the good news expected?

    To extrapolate the idea for the precious metals sector, the XAU to Gold ratio chart was examined.  The XAU is the 17 precious metal stocks index that is traded and the ratio is the indicator of leverage or lead over the Gold price.  The absolute ratio is not important, rather it is how the graph looks relative to its history.  The chart is following:  (click to enlarge)

    $XAU:$GOLD (Daily)

    Examining the graph above, the information is similar to Goldcorp's, the long white candle yesterday overwhelms the previous red candles and brings the ratio back over the 200 day ma.  The $XAU:$Gold ratio PPO is also indicating bottom and change in sentiment.  The Gold stocks may have turned and begin again to leverage the price of Gold.

    Okay, what about the Silver sector?  Perhaps the author's call for Silver bottom last week was a little bit early.  The chart for SIL, the ETF of the top Silver miners in the world follows:  (click to enlarge)

    SIL (Daily)

    The chart for SIL above is also displaying a long white candle yesterday, and red for today.  The SIL stock price has declined almost 30% since the beginning of the year.  Is not Silver expected to move more than Gold?  Are not the Silver mining equities expected to leverage upon the Silver price moves?  (Yes, the equities also leverage the Silver price moves downwards)  The early smart money seems to be investing now in the Silver equities.  The author posted  a previous listing of possible suspects a few postings back, here.

    Finally, just to ensure, that we are not just out in left field all alone, let us examine the health of the Canadian Venture Exchange, the home of the majority of Junior mining stocks.  Note that Seeking Alpha contributor J. S. Kim has just posted an exemplary article about investing in mining juniors here.  The chart of the Venture Composite Index follows:  (click to enlarge)

    $CDNX (Daily)

    The chart for the Venture appears to have idled since the 2011 year started, but is showing a low 3 days ago and a white candle for yesterday.  The chart looks healthy, though some detractors may say the chart appears to be topping.

    Perhaps, this may be a wise time to position oneself in selected Precious Metals Junior mining stocks?

     

    Disclosure: The author is long Junior mining stocks.

    Important Disclaimer

    The information and opinions contained within this document reflect the personal views of the author and should be viewed as food for thought and amusement only. The author may from time to time have a position in any of the securities mentioned. There are no guarantees of the accuracy, reliability or completeness of the information contained herein. Independent due diligence and discussions with one’s own investment and business advisor is strongly recommended. These writings are not to be construed as an offer or solicitation with respect to the purchase or sale of any security or as an endorsement of any product or service. We do not request or receive compensation in any form in order to feature companies in this publication. It is prohibited to copy or redistribute this document to any type of third party without the express permission of the author. This document may be quoted, in context, provided proper credit is given.

      

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: I am long Junior mining equities
    Tags: G, GLD, SLV, SIL, Gold, Silver, Juniors, Mining
    Jan 27 1:35 PM | Link | Comment!
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