Category Archives: General

Asian Americans are quickly catching whites in the wealth race

CNN Money, Feb 26, 2015

asian wealth
Asians’ median family wealth is catching up to whites.

Asians are on their way to toppling whites as the wealthiest group in America.

Asians have had higher median incomes than their white counterparts, according to a new study by the Federal Reserve Bank of St. Louis. The typical Asian family has brought home more money for most of the past two decades.

That fact, coupled with younger Asians’ higher rates of college education, means that they will surpass whites in net worth in the next decade or two, Fed researchers said.

Some 65% of Asians age 35 to 39 have a college degree, compared to 42% of whites, 26% of blacks and 16% of Hispanics. Nearly a third of Asians that age have a graduate degree, more than twice that of whites. The share of blacks and Hispanics with advanced degrees are 9% and 5% respectively.

Greater educational attainment has long been associated with higher incomes and wealth accumulation.

This pursuit of learning has helped Asians quickly narrow the wealth gap between themselves and whites. In 1989, the median Asian family had about half the net worth of its white peer. By 2013, they had more than two-thirds.

The gap between whites and blacks and Hispanics, meanwhile, remained little changed over that time period.

Asians have similar financial habits to whites, in terms of investing and borrowing. Both groups are more likely than blacks and Hispanics to invest in stocks and privately-owned businesses and to have more liquid assets, which serves as a buffer against financial shocks. And, on average, the former have about half as much debt as the later.

As a result, Asians and whites have more financial stability than blacks and Hispanics, which also allows the former to build more wealth.

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Yellen Seeks Right Blend of Inflation Data to Raise Rates

Bloomberg, Feb 26, 2015

Fed Chair Needs Mosaic of Price Data Telling Her It’s Liftoff Time

Chair Janet Yellen and her Federal Reserve colleagues are just about finished making promises about short-term interest rates. They want investors to focus instead on indicators related to their mandate to keep inflation stable and employment high. This is how Yellen put it in her written testimony before the House and Senate this week:

In an exchange with Senator Charles Schumer, the New York Democrat, Yellen said she didn’t want to set down “any single criterion” on what it means to be “reasonably confident” that inflation is going to rise back up toward the Fed’s 2 percent target. Yellen testified before the Senate Banking Committee Tuesday.

Most economists predict that the broad mosaic of price data will come together sometime this year, so Fed officials can raise the short-term policy rate without the haunting risk of committing an error by raising rates prematurely which forces them to retreat back to zero. The debate is about when. Here are some things to look for:

Labor market slack must continue to diminish

Even though the unemployment rate stood at 5.7 percent in January compared with 6.6 percent a year earlier, Yellen said in her prepared remarks that  “too many Americans remain unemployed or underemployed” and “wage growth is still sluggish.”

There were about 6.8 million Americans working in part-time employment in January who wanted full-time jobs. In 2007, the average was 4.4 million. While these part-time worker numbers are falling closer to pre-recession levels, they have to drop further to help Yellen meet her mandate for full employment and stable prices.

Andrew Levin, an International Monetary Fund economist who served as a policy adviser to former Fed Chair Ben Bernanke and then Yellen from 2010-2012, said inflation will continue to fall short of the Fed’s target as long as so many workers are underemployed and so many others remain too discouraged to search for a job.

Levin and Dartmouth College professor Danny Blanchflower, a former member of the Bank of England’s Monetary Policy Committee, have found significant correlation between slow wage growth and these measures of employment gaps. They will be presenting that research at a conference in Washington next month, before Levin joins Blanchflower at Dartmouth later this year.  Earlier in February, the two economists said it would be a ”grave mistake” for Fed officials to raise interest rates around mid-2015.

Core inflation must stop decelerating, stabilize, eventually rise

The consumer price index, minus food and energy (core CPI), rose at a 1.6 percent rate for the 12 months through January, the same as the year through December.

Michael Gapen, chief U.S. economist at Barclays Capital Inc., said the firm has several models explaining the behavior of core inflation.

“The models that have proven the most reliable over time say core CPI should stabilize at around 1.6 percent year-on-year in May through September,” Gapen said. Barclays analysts said today’s data on January inflation showed the tug-of-war going on in prices. Goods prices fell partially as a result of the dollar’s strength (which makes imports cheaper), while services prices rose. Those forces are going to continue to play out in the benchmark price measure for a few months, keeping it around current levels, they said.

While Gapen predicts the Fed will raise interest rates in June, Barclays ‘ inflation models suggest September might be better timing, he said.

Market measures of future inflation need to move higher

Often discredited as a noisy signal, yield differences between U.S. government inflation-linked bonds and Treasury securities are proving useful to the Federal Open Market Committee right now.

This is what policy makers said about this measure of future inflation in the minutes of the January meeting: “Participants generally agreed that the behavior of market-based measures of inflation compensation needed to be monitored closely.”

The Federal Reserve Board also included a separate discussion of long-term inflation expectations derived from market measures in their monetary policy report to Congress this week. The chart below shows why Fed officials are concerned.

Average annual inflation starting in 2020 (the blue line) is priced well below the Fed’s 2-percent goal and started to sink before oil prices. They are also signaling that longer-run inflation is going to average about 1.6 percent starting five years from now, below the Fed’s 2 percent goal, which it has already missed for 32 months. (U.S. government inflation linked bonds are linked to the consumer price index, which trends about three-tenths of a percentage point higher than the Fed’s preferred price measure, the personal consumption expenditures price index, or PCE for short.)

Because investors are making bets on long-run estimates of inflation in these securities, they incorporate a lot of real-time assumptions about how energy prices, the value of the dollar, and the disinflationary trends in Europe might affect the U.S. That may be why Fed officials are now watching this indicator closely.

A rise in inflation expectations would be an important validation that prices have begun to firm for a Fed policy committee that wants to avoid the error of hiking too soon, said Laura Rosner, U.S. economist at BNP Paribas in New York and former New York Fed researcher. She predicts the Fed will wait until September to raise the benchmark lending rate.

“The cost of waiting a little bit so they can be sure inflation expectations are stable and inflation is moving in the right direction is small compared to the cost of raising interest rates too soon and losing credibility,” Rosner said.

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Easy Money Outweighs Fed to Fuel Record Debt Flows to Asia Haven

Bloomberg, Feb 27, 2015

This year was tipped to be the one when U.S. interest-rate increases would suck money from emerging markets. It’s not turning out that way in Asia.

Unprecedented economic stimulus from Europe to Japan has prompted investors to pump a combined $14.4 billion into Indian, South Korean and Indonesian local-currency government debt this year, the most on record for the three markets, exchange data show. That’s helped cut the average yield on emerging-market sovereign notes in Asia by 21 basis points to 4.19 percent, compared with the 4.72 percent for developing nations globally.

The flows underscore the growing investor conviction that as the Federal Reserve prepares to raise U.S. borrowing costs for the first time in nine years, Asia is best-placed to weather the impact. While falling oil prices are supporting the external balances of nations from India to Turkey, political and corporate scandals in Brazil and Argentina are sapping confidence in Latin America and the crisis in Ukraine is fueling a cash exodus from Central Europe.

“Unlike emerging-market Europe and Africa and Latin America, Asia is comparably free of political uncertainty,” Yerlan Syzdykov, who helps oversee the equivalent of $239 billion as head of emerging markets at Pioneer Investment Management Ltd. in London, said in a Feb. 16 e-mail. “Although an increase in U.S. interest rates will generally affect emerging-market countries negatively, we may still see outperformance from Asian bonds.”

Funds Unleashed

Local-currency sovereign debt in Asia has returned 2.3 percent this year, led by an 8.4 percent advance in Indonesia and 2.6 percent gain in China, Bloomberg indexes show. Latin American securities lost 0.4 percent, while those in Europe, the Middle East and Africa fell 0.7 percent.

Funds focused on Asian bonds attracted $1.1 billion this year through Feb. 20, a reversal of the $654 million in outflows in the same period of 2014, according to EPFR Global. Latin American funds attracted $44 million, while those from Europe, Middle East and Africa had withdrawals of $48 million.

Futures contracts indicate there’s a 59.5 percent chance that the Fed will start raising interest rates before the end of October, compared with 46.5 percent at the end of January.

The European Central Bank said Jan. 22 it would buy 60 billion euros ($68.13 billion) of debt a month through at least September 2016, while Bank of Japan in October raised its annual target got enlarging the monetary base to 80 trillion yen ($672 billion). More than a dozen monetary authorities from Australia to China to Canada have eased policy this year.

“The influence of the Fed and its eventual tightening cycle is diminished at least in the near term” as funds unleashed by central bank easing need to find a home, HSBC Holdings Plc strategists led by Hong Kong-based Andre de Silva wrote in a Feb. 12 report.

Inflow Figures

Overseas investors have pumped $5.35 billion into India’s local-currency bonds so far in 2015, the biggest amount at this stage in any year going back to 1999. Indonesia’s sovereign debt has attracted 46.99 trillion rupiah ($3.7 billion), the most since at least 2002, and South Korea’s $5.34 billion of inflows compare with $2 billion for the same period in 2014.

A 45 percent drop in the price of Brent crude since June has benefited most Asian economies, Thiam Hee Ng, a senior economist at the Asian Development Bank in Manila, said in a Feb. 13 e-mail. Indonesia all but eliminated fuel subsidies from Jan. 1, while India ended controls on diesel and raised natural gas prices in October.

Russia, already facing international sanctions related to the conflict in Ukraine, has been buffeted by the decline in crude prices. In Brazil, a kickback scandal ensnaring state-controlled oil producer Petroleo Brasileiro SA is roiling the nation’s financial markets and prompting renewed calls for the impeachment of President Dilma Rousseff.

‘Safe Haven’

“Asia is kind of a safe haven within the emerging markets,” Ben Sy, the Hong Kong-based head of fixed income for Asia at JPMorgan Chase & Co.’s private-banking unit, said in a Feb. 17 interview. “Emerging markets as a whole aren’t doing well. For Latin America, the default rate will increase as many of their bonds are energy-related or involve companies linked to an ongoing corruption investigation. Eastern Europe is close to Russia and Ukraine.”

The extra yield offered by Indonesia’ 10-year bonds over similar-maturity U.S. Treasuries narrowed by 59 basis points this year to 504, data compiled by Bloomberg show. That was the biggest drop in the region, followed by a decline of 28 basis points for the Philippines to 192 basis points.

Manulife Asset Management Ltd. says it’s cautious on Asian bonds because yields are likely to climb when the Fed starts raising rates in the second half of the year, according to Endre Pedersen, who helps manage $45 billion as chief investment officer for Asian fixed income outside of Japan.

“Rates are still going to hurt you massively,” Pedersen said in a Feb. 10 interview in Singapore. “We are very much cautious on rates.”

Stable Currencies

The Philippines, Vietnam and Sri Lanka are the most probable emerging-market candidates for credit upgrades, Regis Chatellier, a strategist at Societe Generale SA in London, said in a Feb. 17 research note.

“I don’t think there will be a large pull-out” when the Fed raises borrowing costs, said ADB’s Ng. “The market has mostly priced in the rate rise. The gains in Asian sovereign local bonds this year likely reflect improving macroeconomic fundamentals.”

Analysts are cutting projections for Asian bond yields, Bloomberg surveys show. The median forecast for China’s 10-year rate at the end of 2015 was 3.46 percent in a monthly poll published Thursday, down from 3.95 percent in November. India’s was seen at 7.4 percent in January, 60 basis points lower than predicted two months earlier. Current levels for the two nations are 3.36 percent and 7.74 percent, respectively.

Least Volatile

Asia is luring global funds because its currencies are the least volatile among developing nations, while there are prospects for deeper rate cuts in India and China, according to HSBC. The People’s Bank of China lowered benchmark interest rates in November for the first time since 2012, followed by the Reserve Bank of India with a surprise cut in January.

“Higher U.S. Treasury yields are about Number 324 on my list of concerns,” Edwin Gutierrez, who helps oversee $13 billion of emerging-market debt as a money manager at Aberdeen Asset Management Plc in London, said in a Feb. 20 e-mail. “In a world where every other central bank is cutting and more countries head to negative interest rates, I don’t worry about the overall global liquidity situation.”

Source

Why the US is not as strong as you think

CNBC, Feb 26, 2015

The U.S. may not be as strong as investors think because it is growing overly dependent on the consumer for economic growth, said Jim O’Neill, former chairman of Goldman Sachs Asset Management.

“When the U.S. consumer is starting to be more than 70 percent of GDP, as it’s threatening to do again, the U.S. structural story is not as powerful as so many people seem to now believe it is,” O’Neill told CNBC on Thursday. “It was, but it’s weakening.”

A bull case emerged for the United States after the financial crisis in part because investors saw growth coming from structural improvement, rather than cyclical momentum, O’Neill said. The idea was the country would begin rebuilding its savings rate and shore up exports and investments as the consumer took a smaller role in fueling growth, he said.

That shift was beginning to take shape, but in the last year, signs are beginning to emerge that “the consumer is back to being king,” O’Neill said in a “Squawk Box” interview.

“In some ways, the reason we had the whole mess in the first place is because the U.S. consumer was too much of the king,” he said, referring to the financial and subprime mortgage crises.

He pointed to the role of oil production in improving the country’s balance of payments with the rest of the world. Last year, President Barack Obama’s Council of Economic Advisers highlighted strength in the American oil industry as one of three structural changes that would support sustained U.S. growth.

However, oil prices fell 60 percent between last summer and January. Many marketwatchers have said that is a net positive for growth because consumers will spend what they save at the pump in the broader economy, but O’Neill said collapsing crude prices are a negative for the rebalancing of the U.S. economy.

“It’s not really in the U.S.’s long-term interest for oil prices to drop so sharply on a sustained basis,” he said.

The marginal economic data on Europe is somewhat better than expected and the bear case for the continent is not as interesting as it once was, O’Neill said.

While he said he is not particularly friendly to the euro currency, he believes markets must receive perpetual bad news for it to continue its descent. The euro is currently trading at about 1.13 to the dollar.

The Swiss franc, rather than the euro or the yen, is the clearer currency play against the U.S. dollar, he added.

O’Neill is short the franc because he believes there is no reason to put money in Switzerland following the Swiss National Bank’s decision to drop its policy of capping the currency at 1.20 francs per euro and because of other recent developments in Europe.

“We had this enormous rise [in the franc] that came because of the crisis and the fears of Greece leaving and the whole fears of QE,” he said. “Those events have been dealt with at least for now. The Swiss franc was already far too strong for the Swiss economy.”

Source

Ripe for a Take-over – Gold Canyon Resources

Gold Canyon Resources (gcu.v)

* Shares out: ~184m
* Share price: C$ 0.17
* Mcap: C$ 31 Million
* Cash position: Between C$ 1.5-2 Million
* Website: www.goldcanyon.ca
* Latest Presentation (pdf)
* Springpole Gold Project – Useful Facts & Links

gcu_banner

First off, let us quote ourselves from an earlier newsletter:
“We would like to find a “special circumstance” in the company for it to stand out in comparison to the rest. We are mostly focused on identifying small junior companies as we think they will be subjects to a coming wave of M&A activity during this year. For a large producer, there are plenty of companies/projects out there to gobble up on the cheap.”

In Gold Canyon, we think we have identified more than one special circumstance to motivate us to buy a position. Not only that, we have also made this holding larger than the other holdings we have in our “High risk – High reward, a portfolio within the portfolio” (link).

Before we start talking about Gold Canyon’s core asset which makes this an obvious take-over target, here’s the first “special circumstance”. Two funds, Pinetree and Sprott (no secret here, everybody knows), have since December been forced to liquidate holdings and Gold Canyon was severely hit by this and we see that as a clear over-reaction. This would be our first special circumstance.

When the stock was trading at 11 cents, we were buyers at 10c and unfortunately we didn’t get any shares down there. But we like this stock even at today’s price (16.5-17c) and it’s at these levels we have built a position for ourselves. It was quite obvious that a bounce would come when the large selling was over with and we suspect that GCU at today’s levels is just “breathing a bit” before the next run up.

We don’t prefer to value a company for their ounces in the ground, but when something gets too cheap, it’s easy to point out. Gold Canyon has 4.4 Million ounces in Indicated resources and another 0.7 Moz in Inferred. With today’s Mcap of ~31 Mcad, 5.1 Million ounces in the ground are valued at US$5/oz. In our mind, that’s too cheap and we consider this to be our second special circumstance.

The Springpole Gold Project
Before we invested in Gold Canyon, we consulted one of the geologists in our network and had him look over the Springpole Gold Project, we got very good feedback. The deposit is an open pit, bulk tonnage with good grades at surface (~2gpt) and simple metallurgy. It’s located in Northwest Ontario, Canada, around 70 miles from the Town of Red Lake.

Since the Preliminary Economic Assessment (PEA) was done in 2013 a lot has changed in terms of costs for the mining industry. Not only has material and machinery become cheaper, the same is also true for labor and energy. So even at $1,200 gold (the PEA was done @ $1,300) we think there’s reason to believe that the economics are even better today despite a lower gold price. This has strengthen our view that this is a very robust project and we would go as far as saying that this is exactly what a large mid-tier or even a major is looking for.

To paraphrase Mr. Hennigh from the interview (see below) we did on Tuesday, “There’s a strong likelihood that both the capex and the operating cash cost would come down significantly and it would make an even stronger case today despite the lower gold price”. One should keep in mind that the $438 Million capex for a 20,000 tpd operation is not shabby in the first place. If that number is lower today, as many indications suggests, it’s easy to see why this project is ripe to be taken over. According to the PEA, cash cost was estimated to be US$636/equivalent ounce gold (eq.oz Au) with all-in cost of US$860/eq.oz Au.

What is even more favorable now compared to when the PEA was published, is the relation between USD/CAD. The Canadian dollar has come down a good 20% against the US dollar which will do wonders for the cash cost. Put in a different way, gold is trading at $1,500 Canadian today.

With what has been drilled to date and what we know today, the Springpole project is in our view of very high quality but interestingly enough, the majority part of the mineralization is still untouched as only a small north-western section of the project has ever been drilled (and still Gold Canyon has shown >5 Million ounces). The rest of the project offers significant opportunities to expand the currently known resources and to discover new areas of mineralization. In terms of exploration upside and resource growth, we assume the potential is definitely there to actually double the size of the deposit.

Risks
There is always risk involved, as with all investments. The companies we chose to invest in and write about should be considered nothing but high risk. The biggest risk we see in the near term (0-9 months, we don’t intend to hold it any longer than that) is Gold Canyon’s financial situation. The company has enough money to muddle along, perhaps even through the fall, but the low cash position is to us the largest risk with this investment. GCU doesn’t have the kind of cash to aggressively take the Springpole project forward and there are also no guarantees that they will be able to raise more cash when needed.

Gecko Podcast interviewing Mr. Quinton Hennigh
On Tuesday of this week, we talked to Quinton Hennigh, technical advisor and a Director on the Gold Canyon Board. Quinton has a background as an exploration geologist with Newmont Mining Corp., Newcrest Mining, and Homestake Mining.

In the interview we learned some of the history of Gold Canyon. Did you know that the company is one of the oldest listed companies on the Venture exchange with over 30 years of listing? We didn’t. Another interesting detail is the fact that Gold Canyon has never done a share rollback, the share structure as we see today is the original one since day one.

Listen to the interview by visiting our podcast section

Conclusion
We’ll make this short. Gold Canyon is all about risk vs. reward. The special circumstances mentioned above makes it very clear why we see a lot of value and upside at 17 cents with very limited downside. As we have stated before, we feel strongly that 2015 is the year when large producers and well financed companies should go out and acquire high quality projects. Gold Canyon has a very high quality project and if our assumptions/guesses are anywhere near the truth, GCU’s flagship property could be a world class mine in the making.

There aren’t many 5-10 Million ounce gold projects located in one of the best and safest jurisdictions in the world. And of the ones that actually exist, how many are up for grabs?

 

Team Gecko Research
www.geckoresearch.com

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We are not investment advisors and what we write is our own view only. Please read our disclaimer

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