Review of Barron's -- Dated 27 August

Just keep the power on, FPL..., and we will be business!  Isaac so far is throwing just enough wind and rain at us to keep us inside.  The good of that?  I can write...

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Barron's Cover Story's title ("Best & Worst Run States") sure does have an allure to it...  Who is Number 1 (best)?  South Dakota!  Who is Number 50 (worst)?  Connecticut!  I would not have guessed Connecticut, but then I don't live there...

Author Andrew Bary looks at the risks now facing muni-bond investors in the 50 states.  Bary quickly notes that Warren Buffett has closed out his $8 billion of municipal derivatives contracts (that is, he "is bullish no more" (Andrew Bary)).  [ed. note:  Wait a moment!  Was it not Buffett who YEARS ago said that derivatives were weapons of mass financial destruction?  And yet he still plays with them?  Careful there Warren!]

Andrew Bary then goes on to write about the financial health of our various states, gathers some opinions from experts and produces a nice table of the health of the 50 states based on adding up "Debt to GDP" and "Unfunded Pension Liability to GDP" and then combining them to give usa measure of the various states' health.  I cherry-pick states of interest below (from his table):

		Combined		Spread
		Debt and		Above AAA
		Liability	Bond Ratings	10-Year Munis
Position	State	to GDP (%)	(Moody's/S&P)	(basis points)
1	South Dakota	1.0	NR/AA+	28
2	Iowa	1.3	Aaa/AAA	18
3	Tennessee	1.5	Aaa/AA+	4
4	Nebraska	1.7	NR/AAA	23
5	North Carolina	2.5	Aaa/AAA	2
…
8	Nevada	3.0	Aa2/AA	65
…
13	Texas	3.3	Aaa/AA+	15
14	Georgia	3.6	Aaa/AAA	0
15	Florida	3.6	Aa1/AAA	25
16	Virginia	3.7	Aaa/AAA	2
…
28	New York	5.7	Aa2/AA	20
…
30	Pennsylvania	6.0	Aa2/AA	23
…
34	California	6.8	A1/A-	66
…
48	Hawaii	16.1	Aa2/AA	20
49	Illinois	16.3	A2/A+	157
50	Connecticut	17.1	Aa3/AA	28

Note that there is not a really good correlation between Bary's Liabilities / GDP measurement and the bond ratings and spreads paid by the states above.  California has the nation's lowest bond rating (S&P A-) and Illinois is second worst (S&P A+).

But the table (and article) are good for thought.  Nice job, Mr. Bary!

***

Alan Abelson titles his column "Bullish on Bullion", but it takes him a while to get tot the bullion...  He first takes a rather long swipe at the much deserving Todd Akin (running for Senator from Missouri against Democrat Claire McCaskill).

Abelson then goes on to write about what we may soon see out of Europe and what Uncle Ben (Bernanke) has in store for us.  Then he mentions gold's recent run-up, tying it to hedge-fund operators John Paulson and George Soros getting into gold (the GLD exchange traded fund anyway).  [Abelson does not mention the shootings of miners in South Africa however, which may also have played a part in gold's price increase]  He then writes that he is bullish on gold anyway, even if Paulson and Soros had NOT bought the GLD...

He finishes his piece this week with comments (negative) on China and writes his own table re the China Flash Manufacturing Purchasing Managers Index.  Things look pretty bad (all indicators are negative.  Abelson: "So forgive us if we repeat our increasingly rhetorical question -- hard landing, anyone?"  [Michael "Mish" Shedlock has been all over China's peril for months now]

***

Jacqueline Doherty ("Streetwise") writes about the danger of high dividend stocks.  The trade, it looks like, is getting very crowded, these stocks have high P/Es...

***

In this weekend's "Review & Preview" there is an item on Australia and commodities.    BHP Billiton has shelved at least $40 billion of expansion plans as many there believe that the commodities boom is now over.

"He Said":

"Housing is on the mend. We do, however, remain cautious in our optimismas we believe consumer confidence remains fragile."

Toll Brothers Executive Chairman Robert Toll

William Waitzman writes a short piece noting that we are seeing more strikes recently.  Labor feels more confident, so workers are more likely to go on strike now.

***

Christopher C. Williams writes a bullish case for Weyerhaueser (ticker: WY).  WY converted to become a REIT in 2010 (I missed that memo, I had thought it was just a plan).  Their timber is priced very cheap and the dividend could go up 50% (from 2.4% to 3.6%) he writes.  But, the state of HOUSING still bothers me..., same with Robert Toll's opinion just above.

***

Alexander Eule takes the reins at "Technology Week" and writes about various ideas concerning Apple TV. Apparently no one (outside of Apple (AAPL)) really has any idea of what AAPL is up to.  They may make their own TVs.  Or the equivalent of cable boxes.  And it appears that AAPL will partner with the cable companies.  Stay tuned...

***

Erin E. Arvedlund talks with Jason Cross, a hedge-fund manager.  Jason is "bullish on America", but does not want to talk much about what he holds (big companies) other than to mention that Wal-Mart Stores (WMT), Cisco (CSCO), Lockheed Martin (LMT) and IBM are in his portfolio.

***

Dimitra DeFotis writes a bearish piece on HP.  Seems they are weak now, and a price war in PCs is coming...

***

Jim McTague writes an article on "Failed Trades" ("Stand and Deliver").

McTague: "Every day, thousands of trades fail because investors are unable to deliver the securities and realted transaction data that brokers need to consummate the deals."

This is a problem he writes, in that investors could have their money tied up for days.  And nobody on Wall Street seems to care much, nor do the regulators seem to care much either.

But, failed trades could wind up being a big problem in our "flash crash markets"...

***

Gene Epstein ("Economic Beat") offers up various explanations that have been offered regarding our slow recovery.  The last one he looks at is quite interesting: recent research has shown that the freer and economy is, the more likely it will outperform.  The (Canada based) Fraser Institute has been showing that the USA's economic freedom has been going downhill (bad) since 2000...

***

David Englander writes that Curtiss-Wright (yes, the company traces its roots to the Wright Brothers and early aviation pioneer Glenn Curtiss) is "primed for takeoff".  The company is diversifying into other industries than just defense work.  Hey, maybe.

***

Leslie P. Norotn interviews Jerrold Senser (CEO and CIO of Institutional Capital).  Senser picks five stocks that could jump 20%, he likes these because they are solid companies:

BB&T (BBT)
Texas Instruments (TXN)
Novartis (NVS)
Cummins (CMI)
Johnson Controls (JCI)

I won small holdings of CMI (which I really like, CAT has taken themselves out of the truck diesel engine market) and TXN.

***

Lawrence C. Strauss write this weekend's "CEO Spotlight", this time about Hormel (HRL) -- think Spam!  HRL's CEO is Jeffrey Ettinger.

One pattern I have begun to notice in these CEO Spotlight articles is how little meaning there is about where you went to college...  Or even your grades (from an earlier edition).  And also how almost every CEO examined by Barron's has worked in various divisions of big companies, not just one division all the way up to the top.

***

Washington DC pro Jim McTague, doing double duty, writes up ("D. C. Current") and shows how one demographer is calling the election for Romney now.  The demographics are based on detailed studies on teh 3100 counties in USA.  McTague provides Morgan's map showing Romney getting 299 electoral votes, Obama 211 with 28 undecideds.  270 are needed to win.

I would dispute putting MD (Maryland?  MD voting for Romney?) and MO (Todd Akin) in the Republican column however, that takes 20 electoral votes off right there, not counting other possible surprises.

***

Editor Thomas Donlan takes a shot at government mismanagement...  Both re the farm drought (this dorught is the worst since the 1950s) and the increasingly serious water shortages out West.  Donlan would like to see water prices go UP, as that would wind up cutting usage (in California 80% is used by agriculture, 10% by consumers (and a lot of that is fopr watering lawns...) and 10% by industry).  Donlan: "The right price is always easy to find, using Vanderbilt's rule: What will the traffic bear?"

Donlan then writes a short piece on maybe jumping off the "Fiscal Cliff" might not be such a bad idea after all...  It would cut the deficit almost in half right away!  He points out that various presidents have tried using big spending to get us out of recessions (or even trying prevent us from getting into them).

My own preference would be to cut the deficit mainly by cutting spending.  But, going over the Fiscal Cliff would be better than another slimy deal that keeps our trillion dollar plus deficits going and going, which i fear will be EXACTLY what will happen.

***

Barron's this weekend published a special section on The Top 100 Independent Financial Advisors.  Yes, Ric Edelman wins as Number One again!  Other than Ric Edelman (who also has a radio show), I have recognize NO OTHER names in the Top 100.

***

In the Market Section Vito Racanelli notes the first decline in the markets in several weeks, part of it due to HP results and outlook, but also due to concerns over Bernanke and some tech bombs like Zynga (ZNGA) and Facebook (FB).  He then goes on to write positively of KBR, spun off from Halliburton some time ago.  KBR gained notoriety (negative) because of its logistical services for the US military in Iraq.  KBR is winding down that business and is more involved with LNG (liquified natural gas), which appears to be a growth business.  [ed. note: Natural gas is starting to look like a pretty good good component of our energy future]

"European Trader" author Jonathan Buck writes optimism in Europe will not last (last weekend he wrote positively of German companies though).  Greece and whether Germany will save them...  He did NOT write that stocks will go down in Europe, but that optimism won't last.

Kopin Tan ("Asian Trader") writes that China has gotten beaten down as buyers leave...  The earlier mentioned China Flash Manufacturing PMI was part of this.  China's stocks are down 2/3rds since their highs in 2007 (the USA is close to where we were).  Mr. Tan then goes on to mention Macquarie (Hong Kong) analyst Shuwei Kwek's top pick: China Communications Construction, a top port builder and dredger in China (but expanding to other countries as well).

Reshma Kapadia ("Emerging Markets") writes on each of the four BRICs.  China: cheap, internet plays might be good.  India: higher quality companies and good demographics.  Russia: Europe may slow them down, but high oil prices will help them.  Brazil: the economy has slowed down (as have commodity exports) so maybe consumer stocks might be a better bet.  A quick snapshot of all the BRICs on one page!

Michael Aneiro ("Current Yield") finally writes a column about how little "news" there is, just speculation about Fed policy, etc.    I am sure that there will be LOTS of news soon re interest rates, and that Michael will be a busier guy before long...

Alexandra Wexler writes this weekend's "Commodities Corner".  She notes that an "El Niño" seems to be forming, and that is bad news re the cocoa crop (hot dry summers in West Africa, the main producer of cocoa).  O/T, but the term "El Niño" originates from Peru, where heavy rains typically strike dry northern Peru around Christmas every few years.

Insiders dumped about $54 million of Dick's Sporting Goods (DKS) stock, and a Sirius XM Radio (SIRI)  insider dumped about $40 million worth.

The Mighty Peruvian Sol was not so mighty last week: falling a tiny 0.1%.  Geez, if this keeps up, I may have to give up the red bolding...  Peru IS exposed to China and the overall commodities markets.  As Brazil has slowed recently, Peru might slow down as well.  The country has been growing about as fast as China has over the last 10 or so years.

Silver and Gold

Over the past few days, I have been watching many (over half so far) of Chris Duane's remarkable set of videos about silver.  He makes a great case that ownership of silver will be the single best investment in the coming years, as our paper money dies.

Here is a link to the playlist of all 48 of the "Silver Bullet Silver Shield" series of videos:

http://www.youtube.com/watch?v=qfC9VQGkqDQ&playnext=1&list=PLAC607AF992A840A8&feature=results_main

Way too briefly, me makes the case that out US$ is doomed, and that precious metals are the way for each of us to remain solvent.  Especially silver, which is the better of the two because of its vital industrial use (it is used in more applications than any other material except oil and oil products).

Chris Duane also produced the below remarkable series of videos "The Greatest Truth Never Told":

http://www.youtube.com/watch?v=1x_qPPTRR80&feature=mr_meh&list=PLD31E34390C5017E8&playnext=0

The Greatest Truth Never Told is (overly short and over-generalized) shows how liberty will eventually win despite how we have been enslaved throughout history... How we each can become "our highest and best self that we can be."

***

Despite Chris Duane's strong case for holding silver (only -- All Inn!), I remain a believer in gold being the strongest and safest investment as a store of value.  Long-time readers of my blog already know my reasons (the central banks store gold, gold has already been chosen by humanity as its preferred store of wealth, etc.).

And I own silver as well!  Silver's role for me would be to "spend" if/when fiat (paper) currency fails us.  Gold will be the vehicle (that carries wealth) that I pass along to my child and any other descendants...

***

The below will take you to a new creator of videos on gold, and in particular on FOFOA's ideas of Freegold:

http://www.youtube.com/user/freegoldtube/videos

I myself like "Million Pieces" and "uprising" the best.  But, do not miss watching  "ONE OF THESE THINGS"...

***

And finally to finish this article, I copy FOFOA's graphic below (http://fofoa.blogspot.com/2010/09/shoeshine-boy.html), perhaps my favorite all time graphic ever!



In short, the above tells us that at some point the paper gold market (gold futures, unallocated and even allocated (MF Global, folks, was allocated gold), gold being loaned out by the "bullion banks", etc.) will "break", that PROMISES (paper gold) will become worth less (or even worthless) and so the price of paper gold may very well fall (to, say, $500), but you will NOT FIND any real physical gold for sale...  During that short time where gold's price is unknown, you may find Robert Prechter all over the media, his "15 minutes of fame"!

He wrote his piece (and published that graphic) back in 2010.  Gold is no longer available at $1200, as I write (with Isaac's wind and rain outside), gold is around $1670.

Review of Barron's -- Dated 20 August

This weekend's Review is a little bit late because my wife and I took the opportunity to celebrate our Anniversary (No. 27) by going to a trendy Art Deco hotel on Ocean Drive there in Miami Beach, the kind of thing we NEVER do.  We had a wonderful time and even went to one of the recommended nightclubs there in South Beach (The Mansion) to try and keep up with the young'uns out there on the dance floor...  Well, The Mansion was a disappointment when compared to our foray last year at Club 50 (Miami).  Any of you readers who need a hot nightclub recommendation in Miami to go dancing, well, contact me...

***

The Cover Story of this weekend's Barron's is "Pipeline to 6% Payouts" about master limited partnerships (MLPs).  I have written a few times (although not enough) about the lack of decent yield, decent income in our "ZIRP" environment.  ZIRP and its related QEs are really hurting SAVERS, and it is from savers that the CAPITAL necessary to rebuild America will have to come from.  And if savers are not getting any income, that means less investment will be available in the future...

Author Dimitra DeFotis interviews three experts in the field of energy MLPs and MLP funds (like almost everything else, there are ETFs as a way to play the industry -- more on these ETFs later).  She does a great service to her readers by asking whether the price boom (of these energy MLPs) will keep going up: YES!  The yield values of these ETFs has been well known for some time, and recently (2012) their sahre prices have moved up nicely, so that owners of the MLPs (ot their ETFs) have gotten a double benefit: price appreciation and high yield along the way.  The yileds are still pretty decent, and that is why I presume Barron's decided to highlight them in this issue.

These energy MLPs came about because Congress after 1987 wanted to encourage investment in energy infrastructure (especially pipelines) by giving a tax break (they avoid corporate income t5axes by passing most of their cash flow along to their investors).  That generous tax treatment means there are some 80 MLPs today. These MLPs are little tricky in their tax treatments and even how they move according to the economy and even their payouts to investors.  Here are some of the main thoughts I got from the interview:

1)  The tax treatment IS more complicated, so in this case, IMO, it is better for we "little guys" to invest in the MLP ETFs, which do the taxation accounting themselves, you also get diversity of MLPs.  Disclosure: I own a small position in the JP Morgan Alerian MLP Index ETN (ticker AMJ, which tracks 50 of the largest MLPs), and I am still smiling re THAT investment!  Based on the side-bar story at the end of the article, I would be inclined to recommend looking at the MLP ETFs here, to avoid complicated taxation requirements.

2)  MLPs are a little exposed to interest rates going up, but not that much according to those three experts (under most scenarios).

3)  These MLPs are somewhat under-owned because many of them are small, and some of them are leveraged...

4)  Most of these MLPs are pipelines (and to a smaller degree owners of storage tanks(, although there is some upfield activity in the sector (the most famous is LINN Energy (LINE)) and some downstream names (CVR Partners (UAN) and PetroLogistics (PDH)) which have some refining assets.  It seems, though, that the pipeline MLPs (almost all the rest) act as a "toll booth", taking their payments for pumping gas, gasoline and natural gas through their pieplines.

Nice article Ms. DeFotis!

***

Alan Abelson is BACK at work, and explains this year's high temperatures and drought bu suggesting it is NOT due to global warming or flatulent cows...  But, by overheated political rhetoric!  And since Paul Ryan was chosen by Mitt Romney to be his running mate, well, the hot words have gotten hotter still.  Abelson then goes on to write that this does not seem to be much other than political theater, and that what portfolio managers will be keeping their eyes on (at least in the near future) will be the Jackson Hole (Wyoming) economic symposium starting August 31.

Abelson, ever ready to be out bear-spotting (hey, it's his JOB), then discusses the junk bond bubble.  Abelson and many others (including Barron's own fixed investment columnist Michael Aneiro) have been warning about so much money pouring into junk bond funds seeking higher yields...  Abelson then brings in Stephanie Pomboy who wrote recently (again) warning us all about the bubble in junk bonds.  Junk bond yields are again under 7%, which is traditionally been a place where new investors in junk bonds go to get slaughtered...  Abelson  provides a handy graph, showing a possible "double bottom" (hey, if you have to ask, you do not want to know) in junk bond yields...  Stephanie Pomboy chips in with an observation: "... those most desperate for yield -- pension funds, insurance companies, and retail investors, will be hit the hardest."  She then goes on to say that junk bond woes could cause MANY other knock-on effects (like pension defaults and municipal bankruptcies).

[ed. note: Hey, Barron's, if you EVER mention Stephanie Pomboy in ANY context whatsoever, please provide a recent picture, OK guys?]

***

Michael Santoli ("Streetwise") writes that low recent low volatility has made hedging on the S&P 500 Trust (SPY) very cheap now.  That is, you can lock in recent gains (SIX WEEKS of S&P 500 gains now, read that at Zero Hedge?) by buying puts on the SPY.  I will take him at his word, but would remind my readers that you just as easily SELL calls at a higher SPY price (and so receive a small premium) and cash in a bit of any gain on the S&P from now until expiration OR just sell your SPY position now and be done with it.

***

There were only two items that caught me eye this weekend at "Review and Preview":

1)  "She Said":  "We feel committed to do everything we can to maintain the [euro].  The ECB ... is completely in line with what we have said all along."

German Chancellor Angela Merkel in supporting ECB President Mario Draghi

[ed. note: the ECB seems to have always been somewhat hard-line]

2)  Brendan Conway writes a short column about how the drought may cause more farmers to slaughter cows this fall, thereby bring meat prices down (for a while, NEXT year meat prices will likely go UP as the herds will be smaller).  Bottom line:  If you have a big freezer, "Back up the truck" if/when meat prices go down in the next few months.

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Michael Santoli write a bearish piece on Waste Management.  Even though the company sports a 4% dividend yield, corporate insiders have sold some 180,000 shares around its current price (for a total of some $50 million)...

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Jonathan Buck (Barron's "Europe Go-to Guy") writes a bullish piece on Swatch, the Swiss company that practically saved the Swiss watch-making industry.  Swatch is not just cheap watches either, they own Omega and Breguet, some of (the latter's) whose watches sell for up to $300,000, and Swatch makes some 80% of the movements for ALL Swiss watches...

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Author Gene Epstein (Budget Faceoff: Ryan vs. Obama) looks at the two different plans offered by each.  Paul Ryan (above mentioned as Romney's running mate) several months ago proposed a stringent budget for the US government out to the year 2022.  His plan would REDUCE (not eliminate) budget deficits to approximately half of where they are, and his plan has some credibility (not too much though, as Congress almost always spends more than what they promise.  Obama's plan is perhaps more realistic, in the sense that spending will be kept at VERY high levels (and that is making assumptions), and so the deficits and debt will get much worse.

My take?  I would prefer Ryan's plan (even if we were not to get it all, and who does get it all?), but I fear that Obama's plan (or something close) is what we are likely to get.  Ugh.

***

Jonathan R. Laing wrote an interesting piece on Prosafe, a Norwegian offshore oil-services provider I had never even heard of before.  Prosafe offers "floatels" (floating hotels) which are semi-submersible structures to house the EXTRA workers needed in some phases of offshore oil-drilling rigs' work: such as when they do construction, maintenance or decommissioning work.  That is, when the operators are doing tasks that require MORE workers than normal (drilling say) operations.  There are only 20 or so of these "floatels" in the world, but Prosafe (PRSEY here, but thinly traded) has 11 of them.

***

Taxes, taxes, taxes...  It looks like some kind of tax hikes are coming...  BIG ones if we go over the dreaded "Fiscal Cliff" (coming at us ever more rapidly Alan Abelson reminds us)...

But, Jim McTague ("D.C. Curent") suggests that increasing the tax on gasoline could be coming no matter which major candidate wins.  There are a couple of ideas floating out there...

McTague is a pro.  I think it would be one way to raise some real revenue (not nearly enough, but enough to "make a difference"), but NEITHER candidate is saying anything about this unpopular idea now.  But, keep an eye out next year.

***

"Technology Week" author Tiernan Ray discusses Cisco Systems (CSCO) a company I have not read much about lately.  CSCO has just raised it dividend to 3%, joining various other main-line technology companies (like Microsoft and Intel) in paying out more in a "blah" technology arena...  Cisco's competitors seem to be doing worse or else priced to perfection (FFIV re the latter), so CSCO may be a good play for the longer term, collect a decent dividend and wait for a tech turnaround.

***

Editor Thomas Donlan this weekend provides a rather pessimistic view of Paul Ryan's likelihood of getting his plan through.  First, in politics Donlan notes, the old saying that; "If you're explaining, you ain't winnin,".  He means here that many Republicans were not happy with Mitt's choice of Ryan (who has the big plan to cut the dificit, mostly bu spending cuts) and why some Democrats are so happy with Romney's choice of Ryan...

Donlan is pessimistic a a few ways about this coming election (he quotes from American University Professor Allan Lichtmann's "13 Keys to the White House", and Obama has at least 8 of them...) as well as the fact that the Democrats can find it much easier to scare people than the Republicans can explain and reassure them...

Donlan thinks the Republicans need to go on offense ("jobs, jobs, jobs" and Obama's lousy economy), but he thinks that scaring the people is likely to work...

He finishes with the FACT that we should be scared: the demographics are very ugly (and heading us to national insolvency at this rate), something drastic WILL have to be done.  The sooner the better.

***

In the Market Section this week, Vito J. Racanelli notes that even if weak, last week WAS the sixth straight week that the stock markets has gone up.  Racanelli goes on to note John Deere's (DE) bad week (low sales due to the drought).  DE sold off...  But, the future is likely to be bright for Deere.  I would agree.

Author Reshma Kapadia ("Emerging Markets" -- Barron's new column that I am enjoying) writes about buying banks in developing countries.  This weekend's column is about investment ideas in developing world banks, where in many cases they are better capitalized than Western banks and are seeing stronger growth than ours are.  She quotes Lewis Kaufman (manager of the Thornburg Developing World Fund (THDAX)) that many developing world banks generate better returns, partly because there is less competition in many emerging economies and they pay little for their deposits (low costs).  There are pitfalls she notes (esp. CHINA, IMO), but then she also mentions that Mark Jason (Invesco Developing Markets Fund (GTDDX)) believes that Brazil's non-performing loans may have already peaked.  Finally, she mentions that Peru's own Credicorp (BAP, and owner of the bank our company uses there in Peru: Banco de Credito del Peru SA) is one of the favorites among investors in emerging countries banks.  I must note, however, that Lima is undergoing a HUGE PROPERTY BOOM, and has been for years, we will at some point have "another Miami" happen there...

"Asian Trader" author Kopin Tan advises us to beware of China's equivalent to YouTube (Youku -- their online video portal).  They are about to buy out a rival, they have the cash (stock actually) to do it, but Tan says that integration is a big risk.

"European Trader" author Jonathan Buck writes that Dutch bank ING Groep (ING) is making real progress in disposing of and writing down bad assets.  ING is considering selling off its insurance assets (and could perhaps get 14 billion euros).  Their "Tier 1" ratio is at 11.1% (which he writes is good), and they are working their way through bad Spanish assets.  He likes ING, with a 2012 PE of about 4.8, which is lower than European rivals like Aegon, Axa, and Allianz.  He finishes his piece by noting that European equities are all up this year (except Spain).

Michael Anerio ("Current Yield") also warns of the danger of the bond markets, danger for buyers of bonds!  Especially junk bonds.  Al lot of companies are offering cheap debt, and with longer maturities.  He cites figures showing that we are in dangerous territory...  Aneiro finishes by noting that Treasuries again had a bad week, the 10-Year note finished the week with a 1.814% yield, a much higher yield that its record low (approx. 1.39%) set some 3 - 4 weeks ago.  The "Bond Center" that shares his page is showing (in one of its four graphs) a notable rise in the Treasury Yield Curve...

Simon Constable writes this weekend's "Commodities Corner", and is titled: "QE3: Mixed Bag for Commods".  Overly briefly, if we get more QE, that would likely be good for gold, silver and platinum; it MIGHT be bad for iron ore, copper and lumber (in that economies might weaken in the face of more QE).  He also writes agricultural commodities should hold up OK (as well as fertilizer companies), while crude could go down, unless there is a Mideast war...

In  "13D Filings" (13 D Filings must be made when any investor acquires 5% or more of a publicly held company) I note that Carl Icahn (owns 9.5% of the company) has suggested to Oshkosh (the maker of emergency vehicles and similar) that they spin-off their JLG unit, which lifts, loaders, booms and platforms.  Alert readers form last week might recall that Icahn owns a lot of troubled heavy-duty truck maker Navistar as well...  What does Carl know?

"Economic Beat" author Gene Epstein writes again of warnings on our debts...  But, no one in authority seems to be listening or will take action.

The only BIG Insider Transactions of note was that 10 insiders sold over $59 million worth of stock of DaVita, Inc.  I had never even heard of these guys, but found the below information at their website (www.davita.com/about):  DaVita Inc., a FORTUNE 500® company, is a leading provider of kidney care in the United States, delivering dialysis services to patients with chronic kidney failure and end stage renal disease. DaVita strives to improve patients’ quality of life by innovating clinical care, and by offering integrated treatment plans, personalized care teams and convenient health-management services. As of June 30, 2012, DaVita operated or provided administrative services at 1,884 outpatient dialysis centers located in the United States, serving approximately 149,000 patients. The company also operated 19 outpatient dialysis centers located in four countries outside the United States. 

And finally, the Mighty Peruvian Sol struck paydirt vs. the US$, rising a tiny (but still up) 0.15%

Debt and Platinum

A couple of days ago, the debt widget above clocked over $131,000 in national (US gvernment treasury debt) outstanding per taxpayer. Since installing this widget here at my blog (June 2011), it first went from under $119,000 to $131,000.

Feeling $12,000 RICHER, to pay your fair share, Mr. and Mrs. Taxpayer?

Me either.

***

Platinum has been on a tear the past couple of days. Up about $70 per ounce.  The most likely explanation that I can offer is recent violence (police killing miners) at a platinum mine in South Africa.

Guest Post -- The Mercenary Geologist Discusses Critical Metals

While researching material about more metals (to finish my series of metals: gold, platinum group metals and rare earth metals), I found an excellent article (below) by well known Michael "Mickey" Fulp, also known as "The Mercenary Geologist".  I contacted his website and asked to publish his article, and they said OK, provided I properly attribute the article, which of course I do below.  I have had to make minor edits (as images did not come through well or even at all or for formatting reasons, metal tantalum did not come through).

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What Makes a Critical Metal “Critical” or a Strategic Element “Strategic”?

A Monday Morning Musing from Mickey the Mercenary Geologist

Contact@MercenaryGeologist.com

August 6, 2012

I was a keynote speaker at the recent Murdock Capital Partners Critical Metals / Strategic Elements Symposium in New York City. This is my second gig at one of convener Tom Dean’s on-going series of symposia and I thank him for continuing support. Although the venue is small, intimate, and limited to 75 attendees, the investor quality is second to none, particularly in the amount of money represented and managed. In my presentation I categorized the metals critical to modern-day civilization and reviewed the minor metals that are increasingly used by society in new technological applications.

Recently a plethora of alternative names have been proposed and promoted for what were once known as the specialty or minor metals. These mostly obscure elements span the gamut from the lightest to the heaviest on the periodic table. In my opinion, analysts and investors alike have become confused by these newly-invented misnomers.

Much of the confusion can be blamed squarely on two recent reports from the United States government.

In December 2010, the US Department of Energy (DOE) produced a report entitled “Critical Metals Strategy”. It identified seven rare earth elements and three minor metals (lithium, indium, and tellurium) that are or could become in high demand and short supply from 2011-2025. The DOE list and analysis was predicated on future growth fueled by Obama’s proposed subsidies of the electric and hybrid vehicle, wind turbine, solar, and fluorescent lighting industries.

Subsequently, the US Department of Homeland Security produced its list of “Strategic Metals” based on national and economic security and public health and safety. However, its list had few metals in common with the DOE compendium. Homeland Security’s strategic metals were more realistic and included ferrous alloys chromium, manganese, titanium, and cobalt, and minor metals germanium, niobium, tellurium, the rare earth elements, and tungsten.  

Not surprisingly, these government studies recommended bureaucratic and regulatory solutions involving interagency coordination, cooperative studies, research funding, comprehensive plans, and international workshops.

The various proposed names for the low demand metals are arranged below from youngest to oldest and include short explanations of their origins:

• Critical metals: DOE’s aforementioned list in late 2010 is based on Obama’s agenda for green energy subsidies.

• Electric metals: This is the title of annual conferences beginning in April 2010 and held by Byron Capital, a group of Toronto-based research analysts.

• Doping agents: A name that was proposed by The Hague Center for Strategic Studies in early 2010 for metals that are minor additives in alloys and composites.

• Rare metals: Don Bubar, CEO of Avalon Ventures, renamed the exploration company Avalon Rare Metals upon gaining a TSX listing in mid-2009.

• Technology metals: According to my source, this term was coined by materials engineer Jack Lifton and first used publicly in September 2007.

• Strategic metals: A term that was first used for both major and minor metals during the Department of the Army metal mining subsidies in the 1940s and 1950s. It also references the National Defense Stockpile from post-WWII until the Soviet Union’s failure in the early 1990s.

However, this alphabet soup of metals has long been known by two names that are of common usage and are easily categorized by several key criteria: Specialty metals, which is the term I prefer; or if you wish, minor metals.

Before we delve further into the specialty metals, I offer my real world answers to the question, “What makes a critical metal “critical”?

In my opinion, the general characteristics of a critical metal include the following: It is essential to modern-day industrial processes and/or applications and therefore, world economic health and well-being; a major tonnage (with few exceptions greater than one million tonnes) is mined, processed, and used per year; it trades on open world markets, including futures and options; or, it trades as a bulk dry commodity via a negotiated contract or pre-set price.

I submit that these are the world’s critical metals, arranged for the most part in order of their yearly mined tonnages:

• Iron ore (Fe) comprises 95% of the world’s total metal production. Iron and steel are the foundations of our modern-day civilization and the Iron Age marked a major advancement for mankind beginning in 1200 B.C.

• Aluminum (Al) is the strong and lightweight metal that was not used in any major industrial application until the 1890s and now is the world’s second most important metal with over 44 million tonnes of production in 2011.

• Copper (Cu) with a Ph.D. in Economics is the true “electric” metal. Its 19 million tonne supply, demand, and price most directly reflect the world’s current industrial and economic health.

• The major ferrous alloys including: Chromium (Cr), the third most used metal at 24 million tonnes, manganese (Mn), fifth at over 14 million tonnes, nickel (Ni) with 1.8 million tonnes, and molybdenum (Mo) with 250,000 tonnes. These metals are alloyed with iron for various types and grades of steel, essential for today’s industrial applications.

• Titanium (Ti) oxide production was 6.7 million tonnes in 2011. Titanium minerals are used mainly in the pigment industry in addition to 186,000 tonnes of metal sponge demand for iron and specialty alloys.

• Zinc (Zn, 12.7 million tonnes, lead (Pb, 4.5 million tonnes), and tin (Sn, 250,000 tonnes) are essential for major industrial applications including galvanizing, batteries, and alloys respectively. Copper-tin combinations were the first alloys used by Man and ushered in the Bronze Age at about 3300 B.C.

• Uranium (U) had no significant use or supply until the1950s but it now contributes 14% of the world’s electrical energy supply. Current mine production of 53,000 tonnes is about 75-80% of annual world demand. Uranium diverges from the other critical metals in its relatively low tonnage and it does not trade on open markets, but it is no doubt essential for our long-term energy future. 

Despite the aforementioned efforts to invent new names for the specialty metals, each individual metal has a number of common characteristics with its brethren. First and foremost, a specialty metal is non-essential to a healthy and well-functioning world economy.

It also has a small tonnage and a relatively small total value mined, processed, and used on a yearly basis; is a by-product or a co-product of large mining or smelting operations; or, deposits are small and the economics are especially sensitive to processing and refining costs.

In addition, a specialty metal does not trade on open markets and pricing is negotiated by buyers and sellers via term off-take contracts or spot sales. As a result, pricing, trades, supply movements, and annual production are largely opaque. World supply may be controlled by a monopoly or oligopoly via a company, deposit, country, or region.

This periodic table shows my categorization of the world’s critical metals and specialty metals:

The Critical (Red) and Specialty (Green) Metals

Because I am a speculator in the junior resource sector, my on-going study of commodities is geared toward understanding supply and demand fundamentals and determining those metals that are suited as flagship projects for junior explorers or miners. With that in mind, I will provide a brief synopsis of each specialty metal and then reveal those that I currently consider permissive for successful speculation.

• Lithium (Li): The lithium compounds market is controlled by a cartel of three large chemical companies that extract the metal from shallow brines, mostly in South America. Lithium compounds are used mainly in batteries and grease. The spodumene market is monopolized by a single mine in Australia that supplies much of that mineral for glass and ceramics. China is also a major domestic supplier and consumer of both markets. Altogether, these sources produce an estimated 34,000 tonnes of elemental lithium in 2011.

• Beryllium (Be): The free world’s beryllium supply of 240 tonnes is controlled by a US company in a mine-to-market monopoly supplied by a deposit in central Utah. Its production is supplemented with high-grade sorted ores from other countries used as mill sweeteners. Russia and China source beryllium from Soviet-era stockpiles in Kazakhstan as does a mid-tier US alloy fabricator. Beryllium is used in specialty alloys mostly for military and high tech applications.

• Scandium (Sc): World production is miniscule at an estimated two to four tonnes a year. It is a by-product of some REE mining and is also obtained from Russian stockpiles. Scandium is a minor component for specialty aluminum alloys used in aerospace applications and sporting equipment.

• Vanadium (V): It is produced mainly from steel mill slags, but also as a by-product of uranium mining and heavy oil residues with one stand-alone mine in South Africa. Current supply of 60,000 tonnes is sufficient to meet anticipated demand in iron alloys and catalysts. Recent speculation on increasing demand focuses on new battery applications.

• Cobalt (Co): The 98,000 tonne world supply is obtained as a by-product of nickel and copper smelting and is controlled by operations in central Africa and integrated mining companies elsewhere. Cobalt is used in high-strength superalloys, pigments, batteries, catalysts, and radioisotopes.

• Gallium (Ga): The world supply is a by-product of aluminum and zinc smelting and is controlled by giant aluminum and zinc companies that produced 216 tonnes in 2011. Gallium is used in semiconductors.

• Germanium (Ge): The 2011, 118 tonnes supply is a by-product of base metal smelting, mainly zinc, by the world’s large base metal companies. Germanium is used in fiber optics, night vision devices, and catalysts.

• Zirconium (Zr): The world’s supply of 1.41 million tonnes comes mainly as a by-product of titanium mining from heavy mineral beach sand deposits. Production is concentrated in Australia, South Africa, and the United States and generally controlled by major mining companies. Zirconium is used mainly in refractories and ceramics, but also in alloys, jewelry, and nuclear fuel assemblies.

• Niobium (Nb): About 75% of world supply of 63,000 tonnes comes from a single open-pit mine in Brazil that contains over 100 years of anticipated world demand. It produces at two to six times the grade of two other deposits of significance in Brazil and Canada. Ferroniobium and nickel-niobium are used as minor components of many specialty steels, and pure niobium is used in superalloy applications.

• Cadmium (Cd): Supply is a by-product of zinc smelting and controlled by integrated zinc companies; production was 21,500 tonnes in 2011. It is used mainly in batteries and to a lesser extent in electroplating applications. Cadmium is limited in its uses by toxicity.

• Indium (In): The 640 tonne supply is a by-product of base metal smelting by integrated mining companies with recycling contributing over half of annual world consumption. It is used mostly in thin film coatings for LCD, LED, and solar cells.

• Antimony (Sb): Most of the world’s supply of 169,000 tonnes comes from China via mining and processing of small vein deposits. It is also recovered from smelting of some copper-silver ores. Antimony is used mainly in flame retardants and also in lead alloys for ammunition, batteries, and solder. Minor uses include electronics and pigments.

• Tellurium (Te): The world’s supply of 115 tonnes is obtained from the refining of copper ores by integrated mining companies in the United States, Peru, Japan, and Canada. It is a minor additive to some iron, copper, and lead alloys, high-tech electronics, and solar panels.

• Hafnium (Hf): Zirconium ores always contain small amounts of hafnium. The world supply22margin-top: separation from the pure zirconium required for cladding of2>
  

• Tungsten (W): China currently supplies about 85% of demand from numerous small mines. Potentially economic deposits occur in many countries of the world. In 2011, about 72,000 tonnes were produced. It is used mainly as tungsten carbide and in steel and superalloys, with minor uses in electronics and as catalysts.

• Rhenium (Re): This metal is rare and expensive and does not form its own minerals. Supply of 49 tonnes is obtained as a by-product of molybdenum refining and is controlled by integrated mining companies. Rhenium is used in superalloys for jet and rocket engines and as a petroleum catalyst.

• Mercury (Hg): The world supply of 1900 tonnes is dominated by small mines in China with Kyrgyzstan also a significant producer. Mercury is used in industrial chemicals, electrical and electronic devices, and various lighting devices. It is also used by artisanal miners in many countries to recover gold, often with environmental consequences because of its toxicity.

• Thallium (Tl): Ten tonnes are recovered per year in the refining of base metal ores. Approximately 65% of thallium is used in electronics with the remainder in pharmaceuticals, glass manufacturing, and infrared detectors. It is extremely toxic and past uses are banned in many countries.

• Bismuth (Bi): The 8500 tonne supply is mostly obtained by refining of lead concentrates and other base metals and is dominated by China. Bismuth is used in pharmaceuticals, cosmetics, specialty alloys, solders, and as a non-toxic substitute for lead.

• Yttrium (Y) and the 15 Lanthanides (REEs): By-products from a large iron mine in China and a primary mine in the United States currently supply most of the world’s light rare earth elements. Total rare earth supply in 2011 was 133,000 tonnes with yttrium oxide at 8900 tonnes. Yttrium and heavy rare earths come from small mines in southern China. New sources in North America, Australia, Europe, and Africa are undergoing development with initial production scheduled in four-five years. REEs are used in military, high tech, and green energy applications.

As can be seen from the list above, most of the specialty metals are not contained in concentrations that support stand-alone deposits. Many are by-products from the refining of major industrial metals while others are controlled by a monopoly or an oligopoly. Most have sources and supplies that are adequate for future world demand. Therefore, the majority of specialty metals are not well-suited as exploration targets for junior resource companies.

However, there is a justifiable concern about the dependency of the Western World on unfriendly and/or unstable sources for many of the specialty metals. As the Chinese economy continues to grow, its current specialty metals market is transitioning from export of products to domestic use. As this occurs, it is likely China will invoke additional incentives to keep mined supplies for internal consumption.

We saw this happen in 2009-2011 in the rare earth sector. The Chinese announced export taxes, tariffs, and quotas, metal prices skyrocketed, juniors companies piled in and on, and market capitalizations went exponential then parabolic. Although the REE bubble has largely run its course, there remain opportunities for a few select companies to compete successfully in the world marketplace. I was involved very early-on in the rare earth element sector and will always strive to duplicate that record with other specialty metals.

In my opinion, the specialty metals that offer attractive opportunities for speculation in the junior resource sector have three common characteristics: They occur in small monometallic deposits that can be developed with relatively low capital expenditures; they can be concentrated, processed, and a final product sold into a free marketplace without incurring significant third-party risk (i.e., no monopolies, cartels, or large smelters involved); and potentially economic deposits are located in countries that have acceptable geopolitical risk (i.e., stable and corruption-free governments, strong rule of law, mining-friendly, and reasonable bureaucratic and environmental regulations).

There are only a few metals that can ever match the criteria listed above. I currently consider antimony and tungsten to be top targets for juniors in specialty metal space and am searching for companies worthy of my speculative dollars. At this juncture I have found no obvious candidates, but rest assured my loyal subscribers will know soon after I take a position and initiate coverage.

To learn more about supply and demand fundamentals of the specialty metals, I invite you to listen to archived podcasts of my bi-weekly commodities program for Kitco Radio entitled: Mercenary Musings Radio with Mickey Fulp and Rob Graham.

Ciao for now, 

Mickey Fulp

Mercenary Geologist

Acknowledgement: Erin Ostrom is the editor of MercenaryGeologist.com. James Tabinsky provided research on annual production figures.

The Mercenary Geologist Michael S. “Mickey” Fulp is a Certified Professional Geologist with a B.Sc. Earth Sciences with honor from the University of Tulsa, and M.Sc. Geology from the University of New Mexico. Mickey has 35 years experience as an exploration geologist searching for economic deposits of base and precious metals, industrial minerals, uranium, coal, oil and gas, and water in North and South America, Europe, and Asia.

Mickey worked for junior explorers, major mining companies, private companies, and investors as a consulting economic geologist for over 20 years, specializing in geological mapping, property evaluation, and business development.  In addition to Mickey’s professional credentials and experience, he is high-altitude proficient, and is bilingual in English and Spanish. From 2003 to 2006, he made four outcrop ore discoveries in Peru, Nevada, Chile, and British Columbia. 

Mickey is well-known and highly respected throughout the mining and exploration community due to his ongoing work as an analyst, writer, and speaker.

Contact: Contact@MercenaryGeologist.com

Disclaimer: I am not a certified financial analyst, broker, or professional qualified to offer investment advice. Nothing in a report, commentary, this website, interview, and other content constitutes or can be construed as investment advice or an offer or solicitation to buy or sell stock. Information is obtained from research of public documents and content available on the company’s website, regulatory filings, various stock exchange websites, and stock information services, through discussions with company representatives, agents, other professionals and investors, and field visits. While the information is believed to be accurate and reliable, it is not guaranteed or implied to be so. The information may not be complete or correct; it is provided in good faith but without any legal responsibility or obligation to provide future updates. I accept no responsibility, or assume any liability, whatsoever, for any direct, indirect or consequential loss arising from the use of the information. The information contained in a report, commentary, this website, interview, and other content is subject to change without notice, may become outdated, and will not be updated. A report, commentary, this website, interview, and other content reflect my personal opinions and views and nothing more. All content of this website is subject to international copyright protection and no part or portion of this website, report, commentary, interview, and other content may be altered, reproduced, copied, emailed, faxed, or distributed in any form without the express written consent of Michael S. (Mickey) Fulp, Mercenary Geologist.com LLC.

Copyright © 2012 MercenaryGeologist.com. LLC All Rights Reserved.

More from Peru!

Recently our Administration Director's daughter had a daughter.  Below I present a picture of four generations of Peruvian women!

I just got a report that the photo for at least one reader did not go through, here is a link that will show the photo as well:

https://mail-attachment.googleusercontent.com/attachment/?ui=2&ik=6d48d1c571&view=att&th=1391e14c25c5fb2e&attid=0.2&disp=inline&safe=1&zw&saduie=AG9B_P8tJ-6DSXZ5xTG7MiD1Dp2E&sadet=1344877500980&sads=e99NQPiSgSw9eWnNZrl6zU6ERa8&sadssc=1

Starting with the youngest member of the Ameru team and going counter-clockwise:

-- Camila Cardenas Rodriguez (born July 20)
-- Denise Rodriguez Pérez de Cardenas (Camila's mom)
-- Lilia Pérez de Rodriguez (Denise's mom)
-- Ana Pineda de Pérez (Lily's mom, and so Camila's great-grandmother)

I should mention that through her son Oscar, Ana Pineda is the only great-great-grandmother I know!

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There's even more good news from Peru.  Our largest customer is a small group of businesses all controlled by one family.  They coordinate their purchases.  And they buy a lot of our staple Korean bearings for the Daewoo Tico, the old Korean car I have mentioned before.

The below shows sales of our front wheel bearing (both the Inner piece and the outer piece, a little unusual for car manufacturers to do that).  So, four pieces would replace the entire front axle's wheel bearings, that works out to 450 cars...

Ameru's Sale of Tico Bearings to Our Largest Customer
			Price
Customer ID	Bearing ID	Qty	(US $)	Amount
894826	02-6007-RS	200	$3.48	$696.00
306826	02-6007-RS	1200	$3.48	$4,176.00
845268	02-6007-RS	400	$3.48	$1,392.00
Totals		1800 pcs		$6,264.00

I mentioned in my "Review of Barron's" article last weekend that there are companies that have a "moat" that helps protect them from some kinds of competition.  Well, Ameru has a kind of a moat: Korean replacement bearings for Korean cars.