MONITORING ECONOMIC CRISIS - XVI

MONITORING ECONOMIC CRISIS - XVI

(Week III in December 2007)
TRADING ALERT & REVIEW: SHARES OF GOLD 

FUNDAMENTAL ANALYSIS MECHANISMS OF SHORT-TERM
Bank of England (BOE) and European Central Bank (ECB) jointly disburse grants / loans liquditas $ 540 billion. That money is very large. And will impact inflation. It could either be temporary and permanent. Banks and private investment institutions affected by the subprime credit for a while (at least 3 months) does not need to rush to liquefy their investments (stocks, gold, commodities) into funds to meet its obligations. Another impact of commercial lending rate LIBOR (London Interbank Offered Rate), also fell. I will not discuss this liquidity flushing effect on the economy. Because the answer is, they can not sidestep a recession. The recession has something to do with consumption (in the US) and now people are in contact with the bag deflated. Banks are also unwilling to extend credit that is geared to consumption (Problem current liquidity crisis for lending recklessly. So do not expect commercial banks dare to give credit easily again).

The temporary nature of liquidity, according to the nature of this pengglontoran namely 3-month loan with a guarantee of anything, including letters of subprime CDO. For melanggengkannya, it must provide a roll-over of loans is continuous liquidity to become permanent relief. As BLBI ..., so. In short, the time for 3 months, tekananan sell because of liquidity could be reduced. Stayed tekannan sales because of the recession (so not all of the factors of selling pressure in the stock market soon, do not rejoice just yet). This flushing also inflationary nature. So it's not unlikely to trigger a resumption of the rally in the gold sector. It wants to be emphasized in this review.


FUNDAMENTAL ANALYSIS OF LONG TERM
Back bad news hit the stock market, Yesterday evening of December 19, 2007, (http://www.iht.com/articles/2007/12/19/business/morgan.php ) Morgan Stanley first in history to record a loss for the quarter whitening $ 5.7 billion in subprime debt. We will be treated to this kind of news throughout the year 2008. The Fed and other central banks are assumed to provide liquidity assistance continues to make efforts alias reflasi. That is inflation.And when the gold price inflation (nominal) will rise. Gold is a fortress of protection of investment in the economy when inflation pressures.

The combination of recession and inflation will benefit gold stocks. At times of crisis gold and silver stocks will triumph than gold and silver sendriri. (Note inflation here is not the same as the government's version of inflation. Inflation version sane person is the increase of money in circulation). Monetary inflation in a period of recession can be subtle, because the numbers that governments are price inflation index. And during a recession prices of goods tend to fall, not least of commodity materials. So the government-approved inflation, CPI (consumer price index), tend to be confined. While monetary inflation rises.

The fall in prices of commodities, capital goods and finished goods would be good for stocks of gold and silver. The production cost of gold mines and silver will go down as oil prices, base metals and equipment down. Therefore, companies, gold and silver is still not make a profit, will be posted gains. Again had at this time a lot of stocks of gold and silver were evaluated assuming a gold price of $ 650 / oz. Though the price of gold is now at $ 800 / oz.


STRONG SUPPORT
The rally in the gold sector of the level of gold price of $ 650 / oz to $ 850 / oz could continue after stalled by a wave of subprime II case. Gold turned out to be sympathetic to the stock market. Even gold stocks slumped more severe than gold and the Dow Industrial.Circumstances seem to be reversed. Gold stock sector is likely to outperform both gold and the Dow Industrial index.

Technically gold since November 2007 and formed a triangle consolidation pattern trading bullish wedge. See Chart-1.

Chart 1 (click to enlarge)

Bollinger bands began to narrow showed that impulsive breakup will occur. The support is in the form of lower Bollinger line, MACD 50D, in addition to support wedgenya own making support for consolidation is strong enough. Gold rally could begin in the period from Santa Clause rally that chances are small and the January effect is great chances. And could continue until March 2008. Opportunities January effect in my estimation is 90%, which means "within the limits of human prediction inevitable".

Index of gold stocks, Gold Bugs - HUI technically have hit the support, 50% Fibonacci retracement level 374. Support is resistance during the 1.5 years of the consolidation period (2006-2007) and turned into support when the index can break this level. So this support is very strong.


GOLD RALLY CONTINUE BACK SOON
There are signs that the rally in the gold sector stocks which had been halted for rest and breath will be resumed. Indeed, the MACD indicator is still not indicate a continuation rally (Chart 2), but other indicators indicators already point in that direction.

Chart 2 (click to enlarge)

Chart-3 is the ratio HUI / Gold. This ratio has hit the lower limit of the trading corridor is established for more than two years. When the ratio HUI: Gold hit this level, then the chances are 95% HUI will out-perform gold. So if gold will rally (conclusion of Chart-1), then the HUI will rally faster again.

Chart-3 (click to enlarge)

The same thing applies to other gold shares, such as the XAU index - Philadelphia Gold Index (Chart 4).

Chart 4 (click to enlarge)

IS THERE CORRECTION sympathetic?
Until now, we still assume that the additional liquidity will make the stock market reduced selling pressure and habits of the end and the beginning of the year can be expected. Suppose there is Santa Clause rally (rally end of the year) and the January effect rally in all sectors of the stock, then gold stocks will rally was sorry, and can be faster than the Dow or S & P. But if there is no end rally and the beginning of the year, how? So there is still one question that still interfere, namely: "If the stock market slumped, whether gold stocks will also experience a correction of sympathy?" This question is disturbing because, not all factors suppressing the stock price can be eliminated by the disbursement of liquidity by the ECB. Therefore, there should be a correlation between the HUI and the Dow Industrial (INDU, DJIA).

Chart-5 shows the ratio HUI / INDU. Relative Strength Indicator, RSI shows in a very low position, level 30. Thus the opportunity to turn around very large. That is, if the change HUI tend to be larger than INDU. In other words, if the Dow corrected, do not make too HUI slumped. Possible gold sector will loose relationship with the Dow and S & P.

Chart 5 (click to enlarge) 

GOLD STOCK REVIEW

Gammon Lake Resources (GRS)
I'm a bottom feeder, meaning that like collecting stock that has been battered because they experienced selling pressure because of misperceptions. Of course pretty good fundamental.One stock I anticipated there misperception is Gammon Resources (GRS). GRS experienced strong selling pressure due to misperceptions. Last year EPS (earnings per sharenya) $ -0.76 as quoted in the Yahoo ( http://finance.yahoo.com/q?s=grs ). It is not good. But, whoa. EPS is calculated with the assumption gold price of $ 650 / oz. Nowadays we know that the price of gold is $ 800 / oz. The second, there is bad news, that the GRS financial performance does not meet expectations. Ocampo gold fields newly cleared was the start-up is not as smooth as people think. For ordinary people in mining operations, start-up always is never smooth.Expected second quarter 2007 production of 100,000 oz was only 58,000 oz alone. The surgery is only 58% of the installed capacity. Usually need 2-4 quarters to earn the smooth operation and maximum use of capacity. Thus, a reasonable financial performance GRS recently appeared in I-II quarter of 2008.

Usually the operating costs at the beginning of production is relatively high because of the business units in the still early stages of learning and also still a lot of costs incurred for process modifications and minor changes in the production of devices. So it is natural to assume that in the coming months operating costs will go down.

The lower cost of this operation not only for efficiency and reduced capital spending, but also the expected prices of intermediate goods production (spare parts, fuel, etc.) down. Chart 6 shows the sensitivity of the valuation of the GRS to the level of production, the price of gold and operating costs. Blue curve shows the sensitivity of the valuation of GRS on the condition of the second quarter. Chart red and magenta indicates if the operation is normal Ocampo and production costs can already dieffsisienkan. In summary it can be said that the PER GRS during normal operation is 7 or better.

Chart 6 (click to enlarge)

It seems that GRS has undergone a correction from $ 19 to $ 7.30, more than 60% and hit a strong support. At the level of $ 7 - $ 8, there are investors who collect diligent. The volume of trading was pretty good when share prices rise and the lowest trading volume when share prices fall. (Chart 7). I think downsidenya was not much left.

At the current fair value of gold is $ 2000- $ 2500 per oz. Therefore, GRS can be collected and then stored for 1-5 years until the value of gold reached a fair level.

Chart 7 (click to enlarge)

Gold Fields (GFI)
GFI is a fairly old gold producer based in South Africa. Many fields in South Africa. Many mines are old mines and reserves nearly exhausted. Therefore GFI perform such divestments and trying to find new places such as Ghana, Australia, China, Peru and others.

Gold Fields (GFI) a few months under selling pressure due to falling revenue nearly 31% live.This GFI sell some mines that are not in accordance with its portfolio and also invest for some projeknya. So it was not because its performance is deteriorating. In this case GFI obtaining cash to be invested or used for operations.

GFI include gold producer with low cost, only $ 140 / oz. P2 reserves (proven + probable) reaches 75-100 million oz. With the amount of such reserves and current production costs interinsic value of GFI shares is approximately $ 50 (assuming the price of gold = $ 800 / oz).

I see that the operating margin and profit margin reported in Yahoo (http://finance.yahoo.com/q/ks?s=GFI ), not too good. Only 10% only. 2007 indeed GFI cash flow performance is not too good for a lot of investment. Dlam balance sheet financial report (Table-1) there is an increase of 80% equitynya and from investment in equipment and plant.

Table 1 (click to enlarge)

Cash-flow from operation activities was down (Table 2). Targeted in 2008 some project-projeknya already bearing fruit. Target production is 4:25 million oz. Gold. Cerro Corona mine will produce at 3Q08 and Choco 10 to reopen.

Table-2 (click to enlarge)

GFI in recent months experienced a correction of $ 27 to $ 13 level. Fair value GFI assuming $ 800 / oz of gold is around $ 50. Next year and 2009 expected cash flow back in reasonable due to reduced investment and production rises. Technically, the share price of GFI can play in the $ 9.5 and $ 11.5 (see Chart 8) if the year-end rally and the early years could not break the resistance and exit trading range of $ 9.5 - $ 11.5 this. But if you can get out, then the $ 27 level will try to penetrate. GFI can be seen as an alternative to physical gold investment. 2 -3 times the value of physical gold, which means that GFI shares will rise along with rising gold prices with the strengthening of 2-3 fold.

Chart 8 (click to enlarge)

Up here first, keep your investments and savings, as well as your health. Happy face in 2008 is more challenging. ,If you think that the contents of this blog can stimulate your thinking, why do not you tell colleagues, wife, girlfriend, law / prospective in-laws so that they are also stimulated and protected from Alzheimer's disease. What else next two articles devoted to the layman. Do not forget membari know them. The writings in this blog is intended for informational and educational materials, is not an investment recommendation. We are not responsible for any losses you suffer as a result of using the information in the blog ini.Akan but if you want to share the profits derived from the utilization of our information, we will be happy to accept it. Jakarta December 21, 2007.

SUNDAY, DECEMBER 16, 2007

MONITORING ECONOMIC CRISIS - XV

(End 2007) REVIEW CAPITAL MARKETS & GLOBAL ECONOMY 2007-2008 Topics Kali's THE MOMENT OF TRUTH RECENT DEVELOPMENTS credit squeeze STORY SHORT PROCESS OF OCCURRENCE OF CRISISPREDICTIONS 2008 AND FUTURE CRISES AND OPPORTUNITIES FOR THE MOMENT OF TRUTH In 2007 and 2008 was a time of the moment of truth, future determination to fight the bear camp with the rest of the capital. This assessment is based on my predictions a few years ago. And during 4 years of skill to invest in bear market (a market where stock prices tend to decline) learned, honed and perfected. The time had arrived.

 

There I remember about what I often predicted for the past four years of recession, the economic crisis and the collapse of the capital markets. My estimate would happen in the middle of 2007. And it is always consistent. Many readers do not listen to this timing case. Is not a coincidence that since August 2007, I made ​​a series of articles entitled " Monitoring the Economic Crisis ," as if I am convinced that the economy is crystallized to become a crisis. Making the heading " Monitoring the Economic Crisis " is not without opposition. I received several emails from co-founder KlubSaham.Com (KSC) to stop in a series of it. The reason for fear of damaging the reputation of KSC because the analysis is wrong. I consider to continue the series of articles was due solely convinced that the crisis is in the process of formation. For the timing of this crisis, I pour in some of the articles in Klubsaham.com few years ago in the meeting Klubsaham.com beginning of 2003. To reduce curiosity I tried searching for old articles that mention it at KSC. For example in an article two years ago, in 2005, entitled " A year Government of SBY-JK" ( http://www.klubsaham.com/index.php?name=News&file=article&sid=45 ) I quote: ...... ... Shock many teachers predicted Doomsday.At some point, probably in the year 2006 a mad dog, or a greedy pig year 2007. Crystal ball and hong shui Imam Semar said 90% chance will happen in 2008 or sooner . Indonesia will be crushed as well. Also in the article: "Roast Chicken Of Cheap Bad Debt" - August 2005 (http://www.klubsaham.com/index.php?name=News&file=article&sid=38 ) From the above discussion, we see the cloudy crisis, which might rain will occur within the next 24 months. Maybe the rain will fall, maybe not. But, I'll get ready. Because chances are there, such as cloudy a chance of rain. First, pay off all debts at floating rates. Moving to a fixed rate. If you still have a second home or / and a car, sell first. The money saved as gold. Normally gold has an excellent performance during the crisis. What was the crisis in Russia, the crisis in Argentina, the crisis in Indonesia, its performance is good gold. Imagine that in times of crisis, people could no longer afford home loans, car loans, need money for this and that. Credit default. And you know the rest. There are many occasions. Remove the gold and buy homes, new and used cars but other again. Stock? It may also sag. (Note the words in bold. Note: 24 months after August 2005 is mid-2007) There are some basic things mentioned in the prophecy. First rising defaults in the sector of housing loans and consumer loans (car, for example). The lending rate rises. Although I say there that the central bank will raise it, raise it turned out to private and central banks actually lowered, resulting in wide spread. Many prefer the central bank to combat the credit squeeze that could lead to deflation than to fight inflation by doing pengglontoran liquidity. I can not imagine how I can foresee a relatively accurate in terms of time. Wangsitnya might come from fairly reliable sources. Some things are true about the prophecy: 1. Inflation, rising prices of almost all goods, ranging from oil, food and gold.Especially for gold at the time of the last 3-4 years at a level of $ 400 / oz or USD 100 thousand / g, now a fold in dollar terms and 2.5-fold in the rupiah. Gasoline prices reached Rp 6000, the Indonesian government was still discourse. 2. Failed to pay, especially so in the US. In Indonesia there (only in the automotive sector, especially motor credit), is not likely to spread to Indonesia. 3. Rising interest rates, it is the lending rate of the central bank dropped, but the interest rates on commercial loans rose. Actually the word commercial loan interest rate rises is konsekwesi of rising debt risk. I should have said that the risk of debt increases, it is more appropriate, but such language is hard to understand the lay reader. Credit risk is what causes the occurrence of a credit squeeze. Beginning in mid-2007, the debt- -subprime credit home loans in the US began to spread. The crisis was initially involving Bear Stearns, Citigroup and investment banks that mebungkus subprime debt into packages of securities and selling them to investors. The crisis spread to Germany (IKB & SACHSENLB) and the UK (Northern Rock), Canada and Russia because of consuming the toxic subprime packages. At the moment (July to November 2007) was a gold rally from the level of $ 640 / oz to $ 850 level. For the stock market, the confirmation Bear Market Dow Theory version has appeared in November 2007. In other words, formally the capital market in the US has entered a phase Bear. For how long this bear market? Maybe until 2009 alone, or until 2011. Depending on how fast the alignment of sectors ekomoni distorted over the years. How much faster mal-investment and bad credit can be destroyed Overall, the forecast was not too bad for a economic analyst part-time. RECENT DEVELOPMENTS credit squeeze latest development credit squeeze are the central banks of several countries, USA, Canada, England, Europe, and Switzerland come together to handle the credit freeze. This reflects the panic the central banks of Europe and America. Central banks unite to distribute credit through an auction. Collateral or practical collateral can be anything, including subprime debt instruments that can not be accepted by commercial banks. With the merging of central banks lending is expected to be uneven in places where only the credit freeze. The Fed will temporarily impose a Term Auction Facility (TAF) auctions borrowing (temporary) cash at a rate in accordance with the results of the auction. Collateral can be anything. Besides, the Fed in cooperation with the European Central Bank (ECB) and the Swiss National Bank (SNB) to channel US dollars within the jurisdiction of the ECB (up to $ 20 billion) and SNB (up to $ 4 billion), the European Central Bank will channel the liquidity of US dollars through TAF. The Fed will supply the US dollar ($ 20 billion) and there will be a swap mechanism. Swiss National Bank will be more frequent repo denominated in Swiss francs and conduct auctions denominated in US dollars to facilitate market participants associated with the system repo Switzerland. (Switzerland as a state-based financial services many have clients who use the US dollar). The Bank of England will more often leave program repo (repurchase agreement) for short term and long term by accepting collateral anything. The Bank of Canada will more often use repo and willing to accept any collateral. what you need to ask is whether central banks attempt to evade US and the world out of recession? I answer: No. STORY SHORT PROCESS EVENT oF cRISIS In layman how the origin of the crisis can be told like this. First it was the (in) loose credit policy in the US and other parts of the world. People who do not deserve to be given credit for home ownership (against the house), the mortgage loans.Many feed the convenience provided, ranging from a low teaser interest (valid 1-2 years before switching to a floating rate), pay only the interest-only and others. Demand for homes up and trigger a rise in house prices. Then, as house prices rise, then people make the house as an ATM.Loans repaid by opening new credit with a larger amount of debt and the price of new collateral (higher). This is called home equity extraction, because there's money pocketed from this transaction mechanism and then spent. House prices into a bubble. As a result of their home equity extraction, the people of the US (felt) had more money and have the opportunity for shopping. So they are spending all kinds, ranging from SUVs, plasma tv, to children's toys.Items purchased many of China. Call it China to represent a country that has a trade surplus with the US. As a result of increased consumption in the US, the economy of the country the supplier of goods to the US also booming. Factories in China so alive, even popping up new ones. Raw materials imported from Australia, Indonesia, Canada and others. State-based materials mentahpun participate booming. In these countries the consumption also increased.But unfortunately the culture of their consumption is not as powerful as the US. Asia, especially, they tend to save or invest instead of going to consume, because the background of their lives were not safe (secure). Returning again to the US. On American soil there, mortgages (debts of housing) is packed with other debts and made ​​the packages CDO (Collateralized Debt Obligation), SIV and many other acronyms acronyms are essentially the same. And these packages are sold to investors. Packaging notes are also insured so that in case of default is no insurance that guarantee. It seems good, but in practice sontoloyo. AAA rating is given on the package containing the class B debt even non-investment grade. Some debenture AAA only insured in the insurance type A. So if someone fails to pay, can not be covered by insurance. As long as home prices rose, the above circumstances could still continue. But it is necessary injection of liquidity that increasingly large. In other words, such things can not go on. When the subprime borrowers discharged his honeymoon with teaser interest and must pay a floating rate, they can not afford and had failed to pay. The case of subprime debt spread. The debtor was forced to surrender the collateral. Bank to auction the collateral mortgage. In addition, new homes are still popping up as many unfinished. There is a lag between the occurrence of subprime case with the cessation of the construction of new homes. Stock piling home. Then apply the law of demand-supply, housing prices go down. If house prices fall, mortgage borrowers begin counting, suppose lower his price or expected to be lower, then they will seek his release. Should not be sold, it is better left to the bank. Bank hit the stone. IOU many unsold as investors feared the packets containing Suprime loan. Borrowing and lending of money between financial institutions becoming difficult because of their unbelief, what to do with the funds? Want to be involved to a sector that has been contaminated by subprime? That the credit squeeze. So anyone who touches? Banks that give loans, investors who buy debt and underwrite insurance if there is a loss and default on debt. Messed up is not it? Now you can answer whether the Fed rate cut can solve the problem? Is the injection of funds into financial institutions such as Citigroup or Countrywide will help avoid losses due to the value of the collateral given by the debtors lower than the debt of the debtor? PREDICTIONS 2008 AND FUTURE If you are clever enough, you will already be able to describe what happened in the year 2008 to the year 2011 . In summary: 1. Tsunami defaults on housing loans sector will hit the US, and the largest in the middle of 2008. Freezing credit worsened, unless the Fed had a breakthrough, I do not know at this time. The implication is that investors will try to reach any assets that could diliquidasi to pay its obligations. The stock market is depressed. There is the possibility of gold also came under pressure due to liquidity needs could not be fulfilled. 2. The subprime sector was small, but had a domino effect could drag on other sectors. Bankruptcies in the financial sector including insurance will increase. 3. Consumption drives the world's economic growth since 2003 will decline due to the lack of resources that can be extracted again. And this will make the recession in the US. The recession in the US will spread to China as a supplier of consumer goods to the US. Domino effect spread to the commodity sector of raw materials, steel, nickel, copper, oil, coal ..., demand decreases and gradually it drops. 4. Excess capacity to meet the consumption style of big wedge of the pole, a mal-investment. Mal-investment is what should terbabat first so that the economic system back to normal. 5. Some analysts say that today many petro dollars, especially in the Middle East as well as the dollars accumulated in China. The entry into US dollars and stabilize the capital market in the US. The flow of funds is manifested by the low yield of treasury bonds and also the stability of the stock exchange in the US. Also inflow of funds amounting to $ 7 billion from Dubai to Citigroup. I was dubious for two reasons. First, the owners of these funds so stupid to enter the market without a strategy. If you can buy at a cheaper price, why not. Both hard for this funding to maintain US market. The owner did not have a moral obligation to stabilize markets in the US. US government just does not do it, why do the Arabs and the Chinese do it? 6. Chances rupiah weakened against the Euro. Against the US dollar weakening smaller chance of euros. US dollar will initially Rebounce, but then weakened again. Yen carry traders, will gradually behind the cage and make the yen strengthened. For the Rat, 2008, the stock market is still bearish atmosphere and economic dirudung chances of slowing down even in some countries are already in recession. Mice that according pribon China has the character of the land on the water. Apparently for the land that floats on the water will be broke down. Mice as animal pests, rodents could symbolize that year 2008 is the year that berhama. Divination is projected forward from the events of the past. Basically no one knows what will happen in the future.Forecast would be wrong to change human behavior from past habits. Do central banks have tips that are very different from the past? Is the economic actors also behave very differently from the past. Eg China, India, Russia and Arab. Such being the case, the economic cycle will be interrupted and changed at all. CRISIS AND OPPORTUNITIES Every crisis is always a chance. According to Dow theory, the US stock market has entered a bear phase, as long as there has been no confirmation of the market reverses direction, then the market is still in a bear phase. I estimate that could be for 2-3 years. So if you are a speculator, trader true, it was time to take a short position. Shares of favorites, the term Wall Street darling, which has a valuation has reached ridiculous levels, such as Amazon (AMZN), Research in Motion (RIMM), Google (GOOG), can be monitored to be candidates for shorting. Also emerging markets such as China (through fund FXI), Hong Kong (EWH), and others. If the financial and housing sectors have been corrected enough in, other sectors still not too severe, so the risk is still small to short. My favorite is the consumer discretionary sector (XFY) and the transportation sector (IYT). I would also take a short position for the mining and oil sector. If you are not aggressive enough, gold is the best choice. But gold may be corrected slightly, before rising again. When the correction should be an opportunity to add to the position. At the time of correction harsu seen as the movement of gold from weak hands to strong hands of investors and have great confidence. Reflasi efforts by the Fed and the central banks of the world will make the price of gold rose. Anyway, the current gold price is still relatively cheap. Fair value is around $ 2000 / oz. So the price of $ 800 / oz, still cheap. Up here first, congratulations Eid al-Adha. Do not forget your obligations sympathize poor. Cut Qurban was sufficient and do not be stingy. Keep your investment and savings fine. Jakarta December 16, 2007.