Disruptive Discoveries Journal

The Difference Between The Signal and The Noise in Commodities

Chris BerryComment

By Chris Berry (@cberry1)

 

For a PDF of this note, please click here.

 

In 2012, Nate Silver, a well known statistician and writer, penned the book “The Signal and The Noise” which discusses using statistics and probabilities to determine real-world outcomes. With volatility in the financial markets on the rise led by a collapsing oil price and plunging emerging market currencies, determining and differentiating the signals from the noise has profound implications for navigating the metals and mining markets as we forge ahead into 2015.

With the price of a barrel of oil (WTI) currently at US $56.05 and widely believed to be headed lower and other commodities including iron ore, silver, copper, and corn under similar relentless pressure, these trends are clear signals and the “noise” they generate is the damage done to investor portfolios. 

Enough To Go Around? Raw Materials and Limits To Growth in Solar

Chris BerryComment

 

By Chris Berry (@cberry1)

For a PDF version of this note, click here.

The growth in the adoption and deployment of solar power since silicon solar cells were first discovered by Bell Labs in 1954 has been nothing short of staggering. The globally installed PV market stands at 140GW and added over 38GW in 2013 alone. In the United States in the first half of 2014, 53% of all new electric capacity came from solar, according to the Solar Energy Industries Association. While still small relative to the overall global energy mix, the rate of solar growth is what to focus on and it is indeed taking off.

 

As to the question of whether that growth can be sustained, the politically sensitive issue of subsidies seems to get all of the press. To me, there are other, larger, and perhaps more immediate issues regarding PV growth.

 

One concerns reliable access to the raw materials necessary to build and supply global PV supply chains. Specifically, I’m referring to the copper, silver, silicon, indium, etc. vital to produce existing and future solar technologies. How much do you as an investor, industry watcher, or company representative really know about the origins and supply reliability of the metals and minerals used in PV manufacture? Another issue to be watched is the changes in PV technologies and also the rate at which the technology is adopted. This also has implications for global supply chains. 

The Grand Disconnect As The Geopolitical Great Game Starts Anew

Chris BerryComment

By Chris Berry (@cberry1)

 

For a PDF version of this note, please click here.

 

By the time you read this, I’ll be in London attending Mines and Money as a speaker and hosting a roundtable on Energy Metals. I think it’s fitting that I’ll be in the city which was at the heart of the last Great Game, the name for the geopolitical and strategic rivalry between the British and Russian empires in the 19th century. After last week’s events in the financial markets, it appears that a new Great Game has begun. The carnage last week made two issues abundantly clear.

First, OPEC has thrown down the gauntlet and is serious about asserting its dominance in the global oil markets.

Mike Berry Interview with Jay Taylor on the Inflation/Deflation Debate

Chris BerryComment

Here is a link to an interview Mike just did with Jay Taylor. Jay pens the popular newsletter Jay Taylor's Gold & Technology Stocks and also runs a weekly radio show titled Turning Hard Times Into Good Times. You can find out more about him here

There is a lot of information packed in a short interview here and it is well worth your time. Topics include the direction for the Federal Reserve in the wake of the end of quantitative easing, economic metrics to watch,  the currency "race to the bottom", banks manipulating metals prices, gold and silver supply and demand, interest rate volatility, and just how long the current economic climate may last. 

On a more serious note, we'd like to say Happy Thanksgiving to our American readers and thank you to all our readers for your time. Give your family a hug and enjoy the next few days.

"What If It's 1982 Again?" - Thoughts on Gold and My Recent Trip To Europe

Chris BerryComment

By Chris Berry (@cberry1)

For a PDF version of this note, click here.

 

Europe has always fascinated me. A thousand years of rich history confront you regardless of the country or city you visit. Opportunities to talk to Europeans from all walks of life about their views on current events or the global financial markets put in a unique historical context are worth the time and effort it takes to plan a trip.

 

My recent trip to Frankfurt, Munich, Zurich, and Geneva was no exception. I went as a keynote speaker on the Fourth Annual Zimtu Capital Bus Tour where I spoke in each city and served as a moderator and emcee. Accompanying Zimtu were a well-rounded stable of companies representing resources as varied as diamonds, potash, coal, and uranium. Representatives from the Canadian Securities Exchange along with several CSE-listed companies were also in attendance on the bus, and as these companies were not natural resource-focused (vertical farming, biotech, etc), it gave this year’s tour a more diverse flavor than in years past and everyone – from institutional and individual investors to the companies themselves – had a unique opportunity to view the small cap discovery sector in a different light.

That said, this note is really intended to focus on what European investors think of the resource sector now that we are three years into what feels like a seemingly relentless malaise. 

The Only Question That Matters In Mining Investment Today

Chris BerryComment

By Chris Berry (@cberry1)

For a PDF version of this note, please click here

 

This note will be shorter than usual as my travel schedule seems to have gotten the best of me. I recently returned from Costa Rica and am off to Europe tomorrow with Zimtu Capital to join them in Frankfurt (Nov 6th), Munich (Nov 8th), Zurich (Nov 10th), and Geneva (Nov 12th) as a keynote speaker on their annual bus tour. If you’d like to attend any of the presentations (numerous TSXV and CSX companies will be presenting as well) please let me know and I can get your name on the invite list.

 

The recent swoon in the metals markets likely has all of us questioning our faith and resolve. Personally, I see no reason why gold and silver, in particular, can’t go much lower and stay there indefinitely. Ultimately, supply and demand always equilibrate, but it can be painful waiting for this to happen. The perception of increasing economic strength in the US with a recent 3.5% GDP growth print plus continued US Dollar strength are outweighing the continued reports of gold and silver consumption in the Emerging World. 

Mining Investment in Hong Kong – Optimistic but Searching for the Turn

Chris BerryComment

By Chris Berry (@cberry1)

For a PDF version of this note, click here

 

 

I have recently returned from Hong Kong where I was privileged to deliver a keynote address at the 121 Mining Investment Forum. In an environment which is crying out for a new conference model, the founders at 121 are on to something. There is an institutional appetite in Asia for mining deals despite the cyclical and structural disinflationary headwinds that appear to be intensifying.

My motive in attending the conference, aside from networking, was to get a feel for how Asia-based investors viewed the metals markets and what sort of questions they were asking. 

Consolidation Amongst Miners Picks Up As Growth Slows

Chris BerryComment

By Chris Berry

 

 

It’s interesting to note that on the same day the International Monetary Fund released their annual World Economic Outlook which lowered expectations for global growth (yet again), that several potentially large mining deals were either launched or mooted.

While the talk of the potential deal for a merger between Glencore (GLEN:LN) and Rio Tinto (RIO:LN, RIO:NYSE) dominated the headlines, two (relatively) smaller deals were also announced recently.

Anglo American (AAL:LN) will reportedly commence with a sale of up to $1 billion worth of copper assets in Chile including the Mantos Blancos and Mantoverde mines, along with AAL’s 50.1 percent stakes in the El Soldado mine and Chagres smelter according to Bloomberg. These assets are small relative to others in AAL’s portfolio, but a willingness to part with them says a great deal about the company’s thoughts on the need to generate returns in the current macroeconomic environment.

Q3 2014 Energy Metals and Economic Review

Chris BerryComment

By Chris Berry

 

For a PDF version of this note, click here.

 

  • To call Q3 “challenging” is an understatement. Growth momentum is increasingly absent.
  • Most metals were relentlessly forced downwards in Q3.  Gold declined .13% (almost wiping out its gains YTD), silver fell .11% (down 13% YTD), and copper swooned 4.96% (down 9.42%YTD).
  • Rather than pinpoint an “elephant in the room”, there are multiple negative catalysts including slower growth in China, a relentlessly stronger US Dollar, and excess commodity supply.
  • Geopolitical events including the downing of Malaysian airline’s MH17, the potential spread of the Ebola epidemic, and the “rise” of ISIS have not had a significant effect on metals prices. The “metals” disconnect has many analysts, myself included, puzzled.
  • It raises the question of whether or not the current downturn is structural rather than a “normal” cyclical downturn from which we always expect to recover.
  • Q4 themes and catalysts may include a stimulus package in China aimed at boosting consumption, continued US Dollar strength (negative for gold and a deflationary precursor) , an announcement of QE in the Euro Zone, and the end of QE in the US.

 

In Deflation’s Grasp?

We have discussed the inflation/deflation debate many times in the past. It now seems clear that deflationary forces are predominant. Falling commodity prices, sparked by excess global supply and muted demand, aging societies, a stagnant velocity of money, and the ubiquity of technology continue to conspire to suppress and overwhelm the Federal Reserve’s attempts to stoke inflation.