House Mountain Partners

QE

Einstein, the Definition of Insanity, the Euro Zone, Gold, and QE

Chris BerryComment

By Chris Berry (@cberry1)

For a PDF of this note, please click here. 

 

 

At this point, what could possibly be said about the economic health in the Euro Zone and the prospects for growth that hasn’t already been said? Realistically, the only question that has yet to be answered is how to ignite growth? This is a question you could ask about numerous economies around the world, but the structural challenges in the Euro Zone and the fact that you have a political union but not a financial one appear to be the reasons for what little growth actually exists.

With that in mind and with the European Central Bank (ECB) essentially out of ideas, the announcement of a quantitative easing (QE) program of €60 billion per month was likely the worst kept secret in finance. Specifically, this program will take the form of an asset purchase mechanism where the ECB will buy government bonds, private sector bonds, and debt securities of European institutions totaling €1.3 billion during the “life” of the program. Many would argue that the QE programs in Japan and the US have failed to achieve their objectives and this is why I mentioned Albert Einstein in the title of this note. He’s credited with saying that the definition of insanity is doing the same thing over and over and expecting a different result. Is anyone in the ECB familiar with this?

In just the month of January alone, central banks in Denmark, Turkey, India, Peru, and Canada have all lowered rates in an attempt to ignite growth. Additionally, the People’s Bank of China (PBOC), quietly injected USD $8 billion into the domestic banking system via a 7 day reverse repo lending facility. Clearly, the Swiss National Bank’s un-pegging the Franc from the Euro was the first domino to fall and other central banks around the world are positioning for a challenging way forward. 

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

Chris Berry1 Comment

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. 

2014 Q2 Economic and Energy Metals Review & Second Half Outlook – Part I

Chris Berry

By Chris Berry
 

  • During the second quarter of 2014, many share prices of energy metals companies struggled for direction after the dust settled from the Tesla (TSLA: NYSE) Gigafactory announcement.                                                     

  • Our theme of viewing the supply and demand dynamics of each energy metal individually continues to be the best course of action as the trajectories of each metal may differ. For example, lithium carbonate prices remained healthy while uranium prices fell by 8% in Q2 and are down 21% YTD.                                   

  • The recent precious metals price spike did not transfer over into the industrial or base metals sector.

  • Though economic data continues to improve selectively, there are still too many economic headwinds in place. Therefore only those resource investments that demonstrate the ability to produce at lowest-cost quartile costs or those that have a disruptive competitive advantage should be considered at this time.          

  • Despite nascent inflationary pressures, we are still inclined to believe that deflation (or disinflation) is the predominant threat to growth. The recent US Q1 GDP print of a 2.9% decline has many concerned that this was due to more than “the weather”.                   

  • We think that the second half of 2014 will be just as challenging as the first half for reasons we outline below.

 

Different Quarter, Different Catalysts

When Elon Musk announced plans to build a Gigafactory in the Western US (and has since discussed building multiple facilities), this sent select energy metals share prices into the stratosphere. Many believed this was the “turn.” The dust has since settled.....