David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Denver Gold Forum Highlights Trends Reinforce Focus on 'Walk Before Run' Strategies

    Thanks to a subscriber for this report from National Bank focusing on gold miners. Here is a section:

    Exploration budgets getting a lift. With balance sheets in better shape from non-core asset sales, higher metal prices, and, in cases, financings, senior and junior companies alike are ramping up exploration budgets and project evaluation programs. 

    For the juniors and intermediates this could generate discoveries of a size that is material to production. Recent exploration and project examples include Newmarket Gold (Fosterville), OceanaGold (Macraes, Waihi, Haile), Richmont (Island Deep), Alamos (La Yaqui) and Alacer Gold (Gediktepe).

    For seniors, exploration spending remains disproportionately focused on near-mine and Brownfield targets (Figure 2) as they look to add and upgrade ounces proximal to existing mine infrastructure. This focus also seems appropriate in the context of recent trends that show a declining discovery rate despite higher-than-average exploration Page 2 expenditures. For example, from 2006 to 2015 some US$54 bln was earmarked for discovery-oriented exploration budgets (69% of total spending from 1990 to 2015), yet gold in major discoveries dropped every year except in 2015. Refer to Figure 3. Thus, in our view, it is unlikely that the recent uptick in exploration spending will generate a different result, specifically new discoveries of a size that can thwart the outlook for production declines. Recognizing that the odds are stacked against them, we view as prudent senior company’s focus on near-mine and Brownfields exploration.

    Benign cost pressures bode well for continuing balance sheet improvements and FCF – conditions that appear to buoy the interest of generalist investors. With currency one of the principal drivers of cash cost trends and FX rates in key mining jurisdictions still generally weak vis-à-vis 2014 and 2015 levels, the backdrop remains constructive for lower costs year-on-year (Figure 4). With that, we expect operating margins to remain robust and be of a magnitude sufficient to maintain investor interest in gold equities. In fact, in speaking with several generalist investors, arguably, this was one of the main takeaway from the DGF.


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    Iger's Legacy at Stake in Possible Disney Deal for Twitter

    This article by Christopher Palmeri for Bloomberg may be of interest to subscribers. Here is a section:

    The 65-year-old chairman and chief executive officer of Walt Disney Co. is scheduled to retire in June 2018. He’s already achieved a number of milestones, including Disney’s revival of the “Star Wars” film series and the opening in June of the company’s $5.5 billion Shanghai resort. But one issue bedevils him and most other media executives: how to transition to a world where mobile devices, not TV screens, dominate news and entertainment.

    The question underscores Disney’s interest in Twitter Inc. The Burbank, California-based company has hired an investment bank to advise on a possible Twitter merger, Bloomberg News reported Monday. A deal would unite the world’s largest entertainment company, the home of ABC, ESPN and Mickey Mouse, with the technology pioneer that created the 140-character tweet. It could let Iger leave knowing he’s given Disney a big presence in digital media and advertising.

    “That would be his final stamp on Disney,” said Tim Galpin, a professor of management at Colorado State University and co- author of “The Complete Guide to Mergers and Acquisitions.” “If he could get that behind him, he could walk off with a final major success story.”

    Twitter, whose co-founder and CEO Jack Dorsey sits on the Disney board, has already been dipping his toes in live sports, airing National Football League’s night games. That’s a business that Disney, the parent of the leading sports TV network ESPN, knows well and that clearly intrigues Iger

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    Twilight of the Central Bankers

    Thanks to a subscriber for this article by Tad Rivelle for TCW which may be of interest to subscribers. Here is a section:

    It’s back to the future – again. Leverage has returned, most notably in the corporate sector where debt metrics have not just roundtripped but indeed are now in excess of the levels experienced before the Great Recession.

    And while the Fed clings to the fiction that it is “data dependent,” its response function – cowering in the face of every market “tantrum” – reveals monetary policy to be what it really is: a put on financial prices. But can the Fed, Canute-like, hold back the future tides of de-leveraging? No, though we expect that they, like their comrades in arms at the ECB and BOJ, will keep trying. Indeed, negative rates can be best understood as merely the latest attempt to forestall the failures of policies past. But, is anyone helped by establishing negative “hurdle” rates to incentivize “investment?” If a commitment of capital requires a negative opportunity cost, then whatever activity that might be launched will assuredly be productivity destroying. Negative rates have all the economic “logic” of destroying the village so as to rebuild it. It is monetary madness and while it might hold back the flood for a time, it fairly well guarantees that when the flood comes, it will be worse than it would otherwise.

    Face it: the central banking Emperors have no clothes. But, might the Fed come up with new artifices to prop up the towers of leverage they have built? They might, though it would be folly. Yet, underestimating folly is, I suppose, a folly of its own. The Fed could continue to use its printing press to falsify capital market signals, but to what end? When a central bank buys an asset with an electronically printed dollar, a “something for nothing” trade has taken place. Unless everything we understand about economics is plain wrong, the Fed cannot go on blithely adding printing press dollars to the system and expect no ill effects. Essentially, inflationist monetary policies cannot be the answer to the problems caused by inflationist monetary policy.

    And this is precisely our point: when the supposed “solutions” to the Fed’s dilemma are merely new “problems,” you know you are approaching the cycle’s end. Our counsel remains as it has been: avoid those assets that will be broken in the coming de-leveraging while keeping a “steady as she goes” attitude towards the future purchase of those assets that will merely bend when the flood comes


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    Trump, Clinton Deadlocked in Bloomberg Poll Before Key Debate

    Here is the opening of this interesting article from Bloomberg:

    Donald Trump and Hillary Clinton are locked in a tied two-way race for the presidency as they head to Hofstra University in New York on Monday night for one of the most highly anticipated debates in modern politics.

    The Republican and Democratic nominees each get 46 percent of likely voters in a head-to-head contest in the latest Bloomberg Politics national poll, while Trump gets 43 percent to Clinton’s 41 percent when third-party candidates are included.

    Clinton faces higher expectations as tens of millions of people tune in for a television spectacle that could reach Super Bowl viewership levels. About half, 49 percent, say they anticipate the former secretary of state will perform better, while 39 percent say that for Trump, a real-estate developer and former TV personality.

    Ann Selzer, the Iowa-based pollster who oversaw the survey, said there are signs that Clinton’s margins with women and young voters have eroded over the past three months, helping to explain Trump’s gains.

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    Schaeuble Urges Lawmakers to Go Tough on Draghi, Bild Reports

    German Finance Minister Wolfgang Schaeuble has urged lawmakers to take a tough stance with European Central Bank President Mario Draghi when he goes before legislators in the lower house of parliament next week, Bild reported.

    Schaeuble told lawmakers in the Bundestag to push Draghi to defend the central bank’s low interest rates when he speaks to them on Sept. 28, the newspaper reported, citing those who were present at the meeting. Schaeuble expressed irritation at Draghi’s criticism of Germany’s trade surplus, saying it’s the ECB that’s at fault, according to Bild.

    The German minister has criticized the ECB’s extraordinary monetary measures under Draghi, saying low rates have squeezed savings for Germans and created excessive liquidity in markets.

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    Email of the day 1

    More on silence being good for our brains:

    Le silence est d'or, la parole est d'argent as we say in French.
    I have abandoned big cities New York, Paris and Toronto for a small town along the Great Lakes.
    But silence is expensive; a lot of us cannot afford it. It cost friends (they are afraid to be bored and do not visit), it cost entertainment (Carnegie Hall, forget about it) it cost long travelling times (we have an airport but we are still waiting for Air Canada to land a 747 here) it costs family (kids, try to tell them about the therapeutic value of silence) it cost painstaking research when we travel (hours and hours to find a quiet room in a quiet lodging in a silent place. When I go to Paris I go to a place run by priests...)
    It is a way of life, but I will never change it for a million dollars..
    I'd better shut up now, right?

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    Get Brexit Right, and I Will be a Tory Again

    I left the Conservatives in 1992. I had been a member for 20 years, throughout much of a career which began with scrapping buses and ended up creating 175,000 jobs. I worked my way up from the bottom with the party. Millions of us did, following Margaret Thatcher. 

    But when John Major started fudging on the Maastricht treaty on the single currency, I told him I had to go. Since then this has country has stumbled on with the EU disaster through the Blair and Cameron eras. Until now. 

    Brexit means everything to me. After I left the Conservatives, I spent millions on campaigns to end the influence of the unelected bureaucracy in Brussels over this great nation. In 2004 I met Nigel Farage and supported Ukip in the European elections that year. Nigel was the master communicator we needed, a man of passion, drive and bravery. That year we won 12 seats. In 2014 we won 24 seats, beating Labour and the Conservatives. That forced David Cameron to hold the EU referendum. 

    For me, that referendum was the goal. That was what it was all about. And we have achieved it. What we need to do now is to make sure the Conservatives, my old party, implement the result. 

    What does that mean?  The simple fact is we have to get our borders completely under our control. So we must leave the single market. Another reason to to do so is that small businesses, which account for 99 per cent of private sector companies, and which employ 60 per cent of the private sector working population, are smothered by regulations from Brussels. These are the businesses generating new jobs – not big banks. Even though many have no trade with the EU they still have to comply with endless EU regulations.

    This, like so many of the powers acquired by Brussels, is astonishing. Frankly, it is shocking that it was the Conservative Party gave up all these powers to an unelected bureaucracy. 

    The Conservatives can now change all this, and I want to return to the party to help them. But to do so I, like so many who voted to leave, need a clear commitment that two clear promises are going to be delivered. 

    We must take back full control of our borders.  And we must leave the single market.


    Once these issues are dealt with I will return to the Conservatives and help them, financially if need be, to implement this programme. 

    One way or another we will get this done. A nation without its own borders is not a nation. A nation which does not make its own laws is not a nation. A nation which cannot fish its waters as it wants is not a nation. A nation which has handed over its very passport is not a nation. These things matter. The man in the street wants his passport back.

    I’ve never met Theresa May but she looks like a good prime minister to me. She will need to be. Society is terribly damaged. It may not seem that way in London but huge parts of the North and elsewhere are scarred. Today the Conservatives have the best chance to rebuild the nation since Thatcher. 

    I am a One Nation Conservative. I come from the grassroots. I started with just £200. I didn’t go to Oxbridge. I’m not a pencilpusher from Goldman Sachs. But I have created 14 businesses and not one has gone down the pan. I reckon I’ve got reasonable judgment. My judgment is that freedom and democracy are beyond value. 

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    Email of the day 2

    On Friday’s Big Picture Audio:

    David, superb last night. The way you worked from stocks, through bonds & currencies to resources kept me focused and more importantly, I learned.

    I also agree very much with an earlier comment you made, regarding the need to alternate with Eoin because I truly believe that you complement each other very nicely.

    Many thanks & regards

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    Brexit Will Complete the Economic Revolution of Margaret Thatcher

    As the financial markets, contrary to the scaremongering of the political and economic establishments, have already recognised, the potential economic benefits of Brexit are substantial.

    The most obvious is the saving of our massive net financial contribution to the European Union. In this context I am constantly astonished to hear representatives of British universities, whom one would expect to be reasonably intelligent, bemoaning the prospective loss of EU money. There is no EU money. It is British taxpayers’ money, recycled via the EU. And since we pay into the EU budget roughly £2 for every £1 we get back, it is an appallingly costly form of recycling.

    Then there is the newfound freedom to negotiate mutually beneficial trade deals with the major world economies, something that the EU has been engaged in for years – indeed, for decades – and has singularly failed to achieve.

    But probably the biggest single benefit is the ability Brexit will give us to engage in a thoroughgoing programme of intelligent deregulation.

    The European Union indulges in excessive regulation for three self-reinforcing reasons. In the first place, that is the nature of bureaucracies everywhere, and the European Commission is the ultimate bureaucracy. In the second place, it is an article of EU faith that “more Europe” is always desirable, and all too often “more Europe” is seen as more European regulation. And in the third place, Brussels is one of the two world centres of corporate lobbying (the other is Washington).

     There may be no single regulation that stands out as being particularly damaging, but the cumulative effect is substantial. Examples include the system of “CE” (conformité européene) marking on goods, which frequently imposes excessively burdensome standards on all EU companies, including small companies which do no business at all outside the UK. Then there is the notorious Working Time Directive, which limits the hours that employees can work, even if they wish to earn more by working longer.

    This is potentially so damaging to small businesses that the UK managed to secure an opt-out from its most restrictive provisions. But the European Commission is determined to remove the UK opt-out. It has already tried to do so on two occasions, and sooner or later, were we to remain in the EU, it would succeed.

    The vast and ever-growing corpus of EU regulation causes economic damage throughout the EU. But it is particularly damaging to the UK and to UK SMEs since we have in this country a more rigorous insistence on the rule of law and its implementation than is the case in many, if not most, of the EU’s member states. That is, in itself, a virtue, and should not change. But it makes the escape from the EU regulatory burden all the more important.

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