InvestorIntelReport: Greece Exists, Stage Left, from its Own Drama
“It’s all Greek to me” is an old expression representing bafflement and clearly the markets and commentators knew the feeling with the various interpretations of the Greek “votequake” at the weekend. I feel less baffled as it appears to be a prelude I have long expected to the almost inevitable departure of the country, stage left, in this Greek tragic comedy.
Interest cuts and currency gyrations were the main themes of the markets last week. The Bank of Canada made a surprise cut of 25 basis points in the hope of offsetting the negative effect of lower oil prices on the economy. To date the Bank of Canada had kept the cost of borrowing steady at 1% since April 2009. The immediate reaction was that the Canadian dollar slipped, and in a matter of minutes from 1.21 to 1.238 against the US dollar – or a 2.5% drop in one day, the lowest level since April 2009. Canada is a net exporter of oil and the collapse of prices since last June has been threatening investments in the sector. The Central Bank, meanwhile, expects anyway the economy back on the path of recovery in the second half of the year, projecting growth of 2.1% (revised downwards from the previous + 2.4%).
However, the Bank of Canada was hardly unique; it followed in the footsteps of other central banks in recent days that have cut the cost of money. It happened in Switzerland, Denmark, Egypt, India, Romania and Turkey. Of course the week before had seen the Swiss revaluation with its massive kicker for gold. However the effect on gold started to wane by mid last week and some are even looking for a Wile E. Coyote moment for the yellow metal.
The victory of Alexi Tsipras and his party’s anti-austerity in the Greek elections may be less disruptive to the markets than expected but it’s still too early to tell. Being just short of a majority looked like it would hobble some of the more extremist stances of the Syriza party and then he managed to pull a rabbit out of the hat in the form of a coalition with a Right-wing party that also opposed austerity. We are calling this the Coalition of the Unwilling.
The early signs from trading in all major European exchanges is that investors are waiting to see whether the new Greek government baulks at the ongoing German demands for more austerity. The German markets, meanwhile, among the most concerned by the Greek election results, performed well or better than expected. Ultimately the Greek government wants to stare down the German government. The Greeks have got little to lose and the Germans will either have to dip into their pockets or the Greeks will depart. Angela Merkel my just refuse to blink as Greece is now the biggest liability to the Euro structure while some economies amongst the so-called PIIGS (Portugal, Italy, Ireland, Greece & Spain) are finally starting to pull out of their dive.
Over in Japan, as Prime Minister Shinzo Abe did his utmost to confront an intractable ISIS hostage situation in Syria (without success), the trade numbers for December, exports rising at their fastest pace since 2013, at just under 13% for the fourth consecutive month of increase.
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In China stories have been circulating of a new generation of supposed “hedge funds” that have barged onto the international stage, making a strong debut in the commodities sector and metals in particular. It is claimed that Chinese traders targeted copper that last week, pushing prices to a six-year minimum at the London Metal Exchange. This was an especially tough short-selling operation that seemed to take other traders by surprise, reminding other players of China’s influence. We wouldn’t be surprised though if a temporary copper price dip may not suit the powers-that-be in Beijing are trying to bail banks out of the exposure they have to the bogus copper stockpile collateral scandal that has been roiling Chinese trading circles.
Beijing today represents about 40% of world consumption of non-ferrous metals (compared to 4% in 1980), accounting for more than of the iron ore sold in the world and huge quantities of agricultural products. Now, traders have to be on the lookout as Beijing’s reforms have led to a gradual liberalization of financial assets while some of these Chinese “hedge funds” have managed to cross the borders of the mother country. In commodities, the Chinese “hedge funds” supposedly have an edge over those in the USA or EU because they have room to try aggressive moves such as taking advantage of time zones to get a head start in trading. The success of Chinese hedge funds is that they seemingly have forced out Western raw materials traders (possibly Red Kite) while many North American finance firms are restricted by the Dodd-Frank act and other reforms. We take all this with a grain of salt as these may just be the same old traders that have now been dressed up in the Western garb of “hedge funds”. The Chinese may not like what happens if they have a “hedge fund” meltdown. Long Term Capital Management anyone?
The InvestorIntel Graphite sector gained +5.27% and the Agribusiness sector was down 9.52% while Rare Earths gained +2.93%. Gold and precious metals continued with the uptrend noted last week in the wake of the Swiss Franc devaluation.
Star Minerals (CSE: SUV) was the ‘star’ performer in the critical metals sector, gaining 50%. Star has entered the manganese space as art of its goal to explore and develop critical metals in the alternative energy sector. One of the main aspects of its effort is to achieve production ready ‘mine-to-market manganese-based’ battery technology in the US. To this effect, last December, Star signed a memorandum of understanding (MoU) with Cooperative Mineral Resources (CMR) and energy storage company Octopus Technologies (OTI).
Zenyatta Ventures (TSX: ZEN | OTCQX: ZENYF) also performed very well, gaining +26.32% in Toronto trading and +12.2% at the OTC. The markets appeared not to have paid much attention to graphite in late 2014 and the first few weeks of 2015; however, optimism appears to have returned to the graphite sector in expectation that demand will finally start to measure up to previous expectations.
In Rare Earths, Alkane Resources (ASX: ALK) gained +11.1%, Tasman Metals (TSXV: TSM | NYSE MKT: TAS) gained +20.93% at the TSX and +13.54% in New York while US Rare Earths (OTCQB: UREE) gained +29.23% putting all three amongst last week’s best performers. Tasman Metals released the prefeasibility study (PFS) for its Norra Karr project, Sweden. Tasman is working on developing a heavy rare earth element (REE) deposit is set to produce over 200 tonnes of dysprosium oxide per year over the next 20 years, according to the PFS, with roughly 74 percent of revenues coming from magnet rare earths.
Meanwhile, on InvestorIntel Dr. Luc Duchesne has debunked, the bizarre claims emanating from a swathe of press outlets ranging from Newsweek to the Smithsonian Magazine, that fish sperm may hold the secret to both the recycling and extraction of rare earths.
Niocorp Developments (TSXV: NB | OTCQX: NIOBF) gained +6.85% in Toronto after it announced the results from its drilling program at Elk Creek, Nebraska, last week. Elk Creek is rich in niobium (formerly known as columbium), a rare metal that is the focus of the project. Niocorp published the final results from the third and final phase III of the 2014 drilling program at Elk Creek, in preparation for the release of its feasibility study toward the spring of this year.
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Christopher Ecclestone is a Principal and mining strategist at Hallgarten & Company in London. Prior to founding Hallgarten & Company in New York in 2003 ... <Read more about Christopher Ecclestone>