TMX and Maple hook up

The chase by Marty Cej:

After a five-month courtship that involved the scuttling of proposed marriage with another, the board of TMX Group has agreed to Maple Group’s $3.8-billion takeover offer and will recommend the deal to TMX shareholders. Maple, the consortium made up of 13 members including Manulife, TD, CIBC, and pension plans Caisse de Depot and Aimco, will buy 70- to 80 percent of TMX with cash and the rest in stock. Maple Group is also seeking to buy TMX competitor Alpha Group as part of the deal, as well as the clearing house CDS Inc.


Critics say the deal will mean a monopoly on Canadian stock trading and higher fees while supporters point out that the banks do the bulk of trading on the exchange and are unlikely to raise fees on themselves. It could be a thorny issue for regulators to decide and a tough sell for Maple Group’s public relations team once the word “monopoly” starts popping up in headlines. Are there any other possible bidders out there? Does a broad Canadian ownership with deep pockets put the TMX in an acquisitive position? There has been $30 billion in exchange deals since October of last year, according to Bloomberg data, so why stop now?

Tom Kloet, TMX CEO and prospective CEO for Maple Group in the event of a successful takeover, and Luc Bertrand, former head of the Montreal Exchange and spokesperson for Maple Group, will sit down with us at 12:30.

Canadian Pacific Railway is poised to rally this morning after Pershing Square Capital – the hedge fund of activist shareholder Bill Ackman – disclosed late Friday that it has acquired a 12.2-percent stake in CP, making Pershing the railway’s biggest shareholder. CP stock rallied in the last minutes of Friday trading but a raised price target at RBC – to $80 from $66 – may help things along this morning.

The Globe and Mail says Ackman may get “active” with CP management as soon as this week in a bid to correct the stock’s underperformance relative to CNR as soon as possible. CP’s senior executives met with the company’s financial and legal advisers over the weekend, the Globe reports, to “review options.” The most likely option is to sit and listen to Ackman’s ideas.
It is a big week for central banks with a two-day Fed meeting kicking off Tuesday and Mario Draghi’s first meeting as the new European Central Bank president Thursday.

For Draghi, it will be a battlefield commission as he takes over in the midst of a struggle to bail out the weakest members of the euro-zone, prevent the collapse of the region’s banks and establish a permanent bailout mechanism that will prevent this sort of thing from happening again. Not to mention the vampire issue in Transylvania or the werewolf cull in the Carpathians that continues to be thwarted by PETA. The Fed’s statement will come out at 12:30 pm Eastern Wednesday followed by a Q&A with Ben Bernanke.

The discussion is likely to revolve around jobs and housing and just how unconventional unconventional can get. For the ECB, it could mean a rate cut as Draghi puts his stamp on the job.
Both central banks will also be explicit in their recognition of the European debt crisis as the biggest threat to the global economic recovery. Expect both the ECB and the Fed to lob the problem back to governments ahead of the G20 leaders’ summit this weekend. Monetary policy is doing what it can, they’ll say, so how about a little help on the fiscal policy side?

Today is the last trading day of October in what has proven to be a remarkably bullish month for stocks. We’ll need to slice and dice the market’s performance into leaders and laggards and wax prophetic over what may happen next. Earnings continue to top expectations, money is flowing back into commodities and European leaders are slouching towards a solution in a blue velour pantsuit… will the final quarter of 2011 prove to be the strongest quarter of the year for Canadian stocks?

The best performer for October? Yellow Media. The worst? Agnico-Eagle.

We are also tackling Canadian GDP for August, which rose 0.3 percent, topping the 0.2 percent expected by economists.

Obit: Robert Pritzker, a patriarch of one of the world's richest families

By Eric Johnson

CHICAGO Fri Oct 28, 2011 9:58pm EDT
(Reuters) - Chicago businessman and founder of a conglomerate that was purchased by Warren Buffett, has died, his assistant said on Friday.

He was 85.

The cause of death was Parkinson's disease, said Pritzker's assistant, Becky Spooner.

Together with his brother Jay, who founded the Hyatt hotel chain, Robert Pritzker founded the Marmon Group, an industrial conglomerate that made everything from bolts and screws to water treatment products and railroad cars.

The company was purchased by billionaire investor Buffett's Berkshire Hathaway in 2008.

"Throughout his career, Mr. Pritzker strongly believed that well-educated engineering minds would long be essential to the ability of the United States to compete in world markets," said Louhon Tucker, an executive at Colson Associates, in a statement.

The Pritzker family is one of the world's richest. The 11 members of the family on the 2011 Forbes 400 list of the richest Americans -- which did not include Robert -- had a combined worth of $17.1 billion, according to the magazine.

Pritzker was born in Chicago in 1926. He graduated with a degree in industrial engineering in 1946 from Illinois Institute of Technology, the benefactor of a $60 million charitable contribution from Pritzker in 1996, the school said in a statement.

"Bob was an extraordinary man and one of IIT's most ardent and benevolent supporters. His name was synonymous with IIT," said President John L. Anderson. "The university is deeply saddened by the loss of one of its great leaders."

Pritzker retired from Chicago-based Marmon in 2002. He then created Colson Associates, a consortium of manufacturing and service companies, which he ran until just before his death.

Pritzker also served on many civic and cultural boards, such as the Chicago Symphony Orchestra and Lincoln Park Zoological Society.

He is survived by his wife Mayari and five children.

A study in contrast ...Market Update

The chase by Marty Cej:

Nothing brings events into stark relief quite so well as well-timed juxtaposition. Yesterday, an agreement to solve the European sovereign debt crisis that was long on promise but short on details sparked a global equity market rally, helping to push the S&P 500 towards its best month since Oct. 1974. This morning, profit warnings and job cuts from consumer-sensitive companies such as Whirlpool, Electrolux and Newell Rubbermaid stand out “like a rich jewel in an Ethiop’s ear.”

It’s this whiplash-inducing contrast that we’ll need to examine today because it is a dichotomy that investors will have to reconcile and act upon in the days and weeks to come.
Specifically, we need to take a look at Whirlpool’s remarkable earnings statement this morning and apply the company’s anecdotal observations and actions to the North American economy and consumer. Whirlpool, the world’s biggest household appliance maker, said it will cut 5,000 jobs and slash its earnings expectations due to “recessionary demand levels in developed countries, a slowdown in emerging markets and high levels of inflation in material costs.” Electrolux, the second-biggest appliance maker, said it will deepen cost cuts as sales volumes in mature markets fall to their lowest level in more than a decade.

The CEO of Newell Rubbermaid said the company will cut 500 jobs as part of a program labeled “Project Renewal” (you paid a consultant for that??) because of a “really tough macro environment.” I will add that within yesterday’s robust report on U.S. GDP was a line on disposable income, which contracted in the third quarter. According to National Bank Financial, that means “that Americans were drawing from their savings to finance spending. That’s an area of vulnerability for subsequent quarters for consumers, particularly if the stagnant labour market doesn’t pick up steam soon.” Next Friday sees the release of U.S. and Canadian employment data.

Turning back to the markets, we’ll need to take a careful look at the rally by the S&P 500 over the past month. At the open of trading, the U.S. benchmark is up 14.12 percent for the month, the best month for the measure since a 16.3 percent gain in October 1974. Who were the leaders? The laggards? Is the outlook for economic growth and earnings gains healthy enough to justify the rally? Did leadership shift over the course of the month?

Bill Strazullo, Chief Markets Strategist at Bell Curve Trading in Boston will help us identify the trends and anomalies in the world’s biggest stock market. He joins us for a half hour of analysis starting at 9 am.

We will also feature an interview today with Gord Nixon, CEO of Royal Bank of Canada. Gord sits down with Howard Green at 12:30 to discuss the euro-zone bailout package, the global economy, the Canadian banking industry and his bank in particular.

Our conversation with Don Lindsay, CEO of Teck Resources, follows at 1:00. Stephen Snyder, CEO of TransAlta, sits down with Michael Hainsworth on the Close at 4:40.
How’s that for a line-up? And yesterday we spoke with the CEOs of Methanex, Barrick Gold, Goldcorp., Potash Corp. and Cogeco, and one former Prime Minister. Let’s face it, the only thing that comes close to rivaling the BNN Greenroom happened in at Thanksgiving 1976 at San Francisco’s Winterland when The Band invited a few friends to jam with them at their final show. Or just about any night on the Dick Cavett Show in the mid-1970s.

Sterling Partners have ridden in on a fine Arab charger to rescue Mosaid from the clutches of Wi-Lan. Sterling has agreed to buy Mosaid for $46 a share, topping Wi-Lan’s raised-but-still-hostile bid of $42 a share. Calls are out.

In earnings, we are watching numbers from Merck, Chevron, MacDonald Dettwiler, Weyerhauser, Newmont, Transalta, Postmedia and Norbord.

Global Markets Jump on Europe’s Greek Debt Deal

October 27, 2011

By CHRISTINE HAUSER and DAVID JOLLY
Stocks rallied around the world on Thursday, pushing the broader market in the United States back onto positive ground for the year, after European leaders reached a deal to spread the pain of restructuring Greece’s debt and try to bring the crisis in the euro zone under control .

While the deal helped to restore confidence to the financial markets, analysts noted that questions remained about how it would be implemented. They also worried that fully fixing the problems of excessive debt and weak growth could take years.

Still, after days of anticipation, the markets put whatever uncertainties remained behind them, at least for now. Financial stocks in particular were up more than 6 percent.

The Dow Jones industrial average soared 339.51 points to close up 2.86 percent at 12,208.55, while the broader Standard & Poor’s 500 index was up even more, 3.43 percent, at 1,284.56 and the Nasdaq composite index rose 3.32 percent to 2,738.63.

The S.&P. moved into positive territory for the year on Thursday, up about 2.1 percent. The Dow was up more than 5 percent and the Nasdaq more than 3 percent for the year.

Stocks closed up as much as 6 percent in Europe, after a strong showing in Asia.

It was a marked turn-around from just a few weeks ago, when anxiety over the European debt crisis helped push Wall Street to the brink of a bear market. On Oct. 3, the S.&P. 500 was down 19.4 percent from its high on April 29.

The latest news from Europe came early Thursday, when officials from the European Union and the International Monetary Fund reached a deal with bankers to write down the face value of their Greek debt by 50 percent, hoping to reduce the ratio of the country’s debt to gross domestic product to 120 percent by 2020. Economists believe that is essential if Greece is not to default on its loans.

Officials also agreed that European banks would need to raise more capital and said they would increase the euro zone bailout fund to $1.4 trillion, a move that they hope will provide the capacity necessary to keep Italy and Spain from following Greece’s painful path.

“The most important outcome is it seems to remove from the table fears of an imminent bank crisis,” said David Joy, chief market strategist for Ameriprise Financial. “What this does is it buys Europe time to do the hard work of initiating structural reforms.”

But like others, he injected a note of caution: “It addresses the symptoms, but not the disease. They need to follow through, there is no question.”

Economists noted that the deal Thursday was but the latest in a series of such agreements addressing the debt crisis, which are usually followed by gains, then losses in the financial markets.

After the last deal was struck in July, for example, stocks and bonds in Europe and the United States gave it a positive reception. But the sentiment soon turned and markets failed to sustain their gains. The S.&P. in the United States fell below 1,300 after about a week. and eventually sank to its lowest level for the year.

“Overall, then, while the plans represent a step forward, we suspect that they will soon be viewed in the same way as every other policy response during this crisis — as too little, too late,” Jonathan Loynes, an economist with Capital Economics, wrote in a research note.

He said he still expected a “prolonged recession in the euro zone,” further market turbulence, and continued to have doubts about the future of the euro itself “in its current form.”

The Euro Stoxx 50 index, a barometer of euro zone blue chips, closed up 6.1 percent, while the FTSE 100 index in London gained 2.9 percent. In Paris, the main index was up 6.3 percent, while Frankfurt’s was 5.35 percent higher.

Financial shares led European indexes.

The United States 10-year Treasury bond yield rose to 2.37 percent, from 2.21 percent on Wednesday.

The dollar fell against most major currencies. The euro rose to $1.42 from $1.39 late Wednesday in New York, while the British pound rose to $1.61 from $1.5975. The dollar also fell to 75.8 yen from 76.17 yen, and to 0.86 Swiss franc from 0.88 franc.

Anthony Valeri, a fixed income investment strategist for LPL Financial, said that the European deal, to an extent, removed one of the lingering risks to the market and more specifically, to the banking system.

“But the devil is in the details,” he added. “There are some implementation risks going forward.”

He said there were questions about participation in increasing the bailout fund.

“We don’t know the participation from private investors or the emerging market countries, as the case may be,” he said.

Another negative was that banks must meet a new core capital ratio of 9 percent by the middle of 2012, he added. That could mean they could either raise capital or shed assets, which would be a negative for the market because of the pressure on prices.

In Asia, shares were stronger almost across the board. The Tokyo benchmark Nikkei 225 stock average rose 2 percent, the Sydney market index S.&P./ASX 200 rose 2.5 percent, and Hong Kong’s Hang Seng index rose 3.3 percent.

“Bank recapitalization, haircuts and more firepower for the rescue funds are supposed to form a euro-style bazooka,” Carsten Brzeski, an economist with ING in Brussels, said in a research note. “Even if there are still loose ends and unsolved questions, yesterday’s summit was an important step in the right direction.”

Shortly after the deal was announced, United States crude oil futures for December delivery rose 2.8 percent to $92.71 a barrel. Comex gold futures slipped were mostly unchanged, at $1,723.40 an ounce.

Bond market movements showed investors moving out of the securities considered the most secure and into riskier assets.

The Federal Reserve on Thursday is starting a bond buy-back measure that will bump up prices on long-term notes, Mr. Valeri said.

Bond prices for embattled euro zone governments rose sharply, while the yields fell. The yield on Greek 10-year bonds was 22.16 percent, down 1.17 percentage points. Spanish and Italian bond yields also fell.

David Jolly reported from Paris.

Pescod says...

EXTORRE GOLD MINES
CROWN POINT VENT.
(T-XG)
(V-CWV)


It’s hard to believe that Argentina at the beginning of the
20th Century was considered potentially the best economy
of the Americas. So much for management of those rich
natural resources though as between dictators and what-
ever, those resources have been terribly mismanaged.

People had hopes with the election of Cristina Fernandez
de Kirchner, things might be altered positively, but today we
learn the country is lurching from bad to worse. In her first
move since winning re-election Bloomberg writes they have
changed a 2002 decree and is now requiring oil and mining
companies to keep at least 30% of their export revenue in
the country and that applies to all future sales.

Meanwhile, the average Argentinean doesn’t trust his
own government, a government that suggests inflation is
9.9%, but private economists say it’s closer to 24% and be-
cause of that and other factors, Argentineans pulled $10
billion out of their own country in the first six months of this
year and sent it elsewhere. Sad to see such a resource-rich
country so terribly managed, one wonders what next and
how the companies will cope with it.

We caught up with Canaccord oil and gas analyst Fred
Kozak who just a while a go wrote an 83-page report enti-
tled, “Investors Crying for Argentina...But will it be the ad-
ventures of Old or New Cristina?”...referring of course to the
new President and needless to say, Fred is a fan of the re-
sources and potential resources of Argentina, but so many
others wonder about governments there.

As we catch up him today, he suggests that this sell off
in the oil sector in Argentina might well be an opportunity as
he points to the important tidbit and that is...30% of their
export revenues must stay in the country. He reminds us
that the oil and gas companies that are based in Argentina
do not export their oil and gas and of course their revenue
does stay in the country anyway! The mining companies, he
reminds us, that’s a different case as they export most of
their ore or commodities and that might not be a buying op-
portunity, he infers.

Meanwhile there is a long list of companies with assets in
Argentina from Pan American Silver to Yamana Gold to
Goldcorp and even Barrick Gold. Extorre Gold Mines though,
is probably the most exposed.



One of the biggest of the movers on the markets yes-
terday (ironically gold was up 50-some dollars and yet
many gold stocks barely budged) was Orezone Gold, up
almost 20% on the day.

We tracked down President, Ron Little and he sug-
gested that there’s nothing imminent that he knows of
other than a recent marketing trip he did to funds and
brokers in Montreal and Toronto. Must have been some-
thing he was saying…

He reminds us though that while the old Orezone
company he and his current team led was sold, they are
going to make sure the current Orezone is in a different
state of affairs, if and when they ever get to the point of
becoming a potential take-over candidate. None of that
being in debt and at the mercy of other players.

In the meantime, the company sits at about a three
and a half million ounce resource with two million of
those ounces inferred, and their target is that by April
when new resource numbers come out, they hope to be
up to as much as five million ounces with three of that
measured and indicated.

They are still working on a massive drilling program
on their Bombore project in Furkina Faso for 170,000
meters of drilling, averaging about 10,000 meters a
month. The drilling program should be completed by
Christmas and then the bookkeeping starts...calculating
just how big a resource they really do have.

Their project is turning out to be quite a big one with
Bombore being about 11 miles long and anywhere be-
tween a couple of hundred meters and a kilometer wide
and so far much of the drilling has come up with grades
better than had been expected.

Interesting to see that Orezone’s stock has fared a
little bit better than many others in the $300 correction in
gold price, but the question is, what next for the direc-
tion of gold and Orezone?

When we ask Little for any other speculative stocks
out there that one should be looking at, he suggests
Northern Shield in the Ring of Fire.

MPR on the agenda

The chase by Marty Cej:

The Bank of Canada yesterday cut its forecast for Canadian economic growth and warned that Europe will suffer at least a brief recession, presaging statements from Finance Minister Jim Flaherty later in the day that he will cut the government’s growth projections in the next few weeks and that Europe could trigger another global recession if it can’t resolve its persistent and worsening debt crisis. Today, European leaders will get another chance to fix their troubles and the Bank of Canada gets a chance to explain its latest interest rate decision in greater detail.

The Canadian central bank releases its Monetary Policy Report at 10:30 am Eastern. Linda Nazareth will report from the lock-up as the headlines break and we’ll follow the Q&A with Governor Mark Carney beginning at 11:15. We can expect Carney to field questions on the European mess, the pace of the U.S. economy, the impact of U.S. and European monetary policy on Canada, demand for Canadian exports from developing nations and maybe a question or two on the dollar. We can also expect Carney to field at least one direct question on when he might raise or cut the benchmark interest rate by an enthusiastic young journalist who has been put up to the question by his more experienced, smirking colleagues.

And now that the Bank of Canada has been explicit and as forthcoming with its monetary policy as any central bank can be, we’ll turn our attention to fiscal policy. Minister Flaherty refused to be drawn yesterday on whether the government will be able to stick to its plan to balance the budget by 2014.

Slowing economic growth will make it difficult (impossible?) to meet the government’s revenue expectations while at the same time increasing pressure on Ottawa to shelve planned spending cuts that might exacerbate a slowdown by putting more jobs at risk. And what about Canadians’ household debt levels, which are sitting at U.S.-like levels? And how about the still-booming real estate market? Are Canadians taking on too much risk with interest rates low and home prices continuing to rise?

We’ll also take a look at how interest rates being lower for longer will affect Canadian consumers and companies. Record low bond yields will put immense pressure on banks’ margins and prompt all sorts of accounting gymnastics at the insurers. Are current share prices justified by the outlook for slowing profit growth? And let’s not forget about the impact of puny yields on pension plans. Air Canada is a good example of a pension plan under pressure and it deserves a much closer look today.

And why are we talking about falling earnings expectations, record low bond yields and a slowing global economy? Because European leaders have yet to come up with a credible solution(s) to their debt crisis. Brussels today hosts the 14th crisis summit in 21 months – in fact, it hosts two summits today; a cocktail summit with all 27 leaders from the European Union at noon Eastern, followed by a dinner summit with just the 17 countries that share the euro currency. The 10 non-euro leaders will be shown into an adjacent room where they will sit at fold-out tables and be offered spaghetti or chicken fingers and fries. What markets hope to see is an agreement on detailed plans for bank recapitalizations, a bigger and bolder EFSF and sharper haircuts on Greek debt.

As much as expectations have been massaged lower, a major disappointment today will be priced out quickly and severely by financial markets.

In the meantime, industrial commodities are doing pretty well today after Chinese Premier Wen Jiabao said economic policy will be fine-tuned as needed and the Chinese industry minister said it is studying “stimulative policies” for smaller companies. The market has interpreted the comments as being pro-growth.

It is a big day for earnings. In Canada, we’re tackling Rogers Communications – which appears to have beaten expectations and has named a new CFO; Agnico-Eagle, Goldcorp, Methanex, Open Text and Lundin Mining.

In U.S. earnings, we have Ford, Boeing, Nasdaq, Lockheed Martin, Norfolk Southern, Sprint, Visa, Northrup Grumman and Corning.

Banks Squabble With EU Over Greek Debt Losses

By Aaron Kirchfeld - Oct 24, 2011

The world’s biggest banks are squabbling with European leaders over the size of losses on their Greek bonds as they seek a deal to cut the country’s debt load, two people with knowledge of the discussions said.

The financial companies, represented by the Institute of International Finance, proposed a loss of 40 percent on Greek debt, said one of the people, who declined to be identified because talks are confidential. The European Union is calling on investors to forfeit as much as 60 percent, making a compromise at 50 percent possible, the person said.

The talks are part of an attempt to solve the two-year-old sovereign-debt crisis that has pushed Greece closer to default, roiled global markets and dented confidence in the survival of the 17-nation currency. EU leaders are scrambling to reach an agreement on bolstering the region’s rescue fund, recapitalizing banks and relieving Greece to avoid contagion spreading to Italy and Spain before another summit in two days.

Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers, said talks on private-sector involvement in a second aid package for Greece are focusing on losses of “about 50 percent, 60 percent.”

Charles Dallara, managing director of the IIF, the lobby group for 450 of the world’s biggest financial companies, said on Oct. 22 that “discussions are making progress, albeit limited.” The group remains “open to explore options on a voluntary approach built on a realistic outlook for the Greek economy and restoration of Greece’s market access,” he said.

Larger Writedowns

EU policy makers have been calling for larger writedowns amid a deteriorating Greek economic and financial situation, as highlighted in a draft report last week by the European Commission, the European Central Bank and the International Monetary Fund, collectively known as the troika.

Greek two-year notes currently trade at about 40 percent of face value. Under the terms of a July 21 accord with the IIF, the banks would take losses of 21 percent on the net present value of their holdings of the nation’s debt. That plan includes up to 35 billion euros ($49 billion) in high-quality collateral for the investors.

One option being considered involves a swap with no collateral of any kind in a so-called hard restructuring, people familiar with the matter said on Oct. 21. Other plans involve an exchange with a 50 percent reduction in net present value, or upfront bond exchanges into either European Financial Stability Facility bonds or new 30-year Greek government debt, the people said. Upfront exchanges could involve a 50 percent discount off face value.

To help European lenders shoulder sovereign losses, lenders may be required to raise about 100 billion euros in capital by mid-2012, according to two people briefed on the matter. The European Banking Authority tested lenders to see how much money they’ll need after writing down bonds from countries such as Greece and marking up stronger debt including that of Germany, they said.

Reuters reported the 40 percent proposal by banks late yesterday.


Still waiting for a European solution

The BNN Chase by Marty Cej:

European leaders have adjourned to Wednesday, taking fresh proposals from the weekend’s summit back to their respective parliaments where dismay and disappointment will be expressed in a multitude of languages. Formal plans should be drawn up by Tuesday and announced at the completion of another summit Wednesday.

There will be three main pillars to the plan: A haircut for holders of Greek debt that is likely to become more of a buzz cut; larger European bank recapitalizations, and some kind of external support for the EFSF bailout mechanism that assures markets that those in greatest need of bailouts or backstops – Greece now, Italy soon – will get what they need when they need it. The next three days ought to see plenty of leaks to the media as governments try to lessen the shock to markets and voters of coming to an actual decision.

The solution will be televised.
In the meantime, central bankers elsewhere continue to wrestle with the impact of the European debt crisis on their own economies. Federal Reserve Bank of Dallas President Richard Fisher was one of three Fed members to dissent from Open Market Committee decisions in August and September to lower borrowing costs and stimulate the U.S. economy through “unconventional” means. Fisher doesn’t like “Operation Twist” – the Fed’s plan to sell shorter-term bonds and buy longer-term bonds in a bid to push yields at the long end lower – and he doesn’t care who knows it. Fisher sits down with us at 1:00 pm on Headline.

Our conversation with Fisher comes less than 24 hours before Bank of Canada Governor Mark Carney must explain to markets why interest rates won’t be raised anytime soon even as inflation accelerates beyond the central bank’s preferred target pace.

Canada’s benchmark rate is expected to remain unchanged and the accompanying statement is expected to be explicit in its assessment of the threats to the Canadian economy from the European debt crisis and U.S. unemployment. A survey released today by the National Association for Business Economics shows U.S. companies’ hiring plans at their worst level since January 2010.


Caterpillar doesn’t seem to be feeling the pinch, though. A few minutes ago, the world’s biggest maker of heavy yellow earth-moving equipment, reported higher-than-expected third-quarter earnings, record revenue and thousands of new jobs. The company said it expects year-end profit at the high end of its previously announced range and “2012 is shaping up to be better.” The quarterly earnings report from Caterpillar is always full of economic analysis and detail from around the world and this one is no different. Paul Bagnell has the file.

As I was typing that last bullet point, three deals were announced: Healthcare provider Cigna agreed to buy Healthspring for $3.8 billion; Oracle agreed to buy cloud computing company RightNow Technologies for $1.5 billion and J.M. Smucker agreed to buy a majority stake in Sara Lee’s coffee business for $350 million up front and another $50 million over the next 10 years.
Back to earnings, we’ll be taking a look at numbers from Netflix, Texas Instruments and West Fraser Timber.

This week sees Canadian earnings season pick up with numbers beginning tomorrow from CP, CNR and Astral Media. Wednesday will be busy with Rogers Communications, Corus, Agnico-Eagle, Mullen Group, Methanex, Goldcorp, Sherritt, Lundin Mining and Open Text.

Ivan Lo Equedia Weekly Says...

The high risk, high reward profile in Canada is dominated by companies listed in the TSX Venture exchange - in particular, the junior mining sector with its higher-risk, less liquid, and more speculative member companies.

Under the current global economic and political environment, there will undoubtedly be periods of volatility leading to downside pressures.

While the first few months of 2011 were strong, the performance of the TSX Venture has been under extreme pressure since early March. It has been severely battered as risk aversion has strangled the equity markets. When flight to safety is the number one priority, the Venture is always going to get hit the hardest. In a market where liquidity has always been a concern, things can go real bad when money is pulled out.

But does that mean you should stay away?

Gauging the TSX Venture

Generally, the gauge for investor sentiment is the strength of an exchanges' daily trading volumes; in other words, liquidity. In the case of the junior mining sector, the strength of the TSX Venture volumes have been dwindling at an extreme pace.

In January 2011, the S&P/TSX Venture set a new record for daily-traded volumes - reaching a yearly and all-time high of over 600 million shares traded per day. Since then, volume has tumbled averaging below 200 million shares per day in the last few months. I consider this number to be the absolute minimum level of liquidity support for the TSX Venture. If the average traded volumes continue to dip below this number, we are going to see some rock bottom prices soon.

To get a better grasp of what's going on, let's look back at the Venture's history.

Predicting the Future by Looking at the Past

Over the last 10 years - but excluding the 2008 crash - typical corrections on the TSX Venture have ranged from 17-31%, with the longest correction lasting over a 19-week period. Based on rolling 52-week highs and lows, the Venture has seen a decline of 47% from March 7, 2011 to October 4, 2011 - a range of 28 weeks. This clearly shows us that this is not a typical correction.

The TSX Venture in its current state is now back to levels not seen for 8 years, when gold was trading just over $400/oz and the TSX Venture exchange was barely nearing its second anniversary.

To put the crash of 2008 into perspective, let's look at the previous bear runs of other junior exchanges in Canada, including the Vancouver Stock Exchange (VSE), the Canadian Venture Exchange (CDNX), and the TSX-Venture (TSX-V) since 1983.

The Venture's 80% drop in 2008 is the single largest decline ever in the 25 year history of any of the past Canadian junior exchanges. The biggest drop in the junior exchanges aside from 2008 was during the crash of 1987 when the junior market in Canada dropped 54% over a one-year period. So far this year, we have declined 47% over a 7-month period.

What's Next?

In 1987, the market was under pressure for nearly four years before a new upward trend was established. In 1996, following the Bre-X scandal, the market was under pressure for three and a half years. Luckily, in most other cycles of corrections, the markets recovered in just over one year.

Regardless, those numbers can be daunting. However, there is a bright side.

While additional market pressures are still on the table and Europe remains a mystery, there is a strong possibility that we could have a recovery in the junior sector despite the negative sentiment.

First of all, current low interest rates offer very few alternatives for deployment of capital. Just last week, I talked about how badly the world's largest bond fund has performed in this low interest rate environment (see Prepare for Upside).

Second, metal prices remain significantly above average historical prices. That means many mineral projects can be developed into high margin operations. As such, many of the juniors remain well funded, opening the potential for exploration spending to create speculative interest in new discoveries.

Third, balance sheets of the majors continue to strengthen and that means more potential for M&A activity, including takeovers of exploration and development companies. We have already seen it over this past year including last week's takeover announcement of Hathor by Rio Tinto - just one of many takeovers and consolidation attempts this year. I fully expect this trend to continue - especially given the current major decline in share prices for many of the juniors.

Last, but certainly not least, exploration capital continues to flow - unlike the climate in 2008 when a junior explorer couldn't even raise a few pennies to put something into production.

Big Money

Last month, Metals Economics Group indicated that 2011 non-ferrous exploration budgets would exceed US$17 billion on expenditures related to precious and base metals, diamonds, uranium, and some industrial minerals; the focus of these expenditures on gold exploration with copper being second. According to MEG, this represents an increase of about 50% from the 2010 - setting a new all-time high. That means there is a lot of smart money being risked.

Record levels of exploration spending should drive new discoveries and strong reserve/resource growth over the next year, which should improve the equity valuations in the junior sector. This, along with high metal prices, should lead to a rebound in mining equities in the coming months if the overall equities market turns around.

Room for Growth

Last week, we saw PMI Gold jump from a low of $0.56 cents to a high of $1.30 in two days following the announcement of more than tripling their current gold resource at Obotan.

For those who don't recognize the name, PMI Gold's Obotan project lies approximately 8 km southwest of Abzu Gold's Mpatasie-Golden Reef concessions in Ghana.



Abzu is a company we featured earlier this year (see report here.) Like many other junior explorers, it too has taken a hit.

However, just last week they announced the discovery of a new mineralized zone on its 100% owned Asafo concession located along the eastern margin of the Kibi Belt, Ghana. The new discovery is centered on a drill hole that returned 4.72 g/t gold over 20.00 metres at a vertical depth of only 28 metres. (see news release)

The great thing about gold exploration in Ghana is the simple geology associated with gold bearing zones. Drilling by Keegan Resources and PMI Gold have clearly shown us that it doesn't take much to add ounces. Those are just some of the reasons why Keegan and PMI have attracted so much interest with their African gold projects. And that's what I am banking on with Abzu.

Over the next month, I anticipate Abzu to release drill results on their most advanced target, the Nangodi concessions where previous explorers have identified numerous targets, where prior drilling intercepted (see picture below):

52m @ 3.24g/t Au (NGRC009)
26m @ 2.24 g/t Au (NGRC017)
51m @ 2.4 g/t Au (NGRC018)
13m @ 2.48g/t Au (NGRC019)*.

*(based on incomplete, unpublished historic data provided by Red Back. This information is historic in nature and is not 43-101 compliant. A Qualified Person has not reviewed drilling or sampling procedures or QA/QC undertaken at the time of drilling. However, Abzu has no reason to doubt the validity of the information).

These targets are near the Burkina Faso border (well-known for its resource rich properties) and are approximately 30 km southwest of and along strike from the Youga Mine where Endeavour Mining Corporation anticipates gold production of approximately 84,000 ounces this year.

There is no reason to doubt the validity of the information from the past drill results. As such, I anticipate the upcoming drill results by Abzu on their Nangondi to be similar to the historic results provided by the original owners. If the results come back similar, Abzu should garner some serious interest.

On many of Abzu's properties, there is gold at surface, the geology is simple, and there are countless artisanal miners on Abzu's properties - all great attributes.

All of the targeted vein systems being tested by Abzu are anticipated to be analogous to those discovered by Keegan Resources at their Esaase deposit, just northeast of Abzu and PMI Gold's Obotan Project to the southwest.

Interest on projects within the Ghana area have garnered strong speculative capital by both the institutions and retail investors. As Abzu continues to drill, I strongly believe their numbers will speak for themselves.

What to Expect

For the rest of 2011, I will be adding my exposure to juniors that are associated with strong management and that have active exploration and development programs on top-quality targets/assets over the next 6-12 months.

Risk tolerance will continue to be a major factor in determining the junior mining sector market valuations. That means we should be aware of the potential macroeconomic factors (Europe, politics, China etc.) that help to shape broad investor risk tolerance.

That being said, I still believe that strong overall fundamentals (metal prices, low interest rate) underline the junior mining sector. If you have an iron-clad stomach, accumulating positions during corrective market phases could prove very rewarding.

Many of the stocks listed on the Venture have lost bid support. In cases and scenarios such as this, strong companies have been hit based purely on liquidity of the markets, as opposed to the business itself. When people pull their bids, stocks can drop really fast - but that also means that stocks can bounce back just as fast.

Patience.



Until next week,

Ivan Lo
Equedia Weekly

Pescod says...

To the left is the front-page of the recent issue of “The
Economist—Nowhere to Hide...Investing during a time of
crisis” and you know what it’s all about.

Their feature topic is about where does an average
investor anywhere in the world these days get a return.
Bonds in most countries are offering next to nothing.
Treasuries in the United States yield less than the rate of
inflation and one is assuming of course that the Ameri-
can get their act together and are able to pay you back.

The markets have been terrible over the last decade as
a whole with two huge scares in the last three years and
while commodities did offer a couple of years of fun, if
you didn’t take your profits six months ago, it’s gone.
And then some.

Many oil and gas stocks, some of which we liked are
now offering two, three or four-for-one sales and the
question is, where do you hide?

The Economist answers, “Nowhere to hide (before and
afterwards)”. They lead into their front-page article,
“Investors have had a dreadful time in the recent past.
The immediate future looks pretty rotten, too.”
In the article, the Economist writes, “PITY the world’s
savers. Economists and other busybodies chide them for
not spending more, thereby stimulating the economy.
Meanwhile their pension schemes are steadily being
made less generous, a process that will require them to
save more, not less, if they want to enjoy a comfortable
retirement. Britons now retiring on private pensions will
receive an income 30% less than those who left work
three years ago. When savers try to find a home for their
money, they face daily headlines about bank bailouts,
sovereign-debt crises and the possibility of another re-
cession. Given the scale of the risks, investors are not
being offered much in the way of reward.”

Looking forward...they are a little bit nervous, but they
write, “Polish up our crystal ball: Investors’ choices will
be guided by how they think the crisis will unfold. The
best hope is that the authorities will “muddle through”:
stabilize the European sovereign-debt crisis, steer devel-
oped economies back on to a path of 2-3% annual growth
while simultaneously devising realistic plans to reduce
government debt over the medium term. But if that rosy
prospect does not materialize—and the odds are against
it—the world is looking at three scenarios.”

The Economist suggests that one possibility is that
governments will try to inflate its debt away, possibly
with larger doses of easing, basically printing money,
which is usually good for gold.

A second possibility would be a very big disaster in
that European authorities make bad mistakes regarding
Greece and things get out of control.

Pie-V

Some things seem to take a long time to happen...but
now it has happened and it has happened with pizzazz,
albeit into an ugly market.

Primary Petroleum has finally announced a deal with
their large lands in the Bakken Fairway on northwestern
Montana.

They announced, “Primary Petroleum is
pleased to announce that its wholly owned U.S. subsidi-
ary; Primary Petroleum Company LLC, has signed and
closed a Sale and Joint Venture Agreement with a major
U.S. based industry partner that will pay $48.5 million to
acquire a 32.5% working interest in Primary’s 291,000 net
acres in Western Montana.”

Basically, the un-named company has agreed to pay
$7.5 million in cash to Primary plus $41 million for joint
exploration program including shooting 3-D seismic and
six or seven vertical and six or seven horizontal wells. If
they like what they see after the next years work, the un-
named major can acquire an additional 17.5% working
interest in the play for another $41 million. Wow! This
sound like real money.

The talk is that the un-named major oil company in-
volved (we believe) is Occidental Petroleum and OXY has
already acquired big chunks of land in the Bakken area
and is a big player with nine rigs currently drilling ac-
cording to the latest report on the Bakken and Three
Forks, by RBC Capital Markets.

That report takes a look at the economics of Bakken
and suddenly you realize at $80 oil, good operators can
still make a ton of dough. What makes this all timely is
that Statoil this week, bought out Brigham Exploration
for about $4.5 billion in cash, getting the big Norwegian
producer an entrée into the Bakken (Statoil is having
trouble as its North Sea production has dropped dramati-
cally).

By making that purchase, Statoil will join the biggies
such as ConocoPhillips and Exxon Mobil and Occidental
Petroleum for their big land holdings in the area.

This is almost the ‘Good Housekeeping’ seal of ap-
proval to see all this happen, although one has to re-
member that they have a huge chunk of land and it is in
the right area, but they have yet to drill a well into it and
have results.

Pescod States...

HATHOR EXPLORATION
FISSION ENERGY
BELO SUN MINING

(T-HAT)
(V-FIS)
(V-BSX)

$4.40 +0.37
$0.75 +0.13
$1.16 -0.01

Silly us for taking some easy money in an ugly market. We
had been talking about Hathor Exploration for months because
Eric Zaunscherb, analyst now with Pacific International
thought sooner or later they became a take-over target...and
he was right!

One only wondered what the bidding war would have
started at had it happened in better markets, or before Fuku-
shima.

Zaunscherb had been suggesting for people to hang on,
but again, silly us, there is nothing like taking nice profits in a
bad market.

Today, Rio Tinto enters the bidding war and Zaunscherb
writes in a published report to his followers, “Mega-miner Rio
Tinto and Hathor have announced a friendly agreement for
Rio Tinto to acquire all of the common shares of Hathor for
$4.15 in cash, or approximately $578 million on a fully-diluted
basis.”

He notes, “Directors and senior management have signed
a support agreement locking up their shares (approximately
4.6%, fully diluted) subject to a reasonable break fee of $20
million; their support agreement may be terminated in favor
of an unsolicited superior bid.”

Zaunscherb adds, “This is not capitulation on the part of
Hathor. We expect Cameco to come back with a minimum
10% raise to Rio Tinto’s offer to approximately $4.50 per
share. Further, we surmise that Rio Tinto is seriously inter-
ested in this world-class asset, having acquired a 5.7% inter-
est in Hathor (fully diluted basis), and we expect the senior to
counter with a further 10% lift to approximately $5.00 per
share.”

Zaunscherb continues, “It would not be surprising to see a
third party (i.e. not Cameco or Rio Tinto) enter into the bid-
ding war for this world-class uranium asset.”
Once upon a time it looked like it might be had in an ugly
market for a couple of nickels more, now looks like it’s going
to be attracting a lot more attention than one had expected.
Zaunscherb is one of the few analysts out there that has
made anybody any money, what with the Hathor take-over
and a huge performance of his former favorite gold stock—
Avion Gold (AVR). So needless to say, today we ask him
again if you wanted to buy only one stock in the market to-
day, what would it be?

He answers Belo Sun Mining for their gold play in Brazil which should have some new resource numbers in the com-
ing months and he expects a big increase.

As far as the poor performance in gold of late? He suggests he expects the American dollar to start trending down
again sooner or later and suggests that gold is still in an uptrend which he expects to continue.

GRAYD RESOURCES
AGNICO-EAGLE

To take the easy money and run...or to wait around for
a better offer? We’ve just talked about the Hathor take-
over and how those who have hung on are probably go-
ing to benefit from the developing bidding war that is
finally taking place. Obviously, it was better to hang on.
But then, there are other stories. Take a look at
what’s happening to Agnico-Eagle Mines today as their
Goldex mine in Quebec is watered out and there is some
debate as to whether that mine will ever be producing
again. If it is, for sure it’s a long way down the road...a
long, long way.

Agnico-Eagle which owns many mines, still gets
drubbed today. This affects Grayd Resources and Agnico-
Eagle had an offer in to buy out Grayd many weeks ago,
but the offer was $2.80 cash or a combination of cash
and shares of Agnico-Eagle.

All of a sudden, that paper offer isn’t looking nearly as
good and Grayd shares are getting clobbered. All of a
sudden, that $2.80 price on Grayd of a few weeks ago is
looking awfully tasty and the answer is, one never knows
what happens on these bidding situations.
Congratulations to those who hung on in the Hathor
deal, but punishment for those who were hoping for
something better on Grayd Resources.

(V-GYD)
(T-AEM)

$2.30 -0.19
$47.35 -10.62

Hope for a debt solution fades

The chase by Marty Cej:

Turning to the European debt crisis and the meeting of European leaders this weekend, the market's expectations have been bludgeoned lower by German government spokesmen and images of European bureaucrats scrambling the private jets for urgent emergency last minute 11th-hour crisis summit talks in Berlin. Optimism for a plan has been downgraded to prayers for a blueprint for a plan to come up with a solution.

France wants the ECB to use its balance sheet to boost the bailout mechanism's – the EFSF – funds and for the EFSF to have a banking license. Germany would like the EFSF to provide first loss guarantees to boost the funds. The French approach would increase the EFSF's available funds, a good thing, but then it also increases the exposure of the guarantors and could lead to credit-rating downgrades.

The German approach limits members' liabilities to those already agreed under the recently enhanced EFSF, but it's questionable how much value investors will give to a partial guarantee which would undermine confidence. But it's only Thursday. There's plenty of time left.
Plenty of time left for a European solution, that is. Time appears to have run out for Moammar Gadhafi (nee Qadhaffi nee Gaddafi) however.

Reuters reports that the former Libyan despot and disco king was captured and wounded in both legs near his hometown of Sirte. There are also unconfirmed reports that he has died of his wounds. We'll continue to report developments as and when they can be confirmed.

The Canadian Pension Plan Investment Board is partnering with Microsoft to take a run at Yahoo, according to unnamed sources in the Wall Street Journal. What would the CPPIB want with Yahoo? How much would the pension plan throw into the kitty? What is Yahoo worth? The CPPIB has told us that it won't comment on the WSJ story so we'll have to look under the rocks for answers ourselves.

Earnings will dominate much of our coverage this morning with EnCana reporting a drop in earnings that still appears to have topped expectations. Paul Bagnell has the file in the early going but will hand off to Brett Harris. We're watching for Shaw Communications this morning and Celestica after the close. Out of the U.S., Union Pacific, AT&T and Eli Lilly will help set the tone ahead of Microsoft after the close of trading tonight.

A parade of economic data will either be cheered or jeered (not everyone loves a parade) this morning: Initial jobless claims at 8:30 will be followed by leading economic indicators at 10 as well as the market-moving Philadelphia Fed survey out at the same time. Existing home sales, also at 10, are expected to confirm that things are tough and just getting tougher.

Viewers are listening to the news and reading the headlines and wondering what to do. In our coverage of the daily breaking news, we occasionally miss the opportunity to talk strategy and financial planning.

How do investors prepare their portfolios for a lengthy period of subpar growth? How do they position their finances for a rebound in inflation? A rally in stocks? A slowdown in earnings? There are as many plans as there are hypotheses about the next several quarters.

Ivan Lo Equedia Weekly Says...

September, which is generally a down month, is over. October thus far, despite volatility, has been performing well. On Friday, U.S. stocks advanced, giving the Standard & Poor's 500 its biggest weekly gain since July 2009, as retail sales beat economists' estimates and the G20 began discussions on Europe's debt crisis.

Regardless of politics and worldwide economic conundrums, historical trading patterns show us that the sell in May theory still works. Over the last 40 years, selling in May and buying back in October would net you a profitable return - even with the dramatic swings in prices over the last 40 years.The only down month during this time (October - May) would be February, as profit taking from past months come into play.

The rating agencies haven't stopped their downgrades. Fitch has just downgraded UBS and has now put Morgan Stanley, Bank of America, Goldman, BNP, Deutsche Bank, and SocGen on watch negative. As more negative news emerges, investors continue to hold onto their cash. But is this smart?

The answer lies in whether you believe the dollar will continue its dominance in the market. While it remains the world's reserve currency, it also belongs to the world's largest debtor nation.

Countries around the world have been dumping US treasuries with reckless abandon. In the last six weeks, foreigners have dumped $74 billion in treasuries - the biggest sequential outflow in history. Even Bill Gross, founder and managing director of the world's largest bond fund, is having a bad year. In his October 2011 investment outlook report:

"There is no "quit" in me or anyone else on the PIMCO premises. The early morning and even midnight hours have gone up, not down, to match the increasing complexity of the global financial markets. The competitive fire burns even hotter. I/ we respect our competition but we want to squash them each and every day. You the client have 100% of our attention as always, as do your portfolios. I am just having a bad year. My fabulous rock of a wife, Sue, always tells me that by December 31st, the alpha is always green, not red, but this year will be a long shot. This year is a stinker. PIMCO's centerfielder has lost a few fly balls in the sun." - Bill Gross

When the world's largest bond manager is having a bad year, you know things aren't good.

As a matter of fact, Jim Rogers, the former Quantum Fund co-founder said he would quit if he was a bond portfolio manager. In a recent interview with CNBC, Jim Rogers said the U.S. economy is likely to experience a period of stagflation worse than the 1970s, which would cause bond yields to spike. Rogers said governments were lying about the inflation problem and the recent rally in Treasurys was a bubble:

"As the inflation numbers get worse and as governments print more money and as governments have to issue many, many more bonds - somewhere along the line we get to the point when (bond prices) go down."

Between 1974 and 1978 average inflation in the U.S. was at 8 percent, while unemployment hit a peak of 9 percent in May 1975. Currently, unemployment is at 9.1 percent while CPI is at 3.8 percent.

Rogers believes inflation will get much worse this time because in the 1970s only the Fed was printing money, whereas now many global central banks have been easing monetary policy:

"Bernanke is obviously backing the market again and the Federal Reserve has more money than most of us - so they can drive interest rates down again. As I say they are making the bubble worse...I wouldn't advise anybody to buy bonds, I would advise you to sell bonds. If I were a bond portfolio manager, I would get another job...In the 70s you didn't make much money in stocks, you made fortunes owning commodities."

Rogers' view is at odds with others such as economist Nouriel Roubini who have been talking about a depression. Other economists have said the U.S. is experiencing a "balance sheet recession", just as Japan did in the 1990s, and that means the U.S. risks a long period of falling prices and asset values. Regardless of which viewpoint you take on, let's take a look at commodities.

Base Metals

I continue to believe that commodity price expectations will remain the primary driver of base metal and bulk commodity equity valuations. Despite the recent commodity price declines, which reflect fears of global recession, I don't think commodity prices will fall back to recessionary levels - which means there remains an opportunity to participate in undervalued commodity equities.

For now, the world's major economies are either unable or unwilling to provide the sort of liquidity injections we saw in 2008 and 2009. But given the circumstances, I still expect a strong infusion of liquidity in the near future.

As such, I believe commodity prices should be fine as I expect continued strong economic growth in China and much of the developing world - while this may be for the short term, we have to look at things on a near-term basis now given the volatility of the markets.

China alone now accounts for about 40% of global consumption of most of the industrial commodities. Of the base metals, the fundamentals for copper are the best - as they always have been used as a gauge for worldwide growth.

Over the last few years, I have had numerous Chinese businessmen come from abroad and ask me for shipments of both iron ore and coking coal - the primary drivers for steel production. They are willing to buy whatever they can get their hands on. While this in no way represents the overall market, it shows me that the demand for these basic materials from China remains strong - as it does in other developing countries. If you have coal or iron ore, someone will buy it.

For the rest of 2011, I expect base metal prices and coal to remain at, or higher, than current levels - based on both short term fundamentals and the possibility of liquidity injections by world governments.

Copper

The free fall in the copper price over the last quarter has made it one of the worst performers amongst commodities. From interim highs at the end of July to the end of September, copper dropped 32% from highs of US$4.50/lb to lows of US$3.07/lb.

During any sort of commodity sell off, copper generally leads the way and this was no different given the sell off last month. The weakness driving copper lower has been driven on speculation that demand would decline in a slowdown in global economies, particularly China.

However, I expect copper to rebound back up between $3.75 - $3.90 before the year is over but trend lower early 2012. Of course, this forecast could easily change given any major liquidity injections by the world governments. This is a short term price target and over the next few years, copper prices will remain subdued to reflect my view that worldwide economies will slow (see The Dangerous Unknown). As this happens, copper production will decrease which will eventually force a shortage in copper by 2015 - at which point, I expect copper prices to surge once again.

Uranium

While the ongoing nuclear crisis in Japan has shaken the world's confidence in nuclear energy and placed a significant overhang on the uranium market, this remains temporary.

Short term, we may see more weakness in the uranium market. But in the medium to long term, the nuclear renaissance will continue with China and other emerging economies leading the way. (see Back to Reality)

Gold

Again, my view remains unchanged.

On September 26, 2011, the CME Group raised initial margin requirements on COMEX gold futures by another 21% - the fifth raise this year. This once again forced speculators out, forcing the price of gold down. We have seen this over the past year as gold sells off, only to rise higher.

This, along with other contributing factors - such as the redemptions of gold holdings where investors sold positive positions in gold to cover losses in other asset classes - has caused gold to decline back to the $1600 range. Given fundamentals and the strong possibility of another liquidity injection, gold at these prices should be viewed as a buying opportunity. This includes gold equities, which should recover from current historical low trading multiples to much higher levels.

Final Thoughts

The world is coming close to finalizing a plan to bailout Europe. I fully expect a major infusion of liquidity, which should bolster both stocks and precious metals. Look for buying opportunities in the market ahead of any major announcements. While the market has moving up based on this premise, there remains room for more upside short term.

Ride the momentum.



Until next week,

Ivan Lo
Equedia Weekly

Bankers Pet operational update:

Current production rate 14,250 bopd


CALGARY, Oct. 3, 2011 /PRNewswire/ - Bankers Petroleum Ltd. ("Bankers" or the
"Company") (TSX: BNK) (AIM: BNK) is pleased to announce the following
operational update:


Production and Oil Prices


Oil sales from the Patos-Marinza oilfield in Albania during the third
quarter averaged 13,667 bopd compared to second quarter sales of 12,152
bopd, an increase of 12%. Oil inventory on September 30th was 201,000 barrels, a decrease of 38,000 barrels from June 30th.


Average production for the third quarter was 13,232 bopd representing a
2% increase from 12,973 bopd in the second quarter. Current production
is 14,250 bopd, 8% higher than the second quarter's exit rate.


The Patos-Marinza third quarter average oil price was approximately
US$74.55 per barrel (representing 66% of the Brent oil price of
US$113.46 per barrel), a decrease of 4% compared to the second
quarter's average oil price of US$77.03 per barrel (66% of Brent oil).
With the current differential between Brent and West Texas
International oil (WTI), Patos-Marinza crude is presently priced at
approximately 86% of WTI.


For the nine months ended September 30, 2011 oil sales were 12,578 bopd
($73.30 per barrel) as compared to 9,318 bopd ($46.95 per barrel) for
the comparable 2010 period.


2012 Crude Sales Agreements


The Company is also pleased to report several Patos-Marinza crude oil
sales agreements for 2012. Three new export market agreements have been
priced at an average of 72.5% of the Dated Brent oil benchmark. ARMO,
the Albanian refinery, agreed to purchase Patos-Marinza crude in 2012
for an average price of 66% of Brent, which is approximately the same
netback value as the export market due to lower transport and port fee
costs. The 2012 pricing agreements represent an average 7% increase
over the 2011 Patos-Marinza oil price.


Drilling Update and Well Reactivations


Twenty-one (21) wells have been drilled during the third quarter,
sixteen (16) horizontal production wells, a vertical cored delineation
well, two (2) thermal horizontal wells, and two (2) water disposal
wells. Fourteen (14) of the horizontal production wells have been
completed and are on production with two (2) awaiting completion.
Average production from eighty-eight (88) producing horizontal wells in
the field is 100 bopd per well at the end of the third quarter. This
includes the early period decline and operations change to limit the
peak rate of the horizontal wells to achieve stabilized production as
well as the low rate producing wells that were previously excluded due
to water intrusion and poor mechanical drill concerns.


The first Driza 1 (D1) horizontal step-out well in the western extension
(Area 3) of the field has been drilled, and is currently on production
at a rate in excess of 200 bopd. Several follow-up locations are
planned for this area in the fourth quarter of this year where limited
D1 reserves have been booked to-date. Production from five (5) Lower
Gorani horizontal wells continues at an average of 120 bopd per well.
Follow-up locations are planned in the Upper and Middle Gorani
formations in the last quarter of this year which will contribute to
additional recoverable reserves from this formation.


The fifth drilling rig is expected to arrive in Albania in November 2011
and spud its first well before the end of the month.


Reactivation and recompletion work continued in the third quarter with
nineteen (19) wells reactivated, ten (10) of which are on production
and averaging 30 bopd per well. Well reactivation success north of the
Seman river in the Kalmi area confirms good high productivity from
vertical wells in this area where the Company is planning to commence
drilling numerous horizontal wells later this year and beyond after
completion of the new bridge across the river.


Thermal Program & Exploration Block "F"


Drilling of a cored vertical delineation well and two thermal cyclic
steam horizontal wells of the thermal pilot program have been completed
during the quarter. Completion and equipping of the thermal wells will
occur in late October and construction of the steam generation and
thermal production facilities are in progress with completion targeted
by early November. The first steam injection cycle is estimated to
start in mid November 2011.


Drilling the first of several gas exploration wells on Block F is
scheduled for December 2011. This multi well program will test several
discrete structural and stratigraphic targets over the next 12 to 16
months.


Infrastructure Development


Construction on the first phase of the crude oil sales pipeline, which
connects the Patos-Marinza oilfield to Bankers' storage and loading hub
facility at Fier, is complete. Operations at the storage and truck
loading terminal at the Fier Hub is scheduled to commence in November.
Social and environmental impact assessments for the second phase of the
pipeline, from Fier to the export terminal at Vlore, are underway for
2013 construction.


Construction of the Central Treatment Facility (CTF) expansion is
progressing and on schedule for completion in December 2011. The Seman
River Bridge, in the northern area of the Patos-Marinza oilfield, is
progressing with completion expected in December 2011.


Kucova


Water injection, pressure and fluid level observations are being
monitored at the Kucova oil field. Water injection into well F-38 commenced in May; current
injection is exceeding forecast and two offset wells are exhibiting
rising fluid level and pressure in the wellbores indicating positive
initial water flood pressure response. The two wells will be equipped
to commence production operations by year-end.


Environmental Initiatives


The pilot remediation project in Sector 3 is now complete with surface
clean-up of old infrastructure and removal of legacy oil spills. This
area can now showcase the results and the impact of remediation efforts
in portions of the field and the surrounding communities.


Analysts and Investors Field Visit


Bankers is organizing a field visit on October 31, 2011 for analysts and
institutional investors to view the completion and progress of all of
its capital projects at the Patos-Marinza oilfield.


For additional information on this operational update, please see the
October 2011 version of the Company's corporate presentation at www.bankerspetroleum.com.


Conference Call


The Management of Bankers will host a conference call on October 4, 2011
at 6:45am MDT to discuss this Operations Update. Following Management's
presentation, there will be a question and answer session for analysts
and investors.


To participate in the conference call, please contact the conference
operator ten minutes prior to the call at 1-888-231-8191 or
1-647-427-7450. A live audio web cast of the conference call will also
be available on Bankers website at www.bankerspetroleum.com or by entering the following URL into your web browser http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3685880. The web cast will be archived two hours after the presentation on the
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Ivan lo Equedia says...

Every day, it seems we're heading back closer to 2008.
 
A quick recap of last week will tell you the tale. Bear with me.
 
Crude oil capped the largest quarterly drop since the 2008 financial crisis by tumbling to a one-year low. Despite the rally on Tuesday, stocks eventually fell and the MSCI All- Country World Index took its biggest quarterly loss since 2008.
 
Big banks across the board also dropped - with Morgan Stanley down 10 percent, Goldman Sachs Group Inc. down 5.4 percent and Deutsche Bank AG down 4.9 percent.
 
Last week, the four-day rout erased $1 trillion from U.S. equities - this left the S&P 500 trading at 12.4 times earnings in the past 12 months. According to Bloomberg data, this is 4.4 percent below its average valuation at the lowest point during the last nine bear markets.
 
Even gold, silver, and other commodities took a major tumble. On Monday, gold plunged to its biggest 3-day loss in 28 years. Silver traded below $30 for the first time since February.
 
A few weeks ago, I wrote in a past letter (see Mark Your Calendar) that if Bernanke didn't announce or make a hint of QE3 at the September 20-21 FOMC meeting, the markets will crumble. Since then, the market has taken a nose dive. No surprise here.  
 
The world economies are obviously at risk. In terms of growth, there is more downside than upside in the near future as the world works to solve its fiscal issues. Europe is on the verge of some major changes and China is looking more like a bubble every day.
 
On Sept. 13, the Census Bureau released their annual report on income, poverty, and health insurance in the United States. The report said that the number of people below the official poverty line rose from 14.3% in 2009 to 15.1% in 2010. This meant that 2.6 million more people fell into poverty last year, and the total of 46.2 million poor was the largest number in more than 50 years of records.
 
At the same time, corporate profits after taxes soared to a record high in 2010. Corporate profits grew 36.8% in 2010, the biggest gain since 1950. Total business profits totalled almost $3.5 trillion, or about one-quarter of the entire economy.
 
So why is it that even with continued high unemployment levels and more people falling into poverty, US corporate profits are at record levels?
 
The Secret Behind Corporate Profits  
 
While profits are high, that doesn't mean business is strong.  
 
Corporate profits are now being generated through a bunch of economic anomalies that are not the normal course or factors that generate profits.
 
Since 2008, we have had record low interest rates, less borrowing by companies and a surge in productivity that has allowed companies to do more with the same number of workers or fewer. Corporations have been getting away with paying less and expecting more. Either take the job, or don't - because with the employment crisis, someone else will . Furthermore, there has been a big push by these corporations to cut their bottom line costs.
 
There is a huge difference between corporate profitability based on top line revenue growth and bottom line cost cutting. Even with declining revenues in certain quarters, profit margins continue to rise - leading to stronger corporate earnings.
 
That is how US corporations have been able to generate record profits on very, very low volume and very weak economic growth.
 
But there's a problem with this scenario.
 
The Hidden Tale 
 
Profit margins have surged over the last few years due to massive cost cutting, layoffs and benefit reductions - that means profitability came at the bottom line of the income statement. In a normal environment, this would spell short term success for corporations. However, in no way does that signal a bright outlook for the US economy.
 
Corporations will hire instead of cut workers if they expect a bright and growing future. When economic conditions worsen, corporations will cut back - they'll work to trim the excess fat.  
 
Shareholders are looking for profit margins and with dismal growth and a bleak economic outlook, that is how corporations give shareholders what they want. Cut costs and trim the fat.
 
There is nothing wrong with this in the short term. As a matter of fact, that is exactly what a corporation should be doing in times of uncertainty. As such, stocks should rise to catch up with earnings if the European mess is contained.  
 
However, this method of profit growth cannot be sustained in the long term because many of these corporations have already taken their diet pills through layoffs and benefit reductions.
 
Even with record earnings, analysts continue to slash earnings growth as year-over-year profit growth of companies is on the verge of going negative. That means asset prices will have to adjust to meet the decline in profitability.
 
Since companies have already trimmed the fat by cutting workers, inventories, and reduced borrowing - it will be exceptionally difficult in the future to cover up declining profits with further cost cutting. In other words, when profit margins can no longer grow through cost cutting, corporations will have to rely on top line growth - which, given the economic outlook, doesn't appear to be very optimistic.
 
With an already weak economy, it is only a matter of time before the markets begin to adjust for lower profit growth.

So while the short term outlook for stocks may be strong, don't expect extreme growth for overall equities in the next few years. Unless you can buy stocks now and put them away for five years, as Warren Buffett does, don't expect any miracles in the short term.   
  
The Exception  
 
Go into Gold. Go into Silver. Go into related stocks.   
 
We've seen the S&P rise 2%, while gold rose 4%. This is the type of correlation that signals gold is in a league of its own - it's the type of signal that shows gold's prowess in the market despite what happens to the dollar. I have mentioned this before (see The Big Signal).
 
While the selloff in gold and silver has investors nervous, don't be. The selloff was due to many factors such as profit taking and margin requirements. When people lose money on stocks, they sell their strongest investments that have been making money to cover their loses. Gold was merely an innocent bystander.   
 
With the recent pullback in precious metals, the buying opportunity looks strong. While it may not be the exact bottom, gold and silver at these levels look very promising. Within a year's time, I fully expect gold to hit $2500 and would not be surprised to see it hit $2000 by the end of this year.      
 
In an article published by Bloomberg a few weeks ago, Dylan Grice of Société Générale calculated the "fair value" for gold based on the price at which each dollar in the U.S. monetary base would have been if backed by an ounce of the precious metal.  As of June, this price would have exceeded $10,000/oz.   
 
While gold and silver sit at these levels, investors will have the opportunity to pick up these precious metal and related stocks at rock bottom prices.  
 
That's because sooner or later, certain events will make these precious metals climb higher and faster than they have before...  
  
The Next Leg Up 
 
The U.S. and Europe face about a 40 percent likelihood of a prolonged period of economic stagnation should policy makers fail to restore confidence, according to analyst Jose Ursua of Goldman Sachs: 
 
"The prospect of a long period of stagnant growth is a plausible risk and a legitimate concern for the major developed economies. Whether these countries manage to avoid a 'Great Stagnation' by a pick-up in the recovery is likely to depend on policy being able to restore confidence and putting in place reforms that can decisively jolt growth."
 
After analyzing 93 episodes of the conditions in the past 150 years, Ursa concluded that the U.S. and Europe are already exhibiting signs that would be typical of stagnations, characterized by "high and sticky" unemployment, an average 0.5 percent growth rate in per capita gross domestic product and stock markets that underperform historical averages.  
 
When this happens, policy makers must begin new rounds of stimulus to stimulate the economy - they know that the damage wrought by prolonged stagnation will be much worse than printing more dollars.  
 
Most Bank of England policy makers have already said it's "increasingly probable" more asset purchases will be needed to support growth, while European Central Bank officials are likely to debate restarting their covered-bond purchases and further measures to ease monetary conditions.
 
Fed Chairman Ben S. Bernanke said this week the U.S. is facing "a national crisis" with the jobless rate at around 9 percent since April 2009:     
 
"We've had close to 10% unemployment now for a number of years, and of the people who are unemployed, about 45% have been unemployed for six months or more. This is unheard of." - Bernanke, September 28, 2011
 
With the economy and markets shattered and prices of commodities coming down, it now means that the threat of inflation is becoming subdued. Without the short term threat of inflation, the Fed will soon have the firepower to implement (you guessed it) QE3:   
   
 "If inflation falls too low or inflation expectations fall too low, that would be something we have to respond to because we do not want deflation" - Bernanke, September 28, 2011
 
St. Louis Federal Reserve President James Bullard said the Fed is prepared to ease policy should the U.S. economy weaken, while keeping an eye on inflation risks:
 
"The Fed has potent tools at its disposal and is not now, or ever, out of ammunition. Should further weakness develop, monetary policy will need to respond appropriately." - Bullard 
 
While no one is talking about QE3 anymore, the lagging economy and poor stock market performance gives way to a new round of talks in the near future.  
 
Regardless, gold and silver will rise over time but will shoot even higher if QE3 becomes a reality - which I still believe it will.    
   
That is my prediction. Of course, this prediction involves politics based on fundamentals, so take it with a grain of salt.  
 
Here's what I am looking to do:
 
I continue to hold cash but will be buying gold and silver on dips. I will also be looking at both the Market Vectors Gold Miners ETF (NYSE: GDX) and Market Vectors Junior Gold Miners ETF (NYSE: GDXJ), as well as other individual gold and silver explorers and miners -  including the more speculative plays. The GDXJ has a basket of gold stocks that are very well positioned and should be able to take advantage of the run up in gold prices as more investors move into gold stocks.
  
I will also be looking at the extremely beat up energy sector - especially if politics show any bigger signs of QE3. I will be looking to buy through individual large cap stocks, as well as ETF`s such as the SPDR S&P Oil & Gas Exploration & Production ETF (NYSE: XOP) and the Claymore Oil Sands ETF (TSX: CLO).
   
There are lots of bargains out there if you can stomach the volatility. Happy hunting.  
 
   
 
Until next week,
 
Ivan Lo
Equedia Weekly