Novo Resources (NVO.V): A Conversation (from IKN 472)

By Otto Rock

A minor part of the Weekly IKN473, out last night.

We join this conversation half way through:

A: So do you agree that it’s going to be very difficult to reach a 43-101 or JORC compliant resource number for NVO?
B: Yes, we agree on that. But that doesn’t make the company worthless! They clearly have a lot of gold!
A: And I agree with you on that. But what I’m interested in is monetizing it, making the company profitable.
B: Me too.
A: Good! We’re on the same page. But what really matters is being able to justify the current market cap, because if you include those very-in-the-money warrants (and you have to, really) NVO is now revolving around a $1Bn market cap. That’s expensive.
B: Okaaaay…if you say so. I think NVO is cheap!
A: Fine. So in that case, I’m not even going to ask you to justify a future where NVO is double or triple today, all we are going for is to justify $1Bn.
B: They have a lot of gold!
A: And a lot of market cap valuation, too. Let’s justify its market price with that gold, yes?
B: Well, you do what Bob Moriarty says! You mine it!
A: I agree 100%. Now, how do you mine it?

Continue reading Novo Resources (NVO.V): A Conversation (from IKN 472)

Thankful For Their Skepticism

By Kevin Muir

I have been banging on the inflation drum for so long I feel that even Todd Rundgren would be sick of hearing from me. While a couple of years ago, the majority of pundits were not talking about inflation – most were focused on the Fed’s inability to create rising prices in anything except financial assets – recently the market has awoken to the risks that accompany a decade of bat-shit-crazy central bank monetary policies.

With the current popularization of warnings about the coming inflation, I don’t know if I can add any value rehashing the points filling financial airwaves. The market seems to have finally caught on. Inflation is coming. In fact, it’s already here. And it will get a lot worse.

Instead of writing yet another piece reiterating my beliefs about why inflation will be a problem in the coming decades, I have decided to explore how market inflation expectations have changed over the past couple of years.

At the start of 2016, the market was pricing in a 1% 5-year breakeven inflation rate. That meant inflation had to average less than 1% for the next five years for nominal bonds to outperform TIPS (Treasury Inflation Protected Securities). Stop and think about that for a moment. The Federal Reserve has an inflation target of 2%. Yet the market did not believe they could achieve an inflation rate of even half their target.

The three Ds (deflation, demographics, and debt) were on everyone’s lips. It made little sense to invest in inflation-protected securities when everyone knew there could be no inflation.

Continue reading Thankful For Their Skepticism

Testing Your Stock Market Hypothesis With Facts

By Chris Ciovacco

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What Is Fiat Currency?

By Steve Saville

The term “fiat” is often associated with irredeemable-paper or electronic currency, but existing only in paper or electronic form is not the defining characteristic of fiat currency. In fact, paper or electronic currency is not necessarily “fiat” and hard commodity currency can be “fiat”.

Regardless of the form it takes, fiat currency is simply currency by government decree. If the government dictates that a certain ‘thing’ is money and must be accepted in payment for goods, services and debts, then that ‘thing’ is a fiat currency.

Obviously, all of today’s national currencies are fiat currencies. Not so obviously, gold was a fiat currency during the Gold Standard era. It could be claimed — without any argument from me — that during the Gold Standard era gold would have been the most widely used currency without the government making it so, but this is beside the point. In the situation where the government has commanded that gold is money, gold is a fiat currency.

Also not so obviously considering what has been written on the topic in other places, Bitcoin is not a fiat currency. If anything it is the opposite of a fiat currency, because it was created by the private sector and is not supported in any way by the government. This doesn’t mean that Bitcoin is a good currency, as there is a lot more to being a good currency than being outside the direct control of government.

Summing up, people should be careful when applying the word “fiat” to currency/money. The word is routinely used to mean irredeemable or non-physical, but that’s not what it actually means.

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Q1 2018 Z.1 Flow of Funds

By Doug Noland

Credit Bubble Bulletin

The first-quarter 2018 Z.1 “flow of funds” report can be viewed in two ways. From one perspective, key conventional data are un-extraordinary. Household debt expanded at a 3.3% rate during the quarter, down from Q4’s 4.6%. Home Mortgage borrowings slowed from 3.4% to 2.9%. Total Business debt grew at a 4.4% pace, unchanged from Q4 and down from Q1 ’17’s 6.1%. Financial sector borrowings were little changed, after expanding 1.6% during Q4. Bank lending was, as well, unremarkable.

From another perspective, extraordinary Credit growth runs unabated. Total System (non-financial, financial and foreign) Credit expanded at a (record) seasonally-adjusted and annualized rate (SAAR) of $3.513 TN during 2018’s first quarter, compared to Q4’s SAAR $1.411 TN and Q1 ’17’s SAAR $860 billion. This booming Credit expansion was fueled by an SAAR $2.519 TN increase of federal borrowings. Granted, this was partially a makeup from Q4’s slight contraction in federal debt growth.

In nominal dollars, Total U.S. System Credit expanded a blazing $962 billion during Q1 to a record $69.717 TN (349% of GDP). Non-financial Debt (NFD) expanded a record (nominal) $874 billion, with one-year growth of $2.413 TN. One must return to booming 2007 for a larger ($2.508 TN) four quarter-period of Credit expansion. NFD ended Q1 at a record $49.831 TN, matching a record 250% of GDP. NFD expanded $4.086 TN over the past two years, the strongest expansion since ’07/’08.

Continue reading Q1 2018 Z.1 Flow of Funds

Too Much Love For QQQ

By Tom McClellan

QQQ shares outstanding

The FANG stocks have been leading the market higher in 2018, and a lot of traders are choosing to tag along on that trade by buying into QQQ, the ETF which tracks the Nasdaq 100 Index (NDX).  As more traders buy into QQQ, the sponsoring firm (Powershares, part of Invesco) issues more shares in order to keep the share price as close as possible to the net asset value.

This week’s chart shows how the number of QQQ shares outstanding varies over time.  Not surprisingly, it goes up and down in sympathy with price movements.  There is nothing like an uptrend to get traders wanting to buy.  By the same token, there is nothing like a selloff to get them to want to bail out.

Continue reading Too Much Love For QQQ

The Glacial Taper Continues!

By Anthony B. Sanders

Fed’s Treasury Note and Bonds Holdings Back To April ’14 Levels While Agency MBS Holdings Back To August ’15 Levels

It took the Fed five-and-a-half years to amass $3.4 trillion in Treasury securities and mortgage-backed securities (MBS) during Quantitative Easing (QE). The Fed is now reversing that process, including the opposite of “tapering,” as it is “ramping up” its QE unwind. Call it “the glacial tapering.”

The Fed’s balance sheet for the week ending June 6, released Thursday afternoon, shows a total drop of $141 billion since October, the beginning of the era officially called “balance sheet normalization.” At $4,319 billion, total assets have dropped to the lowest level since May 7, 2014, during the middle of the “taper.”

If the Fed continues to follow its plan, it will shed up to $420 billion in securities this year, and up to $600 billion a year in 2019 and each year in the future, until it considers its balance sheet to be “normalized” — or until something big breaks. For May, the plan calls for the Fed to shed up to $18 billion in Treasuries and up to $12 billion in MBS.

On the Treasury note and bond side, we are back to April  2014 levels.

treaswith

On the agency MBS side, The Fed’s holdings are also dropping and are back to August 2015 levels. But they are not declining that rapidly.

Continue reading The Glacial Taper Continues!

Sir Chop-A-Lot

By Tim Knight

I was amused – and a little amazed – to see this item this morning:

For the two or three of you unfamiliar with John McAfee’s famous bet, allow me to summarize it with one sentence and photo; as you can see, the former tech titan is looking a bit out of sorts these days:

See, I was convinced that this man has stumbled only publicity gold, because he made a provocative, amusing statement that swept the airwaves, but the prediction was far enough out that he could enjoy the fruits of this weird publicity stunt for a while without risk or bodily harm.

Continue reading Sir Chop-A-Lot

Investor Cash Allocations

By Callum Thomas

When I look at charts like this, sayings such as “cash is trash” or “there is no alternative” come to mind.  The chart uses data from the AAII survey and ICI mutual fund statistics to give two views on US investor portfolio allocations to cash.  The bottom line is cash allocations are at rock bottom.  Interestingly though, the AAII surveyed allocation has rebounded from the low-point in January this year.  Question is, how many Fed rate hikes will it take until cash looks attractive again?  …but then again, interest income isn’t always all that matters, when the core job of cash in a portfolio is typically to do the heavy lifting as a defensive asset for capital preservation purposes.  So contrarians: take note.

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A Novo Resources (NVO.V) Request

By Otto Rock

As we had so much fun on Twitter today with this request, it’s only fair that it gets an airing here as well. Here’s how the Tweet went:

“Request for Novo Resources longs. Please provide either an explanation on how NVO gets to a 43-101/JORC compliant resource or if not, a reasonable path to production of enough size to justify current mkt cap. As without one of those, imo all long theses are pure hot air.”

And unlike the thin-skinned CEO.ca pump artist “hhorseman” who thought this was all unfair and about him (more on that tomorrow), you should be clear that this isn’t a loaded question. Yes, I’d agree that it’s an uncomfortable question for longs because it brings into focus the obvious weak point of the whole NVO story, but it’s in no way loaded. Experience has taught me that it’s only the promo pump end of the junior world that shies away from the tough parts, companies and supporters of who tackle the weak points to the satisfaction of the world see their share prices and portfolio values really move up.

So quite seriously, I as a neutral on this stock (a well-documented position) would like an answer to this. How does NVO justify its virtual $1Bn market cap (those cheap warrants must be counted in).

  • If it can put together a compliant resource, good because that may well do it. But how?
  • If it cannot put together a 43-101 or JORC compliant resource, then I can only presume it would need to go into production as stands. So what reasonable production scenario can value this at C$1Bn?
  • And if I’m wrong and there’s some third way of placing a tangible valuation on NVO, then what is it? (because for the life of me I’m stumped).

FWIW and to try and help a little, some answers and comments on Twitter today show there are people in (or at least interested) this stock that don’t really understand what company equity is.

PS: The “Because we think there are X million ounces” argument doesn’t work, that’s why third party resource counts under rules and regulations exist.

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Bullish Setups

By Chris Ciovacco

ODDS MORE FAVORABLE FOR BREAKOUT ATTEMPT

The term setup speaks to probabilities.  There are several positive setups on the chart of the Vanguard Total Stock Market ETF below, telling us patience over the past 124 calendar days may be on the verge of being rewarded with higher highs and higher profits.  The annotations are described in more detail below the chart.

short-takes-ciovacco-capital-management-stock-blog-vti-3.png

The annotations are described in more detail below:
Continue reading Bullish Setups

Serving Suggestion

By Tim Knight

Yeah, I know, it’s January 2018 all over again. Market is up every day. VIX is heading to the single digits. Bulls are ecstatic. Bears are suicidal. I get it.

All the same, I’d like to offer one possible pathway for the NASDAQ Composite, shown below. Because we’re experiencing the same kind of lifetime high in tech stocks that we did back around March 13, and it pretty much shot its wad at that point. Just a suggestion:

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Subscribe to NFTRH Premium for an in-depth weekly market report, interim updates and NFTRH+ chart and trade ideas. You can also keep up to date with plenty of actionable public content at NFTRH.com by using the email form on the right sidebar. Or follow via Twitter @BiiwiiNFTRH, StockTwits or RSS. Also check out the quality market writers at Biiwii.com.