Here is a look at China unleashes! Plus short squeeze, commodities, real estate and Europe’s problem.
Real Estate
July 9 (King World News) – Jeroen Blokland: US mortgage payments as a % of disposable income are, by far, the lowest on record!
Mortgage Payments As A Percentage Of
Disposable Plunge To Lowest On Record
Short Squeeze?
Peter Boockvar: As oversold US Treasuries were in March is as overbought they are today as measured by RSI (highest since last March) and the Daily Sentiment Index (at 90). TLT also happened to close at just about its 200 day moving average yesterday.
Interest Rates Tumble On The Heels
Of Big Rally In US Treasuries
Focus On Big Picture When It Comes To Commodities
For those that just look at lumber and copper prices in their commodity analysis, the CRB raw industrials index closed yesterday off just .5% from a 10 yr high.
Commodity Raw Industrials Index At 10 Year High!
China Unleashes!
After China’s market close the PBOC cut its reserve requirement ratio by 50 bps to 12% as has been hinted at this week. They claim it would ‘unleash’ 1 Trillion yuan of potential lending capacity. This news coincided with their June loan data where aggregate financing totaled 3.67 Trillion, well above the estimate of 2.89 Trillion. Bank loans made up 2.12 Trillion of this. M2 growth was 8.6% y/o/y vs the estimate of up 8.2% and vs 8.3% in May. What we are seeing is the continued juggling act Chinese officials have had to manage where too much debt has been accumulated since the massive stimulus back in 2008-2009. They want to tolerate bankruptcies which is the right thing to do but are now encouraging the take up of more debt.
This said, it has always been the case where small and medium sized businesses have had a more challenging access to capital relative to large companies, particularly those state owned. The price of copper is up 1.9% in response and is up 1.7% this week. Oil prices are higher, teasing $74 again. As this news was anticipated, the Chinese 10 yr yield didn’t react today but they are down 8 bps on the week in anticipation of bank rates falling. The offshore yuan is little changed but down slightly on the week in response.
China also reported its June inflation data. Producer prices rose 8.8% y/o/y as expected, reflecting the same exact inflationary pressures that we are feeling. The only global difference on inflation is the extent at which these price increases can be passed on to consumers. Right now Chinese business is having a more difficult time than US companies as CPI rose just 1.1% y/o/y, one tenth less than expected. Non food prices were higher by 1.7% though and ex both energy and food they were up by .9%.
Meanwhile In Europe
It took less than 24 hours for the head of the Bundesbank Jens Weidmann to clarify the tweaked approach of the ECB announced by Christine Lagarde. He said the ECB will not go down the path of the Fed and tolerate a period of higher inflation to offset a time of low inflation. He said “we do not make our monetary policy contingent on targets not met in the past.” I agree with him. Wanting ‘symmetry’ in an arbitrary inflation target is nonsense and is the exact opposite of price stability. If we see a few years of zero inflation should we tolerate a few years of 4% to balance it out? Of course not. Weidmann’s problem though is his colleagues are afraid of tightening so they will tolerate higher inflation in order to put off that tightening for as long as possible.
The euro is higher for a 2nd day after falling for 7 days in the previous 8. For all the negative rates, size of the ECB balance sheet, modest growth and 19 different countries wanting 19 different things, the euro trades pretty darn well against the US dollar and says a lot about the value of the US dollar and its twin deficits…
ALERT:
Billionaire and mining legend Ross Beaty, Chairman of Pan American Silver, just spoke about what he expects to see in the gold and silver markets and also shared one of his top stock picks in the mining sector CLICK HERE OR ON THE IMAGE BELOW TO HEAR BEATY’S INTERVIEW.
In case you missed it…
One Of The Greatest Opportunities In The Royalty Sector
Eric King: “Ryan, your company is now paying a 1% dividend and your PE is under 20, which is astonishing for a royalty company with tremendous growth in revenue and cash flow ahead of it. As an example, Franco Nevada is paying a .80% dividend, and their PE is 48, so your stock is way undervalued and is mostly likely set to double in price.”
Increased Dividend And A Major Deal With Pan American Silver
Ryan McIntyre: Yes, Eric, and a lot has happened at Maverix since we last spoke. We continue to have many catalysts that should drive the share price higher. In May we increased our dividend by 25% to a yield that is much better than you can get in a bank or with short-term Treasuries. Other recent big news is the acquisition of a royalty portfolio from Pan American Silver, where we acquired six new royalties for just under $10 million in cash and shares.
So Pan American Silver continues to express faith in management’s ability to execute and remains a large shareholder by owning roughly 8% of Maverix shares outstanding. By the way, these six royalties from Pan American Silver add royalties on two projects in Canada each with over two million ounces of gold resources, a royalty on a historical mine in Peru that is now ramping up, and three other royalties on exploration properties with excellent land positions. So this will give us additional exposure to production and a lot of exploration potential.
An Even Bigger Increase In Revenue And Free Cash Flow
But we are also very excited by the organic growth that we are seeing in our existing royalty portfolio. It was just announced last week by Karora Resources that they are going to double the Beta Hunt gold production in the next few years. And, Eric, as a reminder we’ve got a 4.75% gold royalty on that asset. What that means is that will add about 10% to our revenue base going forward. So that is very big news for us. The other big news is the Kone Gold Project, which is run by Montage Gold that just completed a PEA that showed it would add somewhere on the order of 14%-15% revenue growth for Maverix when it’s developed.
The Bottom Line
The bottom line is we are generating a lot of revenue and free cash flow. And given that we’ve got 121 royalties and streams, 13 of which are paying, we see a lot of potential for our existing portfolio to continue to create a lot of value for Maverix shareholders going forward. Maverix Metals, symbol MMX in Canada and the US.
Also Released: DEJA VU…2016 GOLD & MINER BOTTOM: Nearing Final Puke In Gold Miners, Plus Another Surprise CLICK HERE.
Also Released: There Is Growing Concern Governments Will Confiscate Gold, But Now There Is Even More To Worry About CLICK HERE.
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