Category Archives: General

US only grew 1.2% to start 2017

The US economy only grew 1.2% at an annual pace during the first three months of the year, according to a new estimate by the Commerce Department.

That’s a hair better than the initial estimate of 0.7% published a month ago, which had been the worst quarter of growth in 3 years.

“This was a solid upward revision…but it still definitely was a sluggish start to the year,” says Scott Anderson, chief economist at Bank of the West.

Still, Friday’s figure doesn’t change the narrative: the US economy is growing slowly, albeit steadily. It’s been growing at this rate since the Great Recession ended in June 2009, making it the third longest expansion in history.

However, the Federal Reserve forecasts that growth is on pace for 2% this year. During the late 1990s, the US posted 4% growth multiple times.

President Trump is seeking 3% annual growth, though he promised higher — 4% — on the campaign trail. Many economists say Trump’s administration will be challenged to boost growth that much with an aging workforce.

American consumers were the main culprit of the sluggish growth in the first quarter. Consumer spending declined in February and March on a monthly basis. Government spending was down too.

Growth is poised to rebound this spring. The Atlanta Federal Reserve forecasts growth in the second quarter to be a strong 4.1%, backed by a pick up in consumer spending in April.

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U.S. inflation path since 2012 is worrisome

The current level of U.S. prices is noticeably lower than what it would be if the Federal Reserve had delivered on its 2-percent inflation target, St. Louis Federal Reserve President James Bullard said, calling the trend “worrisome.”

In slides prepared for delivery in Tokyo on Friday, the U.S. central banker said U.S. prices are now 4.6 percent below the price level path established from 1995 to 2012, when inflation was growing near the Fed’s target of 2 percent each year.

“This is not as severe as the 1990s Japanese experience, but it is worrisome,” said Bullard, who does not vote on U.S. monetary policy this year.

Too-low inflation has kept the Fed from raising rates more than three times since the Great Recession, but since late last year most Fed policymakers have seen faster rate increases ahead, citing improvements in the labor market.

Bullard also said he sees minimal impact on long-term bond yields from reductions in the Fed’s balance sheet, which he hopes will start in the second half of this year.

Bullard, speaking to reporters after the speech, said it was good to cap the amount of mortgage-backed securities and Treasuries that are allowed to run off the Fed’s balance sheet. However, he was indifferent to what the size of the caps should be.

The Fed is monitoring subprime auto and student loans but they are not near danger levels, he added.

U.S unemployment registered 4.4 percent in April, below what Fed officials believe is a sustainable level. Most Fed officials expect to raise the target interest rate three times this year, including the increase they made after their March policy meeting

But Bullard said that a surge in inflation is unlikely even if unemployment falls further.

With inflation still below 2 percent and inflation expectations and Treasury yields falling since the Fed raised rates in March, the Fed’s plans for rate increases may be “overly aggressive” he said.

The Fed is expected to raise rates at its June policy-setting meeting, and will release fresh economic projections at that time.

Bullard, who regards the economy as mired in a low-inflation, low-growth rut, has said he feels the central bank needs to raise rates only one more time and should then pause until it is clear the economy has shifted to a higher gear.

Bullard also told reporters the Bank of Japan must communicate carefully with markets if it decides to taper its purchases of Japanese government bonds, and that it would be prudent for the central bank to lay out an exit strategy.

“It’s very important to get the communication right,” Bullard said. “Otherwise there will be outsize reaction and cause a lot of global dislocation.”

Japan’s inflation is nowhere near the BOJ’s 2 percent target, but analysts are growing concerned because the bank’s balance sheet has swelled to 90 percent of the nation’s nominal gross domestic product – triple the ratio for the European Central Bank and nearly four times that of the Fed.

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Interview: A Visit with Jim Walchuck of Zinc One Resources

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As you know, from time to time we like to introduce you to some new people and new companies within the mining sector. Well here’s another interesting story for you and it has to deal with zinc, which is an industrial metal that we first started to take note of back in 2016.

Jim Walchuck has been in the mining industry since, quite literally, the day he was born. He’s had great success in the sector and this latest venture looks quite compelling.

Zinc One Resources (symbol Z.V in Canada and ZZZOF in the U.S.) is a Vancouver-based company focused on the acquisition, exploration and development of prospective and advanced world class zinc projects. The company believes in the current and future fundamentals of the zinc supply and demand scenario and the continued growing demand for zinc in global industrial uses. If you also believe in the positive fundamentals for zinc, this is one you should research and consider.

More information on Zinc One can be found by visiting their website: https://www.zincone.com

I hope you enjoy this informative podcast.

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Michael Pento: Trump’s Biggest Enemy is the Fed

By Michael Pento, Apr 10, 2017

Right on the heels of Donald Trump’s stunning election victory, Democrats began to diligently work on undermining his presidency. That should surprise no one. It’s just par for the course in partisan D.C.

However, what appears to be downright striking is that the Keynesian elites may have found a new ally in their plan to derail the new President…the U.S. Federal Reserve.

First, it’s important to understand that the Fed is populated by a group of big-government tax and spend liberal academics who operate under the guise of an apolitical body. For the past eight years, they have diligently kept the monetary wheels well-greased to prop up the flat-lining economy.

However, since the election the Fed has done a complete about-face on rate hikes and is now in favor of a relatively aggressive increase in its Fed Funds Rate. And I use the term relatively aggressive with purpose, because the Fed raised interest rates only one time during the entire eight-year tenure of the Obama Presidency. Technically speaking, the second hike did occur in December while Obama still had one full month left in office. But coincidentally, this only took place after the election of Donald Trump.

Keep in mind a rate hiking cycle is no small threat. The Federal Reserve has the tools to bring an economy to its knees and has done so throughout its history of first creating asset bubbles and then blowing them up along with the entire economy.

Remember, it was the Fed’s mishandling of its interest rate policy that both created and burst the 2008 real estate bubble. By slashing rates from 6.5 percent in January 2001, to 1 percent in June 2003, it created a massive credit bubble. Then, it raised rates back up to 5.25 percent by June of 2006, which sent home prices, stock values and the economy cascading lower.

In the aftermath of the carnage in equity prices that ended in March of 2009, the Standard & Poor’s 500 stock index soared 220 percent on the coat tails of the Federal Reserve’s money printing and Zero Interest Rate Policies. But during those eight years of the Obama Administration, the Fed barely uttered the words asset bubble. In fact, it argued that asset bubbles are impossible to detect until after they have burst.

But since the November election, the Fed’s henchmen have suddenly uncovered a myriad of asset bubbles, inflation scares and an issue with rapid growth. And are preparing markets for a hasty and expeditious rate hike strategy. The Fed has even indicated in the minutes from its latest FOMC meeting that it actually intends on beginning to reduce its massive $4.5 trillion balance sheet by the end of this year. In other words, trying to raise the level of long-term interest rates.

In a recent interview, Boston Fed President Eric Rosengren has suddenly noted that certain asset markets are “a little rich”, and that commercial real-estate valuations are “pretty ebullient.” The Fed is anticipating as many as four rate hikes during 2017 with the intent to push stocks lower, saying that “rich asset prices are another reason for the central bank to tighten faster.” Piling on to this hawkish tone, San Francisco Fed President John Williams’s also told reporters that he, “would not rule out more than three increases total for this year.”

The Fed is tasked by two mandates, which are full employment and stable inflation. However, it has redefined stable prices by setting an inflation goal at 2%. Therefore, a surge in inflation or GDP growth should be the primary reasons our Fed would be in a rush to change its monetary policy from dovish to hawkish.

Some people may argue that the Fed has reached its inflation target and that is leading to the rush to raise rates, as the year over year inflation increase is now 2.8%. The problem with that logic is that from April 2011 all the way through February 2012 the year-over-year rate of Consumer Price Inflation was higher than the 2.8% seen today. Yet, the Fed did not feel compelled to raise rates even once. In fact, it was still in the middle of its bond-buying scheme known as Quantitative Easing.

Perhaps it isn’t inflation swaying the Fed to suddenly expedite its rate hiking campaign; but instead a huge spike in GDP growth. But the facts prove this to be totally false as well. The economy only grew at 1.6 % for all of 2016. That was a lower growth rate than the years 2011, 2013, 2014, 2015; and only managed to match the same level as 2012. Well then, maybe it is a sudden surge in GDP growth for Q1 2017 that is unnerving the Fed? But again, this can’t be supported by the data. The Atlanta Fed’s own GDP model shows that growth in the first three months of this year is only growing at a 1.2 percent annualized rate.

If it’s not booming growth, and it’s not run-away inflation and it’s not the sudden appearance of asset bubbles…then what is it that has caused the Fed to finally get going on interest rate hikes?

The Fed is comprised of a group of Keynesian liberals that have suddenly found religion with its monetary policy because it is no longer trying to accommodate a Democrat in the White House. It appears Mr. Trump was correct during his campaign against Hilary Clinton when he accused the Fed of, “Doing Political” regarding its ultra-low monetary policy. Now that a nemesis of the Fed has become President…the battle has begun.

This article is written by Michael Pento of Pentoport and with his kind permission, Gecko Research has been privileged to publish his work on our website. To find out more about Pentoport, please visit:

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If you thought lithium was exciting, try cobalt

Lithium was the super-hot metals story of 2016.

A spectacular price rally propelled lithium out of the metallic shadows onto the global investment stage.

This year it is the turn of cobalt.

The price of cobalt traded on the London Metal Exchange (LME) has exploded from $33,000 per tonne to $55,000 since the start of January.

This time last year, the price was bombed out at multi-year lows below $25,000 per tonne.

As with lithium, cobalt’s story is all about batteries and the green technology revolution.

The lithium-cobalt battery is already standard in many electronic applications and both metals are expected to see usage accelerate thanks to the rapidly evolving electric vehicle and grid storage sectors.

And as with lithium, stellar demand projections have led to increased scrutiny of the supply chain.

Which is where cobalt may turn out to be even more of a rollercoaster market than lithium.

THE SCRAMBLE FOR COBALT

The scale and speed of the cobalt price surge over the last few months reflects a scramble for units.

The cobalt market has been transitioning over the last year or so from a state of oversupply to one of shortfall, with most analysts forecasting a supply deficit in 2017.

That expectation coupled with all the excitement surrounding the lithium story seems to have led to several high-profile funds such as Switzerland’s Pala Investments and China’s Shanghai Chaos Investment buying up physical stocks of cobalt.

Which in turn seems to have triggered panic buying by cobalt users along the manufacturing chain.

The cumulative effect has been a near straight-line price rally since the fourth quarter of last year.

As ever with such rapid and violent price action, though, the drivers have in all probability abated just as the rest of the world sits up and pays attention.

That was how lithium played out last year and that’s how analysts think cobalt will play out this year.

With the immediate panic about availability over, the upside price impetus should fade, leading to a period of consolidation or mild retreat over the second half of this year.

A FRAGILE SUPPLY CHAIN

But cobalt’s supply chain is much more fragile than that of lithium, with its big, established players operating brine lakes in the relatively stable environment of the “Lithium Triangle” straddling Chile and Argentina.

Cobalt, by contrast, is massively dependent on one highly unstable African country, the Democratic Republic of Congo (DRC).

The U.S. Geological Survey (USGS) estimates that last year the DRC accounted for 66,000 tonnes of global mined cobalt production of 123,000 tonnes.

In terms of reserves the country is estimated to have 3.4 million tonnes of cobalt, around half of the world’s identified resources, again according to the USGS.

Cobalt mining in the DRC is dominated by Swiss trade house Glencore and a variety of Chinese players, all of which extract the metal as a copper by-product.

That’s another kink in the cobalt supply chain since there are hardly any pure cobalt mines, leaving global production dependent on the economics of other metals such as copper and nickel.

Glencore’s decision in late 2015 to suspend production at its Kamoto copper operations, for example, has also taken around 3,000 tonnes of cobalt out of the supply picture.

It will bring that production back on line next year but other short-term boosts to supply are likely few and far between because of the resource spending freeze that followed the low base-metals price environment of 2014-2015.

SWING PRODUCER

One producer, however, is probably able to react to higher prices and it’s a particularly problematic player.

Artisanal mining is the “known unknown” in the DRC and global cobalt supply chain.

It may account for anything up to a fifth of the country’s output but is difficult to quantify since it exists in the shadows of the official sector.

Like artisanal mining everywhere, production tends to be highly sensitive to price.

It’s worth noting that despite the explosive rally towards the end of the year, 2016 was a period of low average pricing.

China’s imports of cobalt raw materials shrank by 35 percent to 150,000 tonnes (bulk weight), with supply from the DRC falling by a harder 41 percent to 132,000 tonnes.

Some contraction in artisanal output was almost certainly in the mix.

This year, however, with prices at multi-year highs and China needing to restock raw materials again, it is the artisanal part of the supply chain that will act as swing supplier.

In essence, the current structure of the cobalt market means the key determinant of market balance and price will be the least transparent component of global production.

And also the most controversial component, given the increasing focus on ethical supply chains.

Cobalt has so far escaped the same level of scrutiny as, say, tin and tantalum, both of which also come from the DRC.

But it is only a matter of time before that changes, meaning even more pressure on the artisanal contribution to global supply.

TRADEABLE AND VOLATILE

Cobalt’s problematic supply chain, with too much coming from one country and too much coming from the “grey” artisanal sector, may yet hobble its longer-term usage profile.

But right now it and lithium are two of the front-runners in the green revolution materials race.

It’s partly that calculation that persuaded funds to get involved in cobalt as a lithium catch-up trade.

Cobalt is also easier to buy and store than lithium, which remains tightly controlled by a small oligopoly of producers.

The flip side, though, is it’s also easier to short sell on an exchange such as the LME.

The LME’s cobalt contract has been trading since 2010 and has done no more than tick quietly over for most of that time.

Volumes really started picking up late last year, though, as the price rally gathered momentum. Activity in the first two months of this year jumped to 2,396 lots from just 620 lots last year.

For now, it’s the only exchange-traded cobalt contract. But that’s one more than exists in the lithium market.

It’s that tradeability that makes cobalt a potentially more volatile commodity than lithium. And given the nature of the cobalt supply chain, there may be no shortage of reasons for price volatility.

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