Professor Niall Ferguson on Europe, Japan pain from US dollar
The author of ‘The Ascent of Money’ explains how China is benefiting from the weakening US dollar and how Japan and Europe are suffering. Could there be a decoupling or delinking of the dollar peg to the Chinese yuan? Something is going to have to give shortly as the US and China are landing the rest of the world with their economic problems.
Mideast investors welcome new gold junior ETF
The long-awaited Market Vectors Junior Gold Miners exchange traded fund has just been launched under the ticker symbol GDXJ and is bound to be welcomed by the growing fraternity of gold bugs in the Middle East.
This ETF is a basket of 36 small to medium sized companies in the sector, albeit the inclusion of a few large silver producers dilutes its gold bug appeal. However, for the first time an ETF vehicle is available to conveniently trade this little appreciated sector that offers significant leverage to the gold price without requiring debt.
Gold price leverage
With the gold price advancing daily and over $1,120 an ounce at the time of writing this article, there has arguably never been a better time to use this sort of leverage. But you should never forget that this is a play on the gold price and that what has gone up can go back down again.
For a contrarian investor the universal antipathy to the US dollar and the presently rampant dollar carry-trade to buy real assets like gold looks like a party that just has to end soon. Gold juniors would then take the biggest hit in the gold asset spectrum as they did last year, and indeed this fear from 2008 still haunts the juniors.
Yet the rebound from last year’s lows has been spectacular. GDXJ’s underlying index spiked 92 per cent over the past 12 months.
To be included in the index, companies must receive ‘or have the potential to generate’ at least 50 per cent of their sales from gold and, or silver mining. Market capitalization must exceed $150 million and they must have traded at least 250,000 shares a month over the last six months.
Solid portfolio
This is no emerging market play. Two-thirds of the firms are Canadian and 22 per cent from the US and 11 per cent from Australia. The fund has an expense ratio of 0.6 per cent and will rebalance holdings quarterly.
Largest holdings are: Coeur d’Alene Mines 7%; Silver Standard Resources 6%; New Gold 5.6%; Hecla Mining 4.6%; and Gammon Gold 4.5%. This is diversification within a sector where investing in individual stocks is particularly risky.
Perhaps GDXJ is a great ETF to consider buying after a stock market correction rather than before this happens, unless you are in the bullish camp and now feel markets are going to head upwards in a straight line. Then you should buy now.
Less aircraft orders for Dubai Air Show as crisis bites
With the Dubai Air Show 2009 coming up next week the aviation industry is warning observers not to expect a repeat of the $155 billion worth of aircraft ordered at the 2007 edition. Times have changed dramatically since then.
Nor does it seem likely that there will be anything like the $15 billion order from Emirates for 25 Boeing 777s, 22 Airbus A380s, eight Airbus A340-600s and three A330s which the airline placed in November 2001, just weeks after the 9/11 tragedy stunned the aviation sector.
Emirates expansion
Somethings do not change. Emirates Airline is still grumbling about not having enough aircraft to meet demand. But there is an element of showmanship here as the airline’s revenues fell in the first half of its financial year despite adding substantial new capacity.
Yet all is not gloom and doom. The Dubai Air Show can still boast 10 per cent growth in exhibitors this year to over 900 from 47 countries. The focus will be more on defense than commercial aviation at this show.
These are still very exciting times for airlines in the Middle East with the huge fleets of aircraft ordered in the early years of this decade now arriving en masse.
Qatar Airways has more than 200 aircraft on order, including 80 A350s and 30 Boeing 787 Dreamliners. At last year’s Farnborough International Air Show, Abu Dhabi-based Etihad ordered 100 Airbus and Boeing aircraft, and Flydubai placed an order for 50 Boeing 737-800 aircraft.
However, the fear is now that overcapacity is going to further undermine the commercial viability of the sector. Globally airlines are big loss makers as they are in the Middle East with the exception of Emirates in Dubai.
Cut-price travel
For regional travelers a golden age of cut-price travel is at hand with low-cost carriers for short haul, and the national champions battling it out for their business on long haul.
But the biggest losers will not be the regional airlines but the global legacy carriers. They are facing intense and often subsidized competition from airlines in the Middle East with much lower cost structures and the newest aircraft.
It could be that the casualties in this commercial war are not found in the region but among the flag carriers of Europe and the US. All those new planes will have to be filled, and passengers on most airlines will enjoy state subsidies from countries that they will most likely never visit. Is there commercial logic in this? Probably not.
Dubai gold heist highlights value of ETFs and vaults
Dubai Police apprehended the suspects in a daring $1.6 million gold heist in the Dubai International Airport within 48 hours late last month. This case highlights the security issues surrounding gold ownership, and for local investors points to the usefulness of exchange traded funds to own gold.
The Dubai airport heist was no daring daylight raid by armed men. Rather a jeweler with 25 gold bars in his luggage was tracked by a gang who walked off with his suitcase when he put it down and looked away.
Dubai Police action
Apparently they had learned of his insecure gold carrying habit, and for good measure immediately sent the booty to Costa Rica via a courier service, hidden in electronic equipment. The jeweler did not see a thing but the Dubai Police has far a very modern and effective security system that came to the rescue.
But that is the problem with owning gold bars. How do you hide them? Clearly wondering around the airport with them is not a good idea. Under the bed? What about the maid? Bury them in the garden? What about the gardener?
Are you even sure that they are gold bars? Gold-plated tungsten has the same weight, so be sure to melt them down occasionally just to be certain, they might have been switched.
It is all very well owning a few items of jewelry and storing them in a modest safe to avert the evil eye. But if you are investing thousands or millions of dollars in gold then you need to adopt a more sophisticated approach.
The Dubai Gold Securities exchange traded fund is the perfect local solution. You get a certificate for one-tenth of an ounce of gold which is held against physical gold in a London depository run by HSBC.
Some people worry about ETFs and whether they would be redeemable in an Armageddon disaster situation. DGS claim that would not be a problem, and that holders could even go to HSBC in London and redeem the ETF at full market value.
Keep gold safe
Yet how likely is that, or that the third parties fail, although again DGS says that even this would make no difference to the holder’s entitlement. Surely you are far more likely to be robbed like the jeweler in Dubai airport if you insist on holding physical gold.
An alternative is the Perth Mint Depository System in Australia from a AAA-rated, 100 per cent government owned institution, which charges nothing for storage of unallocated gold and no commission for buying and selling it.
The place to keep gold is in a vault, don’t carry it around in your luggage!
