VC Market Intelligence: January 2013

MARKET INTELLIGENCE JANUARY 2013 VISUAL CAPITALIST ABOUT VC MARKET INTELLIGENCE The goal of this monthly infographic is to provide a big picture snapshot of market signals, commodity trends, and economic indicators in an intuitive and visual way. THE MARKETS Month-to-month November to December 2012 +2.00 +1.75 O +1.59% TSX Last month, the markets finished relatively flat. However, in the first 3 days of January trading after the fiscal cliff +1.50 +1.25 +1.00 O +0.71% S&P 500 O +0.60% Dow Jones O +0.31% Nasdaq +0.75 +0.50 aversion, the S&P 500 hit a 5 year high. +0.25 O 0.03% TSX-V 0- -0.25 -0.50- MONTHLY TECHNICAL ANALYSIS MARKET COMMENTARY Tam not ready to jump on the bearish bandwagon for stocks because the open interest in weeklys puts is too high. But, if the SPX closes 2 consecutive days below its 40 week moving average I will be fully bearish. By Jeremy Salsburg BEARISH SILVER LINING Intermediate term (1-3 months) - ASSET ADVISORS Market commentary provided by Jeremy Salsburg of Silver Lining Asset Advisors, LLC 561-948-3414 x10 CBOE OPEN INTEREST FOR WEEKLYS PUTS ONLY [email protected] 4500,000 WEEKLYS PUTS WEEKLYS PUTS A {1 YEAR AGO) 4,000,000 3,500,000 3,000,000 2500,000 2,000,000 1,500,000 1,000,000 500,000 Dec 17th 2012 Dec 18th Dec 19th 2012 Dec 20th 2012 Dec 21st 2012 Dec 24th 2012 Dec 26th 2012 Dec 27th 2012 Dec 28th 2012 Dec 31st 2012 Jan 2nd 2013 Jan 3rd 2013 Jan 4th 2013 2012 S&P 500 ANALYSIS The SPX closed December 2012 at 1426.19, just 10.01 points higher than the November-end close of 1416.18, but made a new lower-high of 1448.00. PPO (6,12,9) The Percentage Price Oscillator (PPO} measures the difference between two moving averages as a percentage of the larger moving average. Momentum signals are generated with signal line crossovers, centerline crossovers, and divergences Even with the +2.8% move higher in SPX for the first three days of 2013, this represents a continuation of the analogous track of SPX's behavior from back just before the debt-ceiling crisis of August, 2011. As discussed in last month's commentary, the following similarities in the chart structure exist when comparing that timeframe to present. PPO Signal Histogram MM OBSERVATIONS Divergence between higher-highs in SPX while lower-highs made in PP0 -2 -3 40 week MA was tested and 1450 SPX (weekly) 1400 held as support 40 week moving average 1350 (3 A relief rally took price back up to post a new lower-high. This sets the 1300 1250 1200 1150 stage for a coming large decline, now that the trend in both the SPX and its PPO are aligned 1100 1050 1000 10 F MAMJ JASON D 11 F M AM JJA SOND12 F MAMJĮASOND 13 The trigger for whether/when this present big decline starts is a breakdown back below the Prior to Debt Ceiling increase Prior to 'Fiscal Cliff VOLATILITY This week the VIX had its largest weekly decline in the history of the index. The VIX now sits in the mid-13 area which is expected to hold as support over the short, intermediate, and long term. 40 week MA TOP 5 DECLINES Week of Week of Week of Week of Week of Jan 4th 2013 Aug 24th 2007 Mar 15th 1991 Mar 25th 2011 Sep 28th 2001 -39.1% -30.9% -28.4% -26.7% -25.2% After "Fiscal Cliff" Resolution Gulf War Post 9/11 RECENT VIX FUTURES VOLUME RECORD VOLUME DAYS 212,800 221,323 148,376 139,438 148,900 85,134 53,349 DEC 24, 2012 DEC 26, 2012 DEC 27, 2012 DEC 28, 2012 DEC 31, 2012 JAN 01, 2013 JAN 02, 2013 2013: THE YEAR OF THE GOLD STOCK? IT'S OFFICIAL! In 2012, gold finished up 7% Gold bullion has increased in value for the 12th calendar year in a row. As investors know, gold stocks simply haven't kept pace. 400% 382% 350% Compare gold bullion with gold stocks: GOLD BULLION PRICE 300% GOLD BUGS INDEX (HUI) 250% 200% 150% 100% 50% 0% 2013 2003 2004 2006 2007 2008 2009 2010 2011 2012 Relative to the gold price, mining companies are the cheapest they have been for over a decade. GOLD BULLION PRICE TO GOLD BUGS INDEX RATIO 0.6 0.4 Experts believe it is because of 0.2 cost overruns in the 0.0 mining industry. '97 '01 '05 '09 '13 100 100 FACT Over the past five years the top 10 gold mining companies have almost tripled their total capital expenditure $2B $7.8B $22B 100 100 100 2003 2007 2013 Increasing capital expenditures are leading to higher all-in costs. REPLACEMENT COST (oz/AU) (us$/oz) $1498 TAX 1400 $200 1200 OVERHEAD 1000 $50 800 DISCOVERY COSTS $125 600 400 CONSTRUCTION CAPITAL $150 200 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 03 04 Q1 Q2 Q3 Q4 Q1 Q2 10 08 08 09 09 09 09 10 10 | 10 | 11 11 11 11 12 12 SUSTAINING CAPITAL 0.0 $275 CASH OPERATING COSTS $700 JOE FOSTER Van Eck Gold Fund Across the industry, costs have gone up much more dramatically than anybody would have guessed over the last two years and that's caused the entire sector to underperform. So what I'm saying is the escalation of the last two years is about to make a turn for the better in 2013 and that's going to enable a lot of companies to outperform gold. MARKET DASHBOARD ECONOMIC INDICATORS 7.8% O UNEMPLOYMENT RATE I UNITED STATES Understanding VC Market Intelligence MONEY SUPPLY M2 10.43 VIX VOLATILITY INDEX 52 WEEK HIGH IN TRILLIONS 52 WEEK HIGH 17.31 1 CURRENT PREVIOUS MONTH S The week of trading after fiscal cliff, the VIX dropped 39.1%. -52 WEEK LOw PREVIOUS MONTH THIS MONTH 52 WEEK LOW CPI CONSUMER PRICE INDEX 230.2 52 WEEK HIGH PMI GDP GROWTH Q3 - 2012 CI RETAIL SALES CONSUMER CONFIDENCE INDEX GROWTH VS PREV QUARTER PURCHASING MANAGERS INDEX 1 3.1% $368.79 73.7 54.8 Q2 – 2012 1 1.3% 71.5 1 $367.64 $366,88 HIGHLIGHT + 65.1 1 50.7 In December, China's PMI hummed along above 50 for the third month in a row. 49.5 61.3 $355.62 49.5 EUROZONE CANADA CHINA PMI GDP UNEMPLOYMENT 53 3.00% Current Previous 2.75% 52 2.50% EUROZONE 11.7% 11.6% 51 2.25% 50.4 50.6 2.2% 1 50 2.00% 1.75% CANADA O 7.1% 7.2% 49 1.50% Current 48 1.25% 1.00% 47 0.75% 0.50% 0.25% 0.00% -0.25% 46 46.1 0.1% CHINA 45 48.7 49.2 0.1%+ 44 *Employed Person Index COAL CONSUMPTION IS STILL RED-HOT By 2017, coal will overtake oil as the dominant global energy source. -IEA REPORT Worldwide, the amount of coal burned every year will increase by 1.2 BILLION TONNES = (equal to the annual coal consumption of US and Russia combined) Half of every new incremental unit of energy supply was provided by coal (2011) COAL IS A KEY COMPONENT OF THE ENERGY MIX China's Installed Electricity Capacity by fuel (2011) 1,073 GIGAWATTS COAL 65% HYDRO 22% WIND 6% OIL 3% NATURAL GAS 3% NUCLEAR 1% SOLAR 0.2% COAL 54% HYDRO 22% RENEWABLES 11% NATURAL GAS 10% NUCLEAR 3% DIESEL 1% India's Installed Electricity Capacity by fuel (2011) 174 GIGAWATTS Estimated Average Cost per Barrel of Oil Equivalent for Fossil Fuels GREECE SPAIN JAPAN EU USA INDIA CHINA WORLD 100 200 300 400 500 600 700 Average fossil fuel price per barrel China and India have a large amount of coal in their energy mix, so their average cost per barrel of oil equivalent for fossil fuels is lower than most other developed countries. The only major country to reduce coal use in 2011 was the U.S. With natural gas becoming as cheap as coal: 25% 4-OF-5 of US energy production was from gaS megawatts of new capacity will use gas (2012) (2013) As a result, other countries are trying to replicate this boom. GERMANY BRITAIN CHINA Lifted shale gas Has accelerated licensing to tap into its vast shale Blocked an attempt to ban fracking ban on December 13th, 2012 gas resources COMMODITY TRENDS Percentage change from last month 10% COMMODITY AV. PRICE 8% AU GOLD (oz) AG SILVER (oz) PT PLATINUM (oz) $1650.5 $31.96 $1591.29 7% 6% 5% 4% OIL OIL (WTI) GAS NAT. GAS (HENRY HUB) $3.34 U URANIUM (LB) $87.86 3% 2% $43.38 1% FE AL CU OIL PT AU AG GAS $130.86 $3.61 $0.95 FE IRON ORE FINES -1% CU COPPER (LB) AL ALUMINUM (LB) -2% -3% -4% -5% SUMMARY -6% -7% Base metals rebounded, and precious metals and natural gas lagged. -9% -10% VISUAL CAPITALIST For more information on investing and commodities, visit us at: visualcapitalist.com