Friday, December 10, 2010

Is TV Signaling a Top in Gold?

10 December 2010

I recently had some fun reading this article on Seeking Alpha (Is TV Signaling a Top in Gold? ) and every comment on it... I guess I did this intentionally for something different to do, as my working holiday is soon drawing to a close!

So if you're at all curious about my present thinking, I have salted and peppered comments throughout the discussion section following this particular article. Alternatively, you can find all of my comments on the Seeking Alpha site here, though they are out of context on the summary page.

In brief, the author of this article, Yoni Jacobs, has some fun with the idea that a recent gold prospecting reality TV show ("Gold Rush Alaska") might be signalling a top in the gold market, just as house flipping shows accurately signalled a top in the US real estate market perhaps 5 years ago. However, I found both the article and the discussion on the site to be so gold bullish that I actually added to my (short-term) positions in both gold and silver mining companies while in the midst of the discussion with other participants.

I made quite a few comments, and I won't repeat them all here. Perhaps the most fun idea was this one...

" OK, try this. Let's say one of the prospectors on this show runs into a motherlode and becomes a billionaire. Will we then see more imitative shows? For sure.

"However, how long does it take to develop a mine? Maybe a decade - not unlike developing new medicines. It is very slow and difficult, even if you have millions of ounces (look at Novagold for example, even with Paulson and Soros onside). So about the time he (or she) actually is a billionaire, we probably really will be in bubble territory in gold! So perhaps this is a predictor after all - with a ten-year time lag."

I also offered some thoughts in reply to CLH, who made this statement: "These comments answer my question--Is gold going up or down? 99% of the comments say up. For this reason I say down."

My reply:

"CLH... you are not conversing with a crowd of shoeshine boys here. (Comment: It is said that Joseph Kennedy sold all his stocks prior to the onset of the great depression when his shoeshine boy offered him a stock tip.)

However, the QUALITY of the arguments against gold is what triggered me to add to my Goldcorp and Pan American Silver positions today. That is, those who are arguing here against the gold bull are dissuaded from investing by quite minor concerns, indicating that there is not yet a clear view of what the gold bull is and the actual dynamics driving it. When the arguments against gold are based on substantial factors, then I will think twice about my long positions.

"For example, if the anti-gold camp were arguing that Ron Paul stands a substantial chance of forcing the Fed to reverse course, I would sit up and take notice.
(Comment: Mr. Paul was recently appointed chairman of the Domestic Monetary Policy Subcommittee of the US House of Representatives. He is the most vocal critic of the Federal Reserve in congress.) I hope you understand me. That would be a substantial development. However, Ron Paul doesn't have anywhere near the kind of following he would require - even in Texas - to turn this juggernaut around.

"Or if you could tell me that interest rates aren't going to rise (and increase interest payments on US federal debt to above the $1 trillion level), then I might think again. In fact, to digress to the interest rate issue - certainly rising interest rates will compete with gold for the attention of investors. but again, you have to have an analysis. If interest rates are rising because it is the end game for fiscal imprudence and its inevitable consequences ("Squanderville"), then that will not in fact draw investors out of gold. Do you see what I mean? Actually, I don't think I have seen a single argument here that militates against gold in terms of the fundamental reasons why it is rising. Thus my emboldened status as a gold investor, even to buy more today for the first time in several weeks."

One participant (TW) made this reply to one of my statements: " There are two sides to your argument, are there not? One is the side that you have presented. The other would be that the miners have not tracked with gold because the valuations on gold are unrealistic or unreasonable. One could postulate that the HUI:GOLD ratio will return to the mean through a price correction in GOLD."

I replied to TW as follows (my last comment):

"Todd. If gold is not in a bull market, then you are correct. My analysis and action all follow from that basic assumption, which we have discussed elsewhere.

"As to my investment philosophy, my strategy is to find a bull market and stick with it long-term. So far, the gold market has cooperated with that assumption, and the miners have given still equivocal affirmation! (I started buying in this sector in 2003, and wish I'd been there in 2001!)

"I will certainly begin to question my assumptions if at some point in the fairly near future the miners can't get onside in a more definite way! (I think they started this fall, by breaking out and up, as I have noted elsewhere.) However, bull markets have been widely documented to be volatile and frustrating. Investing is not gambling, because everybody can win. But that doesn't mean everybody WILL win in every sector at any given time. So yes, I'm trying to find the right place to be, and the signals are never 100% clear."

For more of this stuff, and for the ideas of many other contributors as well - many (perhaps not all) of them quite intelligent - click here.

Tuesday, December 07, 2010

True US Federal Debt Passes $71 Trillion...

7 December 2010

This chart (from Jeff Berwick's Dollar Vigilante) of true US federal government debt under GAAP (Generally Accepted Accounting Principles) shows current US debts about 5 times higher than officially stated ($71 trillion):

With a population of about 310 million souls, that means each American (man, woman, child) owes roughly $229,000 dollars on behalf of the federal government alone. As on and off-balance sheet state and municipal debts run about $700 billion (source: New York Times - last week; CATO estimates perhaps 3 times that much), you can add another $2,250 to that. Then there is personal and household debt, which I'm not going to add in to our calculations today - but it is still quite large (roughly $2.4 trillion)!

You get the picture, though.... It's at least $230,000 per individual just to manage government obligations related to money already spent (or promised to be spent)!

Let's assume that half of all Americans are active income earners (155 million Americans were employed in 2008). Well, all they need to pay (after taxes for current government operations and expenses, personal expenses, etc.) is then something over $460,000 or so - apiece. I'm just ballparking it here...

So how does this get paid off?

You guessed it, by currency devaluation or default.

Take your pick!

I'm investing in gold!

The Only Thing Worse Than a Bull Market Is a Bear Market!

7 December 2010

I'm still very busy, but will make a quick comment on how crazy bull markets are.

Gold has just set an all-time record high price two days in a row. However, in both cases, it pulled back after setting a new record high - today, sharply.

How have gold mining stocks responded? Yesterday they climbed modestly - that was underwhelming.

Today they are down sharply, to a lower level than where they started yesterday.

Does this look like a top in a bull market?

The answer: Not hardly!

Bull markets top out with over-enthusiasm (which leads to exhaustion), not fear.

I'm sorry, but this fear is excessive in response to such obvious signs of strength in the gold bull market.

Bull markets are maddening - but this crazy and irrational stuff is what they do. We are still climbing a wall of worry.

But take my word for it. Don't fight the bull market!

Where are we now? Once again - and we've been here many times before - we're cleaning out the "premature eradicators." This stage involves brief but sharp drops as nervous holders of gold and gold equities "abandon ship," in this case, as the port is in sight! Today's sellers are simply selling too soon....

Gold's new record highs are a sign of strength, not weakness. This is hardly the time to be selling gold OR gold stocks!!!