Laurence Hunt's Blog

Project Moonbase - Mr. Romney Opts Out (To Our Peril)

2012-01-28T09:40:00.007-06:00

28 January 2012

Mitt Romney just wrote himself off in my book. He opposes Mr. Gingrich's plan for a moon base, and would "fire" any staffer who suggested such an idea. (Click here.)

Has anybody here thought more than 50 years ahead? By 2062, we will certainly not have enough oil or natural gas to power human activity. The US and China have extensive coal reserves, but that is hardly appealing as a long-term energy plan.

Even with voluntary, or even mandatory, population control, we will still have 7 billion, and almost certainly more, humans inhabiting the planet.

Hopefully some plan for nuclear fusion as a source of power works out, but what if it doesn't? (It's not going to be easy to re-create the interior of the sun on our planet, even in "micro-spaces.")

We know for sure that the best source of solar energy is in space. If we're not operating in that environment in 50 years' time, we risk catastrophic developments. I'm just saying that humans (and by then, our robotic extensions) will have to be very active in space.

If Mr. Romney has never even thought about this, he is not fit for the presidency in my view.

Doug Casey Sums It Up: The US Is Bankrupt

2012-01-14T09:54:00.007-06:00

14 January 2012

What is the economic state of the US?

Bankrupt.

Doug Casey calls our present situation the "Greater Depression."

Click here for Doug's blunt take on our present predicament.
As usual, Doug has summed it up.

NOTE: Henry Blodget is now voicing second thoughts about Paul Krugman's "don't worry about the debt" argument, as well he should in my opinion. In addition to Blodget's four points, there is a fifth - our demographics are the inverse of the post WWII period (as Mr. Casey well explains). In brief, we should be very worried about the debt, as there is no ballooning younger generation to whom to hand it..... (though I also believe that robots will start to solve many of our economic problems - as well as create a host of new ones - as soon as the present decade). Click here for Mr. Blodget's opinion piece.
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All You Need To Know About Gold....

2012-01-11T01:24:00.003-06:00

11 January 2012

Probably every fact you would ever need to know about gold is here:

ALL THE WORLD'S GOLD

My advice, check it out....

From: Number Sleuth
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The US Debt Is Still Too Big To Be Paid - Ever....

2012-01-06T08:29:00.003-06:00

6 January 2011

I've often posted on this topic.

The US cannot pay its bills, except by the "extend and pretend" method of printing more money.

By the time all the money is printed to pay the bills, the integrity of the US dollar will certainly be called into question.

Here are just a few of the facts:

1. Every American man, woman and child is accountable for $135,000 in future tax liabilities.

2. Combined federal, state and local government expenditures amount to 46.6% of GDP.

3. Federal debt to GDP now exceeds 100%.

4. The government pays more money to US citizens than US citizens pay in taxes.

5. The government's fiscal gap now stands at $211 trillion (this is money committed to be paid in future for which no source of revenue has been identified).

Here's the link to the bad news - click here.
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Clive Maund Is Excited about Gold and Silver Again

2011-12-09T00:28:00.010-06:00

8 December 2011

Clive Maund is excited about gold and silver again (click here and here or here).

The implication of his present very bullish call for the precious metals is that things will work out favourably for the Euro at this particular juncture in history, but that it will be an inflationary solution (despite what the new European Central bank President, Mario Draghi, has been saying lately).

That is, the guys who typically make the smartest bets on the direction of global financial markets are going double or nothing on the Euro right now.

If there is an inflationary solution to the problem, look for gold to pass the $2000 level in the wink of an eye.

Mr. Maund's December 4, 2011 gold chart follows:

If there is more dithering, look for a massive and immediate crisis that will force a response - as, if things go too far, there will remain no reasonable way to fix the Euro. (The gold price will rise more slowly in the second scenario.)

That is, Humpty Dumpty has not yet toppled off the wall. If he does, it will be a chaotic scene for months and/or years to come.

14 January 2012: Mr. Maund changed his mind on this topic. However, I haven't. He worries about deflation. I don't.
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Desert Wall Street!

2011-11-27T12:30:00.010-06:00

9 October & 27 November 2011

My "meditation" of the day (first posted 9 October 2011)....

I've gotta say this, with apologies to my liberal/progressive friends. "Occupy Wall Street" is totally misdirected and unnecessary. I am not saying this to offend. But here are the facts:

(1) Wall Street has destroyed shareholder value for 12 years.

(2) It is still doing so.

(3) The shareholders are deserting, and this will continue over the next decade - which will ultimately constitute 2 decades (and counting) of value destruction on Wall Street. By the end of the present decade, I'm pretty sure that mainstream investors will have "caught on" that self-serving directors and executive decision-makers are not in the game to create value for them, and they will have voted with their feet!

(4) The bad guys - of whom there are many - are likely either be fired for failure to serve their shareholders, or to lose their jobs, as the companies they have misdirected will cease to exist!

(5) Michael Moore, Paul Krugman and President Obama are thus redundant on this topic, and should find something else to do....

The free market knows how to fix THIS problem. What it can't fix is over-intervention by central planners, particularly the practice of money printing.

Seriously - protest the guys pulling the strings behind the stage, not the snow-blind executives who are destroying their own companies and paying themselves millions to do it!

I for one would be protesting (1) the Federal Reserve; (2) the Treasury Department; (3) the SEC; (4) Congress; and (5) the White House. What do they have in common? Their interference in the market has caused the majority of the present problems, particularly the creation of a distorted business climate that rewards speculation, excess, litigation, misdirection of capital and greed!

The value-destroyers will all disappear through natural processes (otherwise known as "hard times"). But it will take citizen action to put a stop to the intrusions of central planners, as they operate freely behind the scenes, and exhibit little change in behaviour under either Democratic or Republican administrations.

The present problem in the US (an excess of central planning) is thus most directly analogous to the decades of stagnation under central planning which still characterize Russia (under Putin, Russia has reverted to central control following a brief flirtation with very limited free market reforms), and which plagued China until its (still active) central planners began to unleash citizen initiative in the post-Mao years.

Interestingly, though the Chinese economy is still very much centrally planned, an argument could be made that the US economy is now more planned and controlled (and certainly more litigated and regulated) than the Chinese economy!

The Chinese have more or less figured it out. They are arguably further down the road towards free market reform than the still constricting economies of the West. Time for us to catch up!

In brief, the focus of "the 99%" on the bad actors on Wall Street is evidence that once again, the broad majority are looking in the rearview mirror for an understanding of our broad public dilemma.

While the Wizard of Oz still pulls the strings and works the levers behind the curtain, the centre of global economic power has rapidly shifted to Asia's less fettered markets.

NOTE: One somewhat obvious example. The free market was able to "repair" the problem with General Motors, by putting the company out of business. Joseph Schumpeter described the "creative destruction" of capitalism, and it was working fine in the case of GM!

What happened? The central planners intervened, and the US government - with taxpayers' money - bought the dysfunctional company. Now WE own it! While salvaging GM may seem like a "good thing" on a short-term basis, what we have forgone is the opportunity to open up the competitive landscape in one of our still very important industries.

Had we not "propped up" GM and Chrysler, would the auto manufacturing business be a far more creative and interesting one today? I argue, "yes, almost certainly!"

Rescuing mismanaged companies from a natural death is NOT how to fix the problem!

(Think first, then act.... it saves a lot of time and energy!)

A FURTHER RANDOM THOUGHT: Precious metal investing is a bet that governments everywhere will keep doing the wrong thing and destroy value every time they intervene in the marketplace.

Unfortunately, this proposition has proven to be the "best bet in the casino" since 2001.

Would that it were otherwise, and some day, I am hopeful that it will be.

That is, hard times teach businesses lessons pretty quickly (adapt or die).

But they also teach governments lessons, just more slowly, as governments have more lines of defense, including such actions as money-printing, confiscation of citizen and corporate wealth, misdirecting and agitating the masses (refer to the Nuremberg Diary for a historical account of this process), etc.

LINK: An on-the-ground encounter with Occupy Wall Street. Great writing (and observation). Click here.

26 November 2011: As the "OWS" movement has worn on and developed, I suspect that all of us have grown more "accustomed" to it. My fundamental criticism remains that the occupiers are about three decades late, and are now protesting a "self-extinguishing" class, the operators of American public companies, whose shareholders are obviously already deserting them. I have thus been arguing more recently for a movement to "Desert Wall Street."

That is, the desertion of Wall Street is already in progress, and, as Tom Lehrer might have said, we might as well get on with it! When the last shareholder has left, the excesses will certainly be repaired.... It is not mainstream Americans who must protest the excesses of "the street," but the longsuffering and deeply exploited shareholders, who have been robbed of potential profits to fund inordinate compensation, buybacks, speculative behaviour, etc. Do not forget that the craziness all started with inflationary monetary policy, a topic on which I have written extensively elsewhere (click here)....
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Excess Liquidity, Though Poorly Understood, Is Our Primary Social and Political Problem

2011-11-27T12:09:00.001-06:00

8 July 2007, partially updated 27 November 2011

(With minor revisions, the text of this article remains as originally posted on July 8, 2007. I have added current charts to confirm up-to-date money supply and inflation figures):

I am here revisiting a topic I have discussed previously.

Consider the news topics of the past several months:

1. Escalating terrorist attacks (planned or executed) against the west, most recently in the UK and Canada.
2. Continued deterioration in the quality and safety of civil life and the rise (return) of Al Qaeda and the Taliban in Iraq and Afghanistan.
3. Rising commodity prices (recently oil, lead and copper have been highlighted).
4. Shifting currency values (the rise of the Euro and the Canadian Loonie, the decline of the US dollar, etc.).
5. Civil war in the oil states of Africa.
6. The ongoing rise of violent Islamic fundamentalism both at home and in the Islamic world.
7. Rising human migration and homelessness around the globe.
8. Corruption, greed and excess of every imaginable kind in the world of business, including flawed accounting practices used to conceal the worthlessness of balance sheet assets, and corresponding systematic executive overpayment.
9. Government overspending and unrepayable deficits.
10. The global real estate bubble.
11. Tension in the Middle East around Palestine and Israel, Iran, and Lebanon.
12. Rising US antipathy towards China due to cheap imports and an under-valued Yuan.
13. Continuing military and civilian casualties at the battlefronts of the Middle East.
14. The return of the KGB and the dismantling of democracy in Russia.
15. The resurgence of anti-American, anti-business movements in Latin America following a long quiescence.
16. Irresponsible practices in the provision of consumer and mortgage loans to unqualified recipients, with the repackaging and sale of portfolios of these questionable loans to third parties (often pension funds, mutual funds and other large “arm’s length” investors).
17. Mexican peasants can no longer afford the cost of corn meal.

What do these news events have in common?

All are driven by global imbalances, and in my view, by monetary imbalances in particular.

Though contrary to common knowledge, the underlying thread of excess liquidity actually plays a key, and in many cases, a primary role in the causation of each.

Let’s walk through the basics again.

Excess liquidity refers to the “printing of money” to generate “instant cash” so as to provide immediate solutions to economic problems that have complex and often non-economic causes. Basically, governments expand the supply of money to an extent that exceeds the supply of new goods and services, making possible the continued easy availability of funds to meet public and private debt obligations.

Governments resort to policies of excess liquidity when they are cut adrift in terms of policy direction and lack the courage to address shifts in public mood and perception. In today’s era, virtually every government on the planet is pumping up its money supply at a drastic clip, resulting in what has sometimes been referred to as a global liquidity boom.

A rough estimate of current US liquidity growth is 10-15% per year (the best measure is the "Austrian true money supply"), against an increase in goods and services of probably 2-3% per year, resulting in a real inflation rate in the range of 7-12%. (The other oft-cited - but also misleading - variable in the calculation is the "velocity of money," or the rate of turnover of money as it changes hands, and this is presumed to remain constant over moderate periods of time.)

The true inflation amount (currently 11-12%) is now 7-8 percentage points higher than officially-published government inflation figures (click here). Governments “massage” the inflation numbers through various manipulative practices in order to enable their ongoing commitment to money printing as a strategy to address all constituent needs and as a panacea for all social ills.

Economics 101 will teach you that this policy causes monetary inflation, and in practical terms, this means that money loses its value. The inevitability of monetary inflation is based on the simple principle of supply and demand. That is, the supply of money exceeds the demand for money, so money loses its value.

However, Economics 101 will not teach you that inflation of the money supply generates disruptive and dangerous psychological, social and political imbalances and readjustments as well.

How does this occur?

Monetary inflation always and everywhere is an act of (involuntary) redistribution of wealth. The newly-created money never works its way through local, national and international economies smoothly or predictably. At its root, monetary inflation engenders deep psychological insecurities in its human participants.

A simple way to picture this is that the economic pie is growing 7-12% larger in inflation-adjusted terms every year. Therefore, if your piece of the pie is not also growing at 7-12% per year - you are falling behind. And if your piece of the pie is constant or shrinking, you are in fact losing ground at a rapid pace.

This rapidly shifting economic ground creates a psychology of "entitlement." Individual and collective participants in a global economy in flux are quite able to see not only that the size of the pie is ever-changing, but also that the rules for slicing it up are also inconstant.

Each of us for his or her own reasons feels a natural sense of entitlement to a fair share of the increase. Thus we become embroiled in disputes at every level of society - from the individual to the international level - in which each of us feels increasingly driven to struggle to win recognition of our own right to receive a fair share of the (in fact largely illusory) gains.

A more subtle aspect of the psychology of entitlement is that winners are perhaps more driven to protect their gains - which can be easily lost as the pie continues to grow - than those who are merely holding their own or falling behind. It is a peculiarity of human psychology that we are more averse to losing what we have than to foregoing what was never ours. Thus the global winners - those with expanding opportunities to gain from excess liquidity - become the most dangerous and potentially disruptive participants in the global liquidity game.

In my view, this key psychological insight explains much of the wave of terrorism and violence now sweeping across a Middle East burgeoning with liquidity, as well as the growing hostility of the resurgent Russian neo-communists and the so-called populist leaders of the Latin American commodity-producing nations (presently most visible in Venezuela and Bolivia, but similar movements are growing in Peru, Ecuador, Colombia, etc.)

In response to inflation, individuals on fixed incomes perceive their financial security to be dwindling and possibly threatened. Savers see the returns on their savings – in interest rate terms – lagging behind real rises in the cost of living. Politicians feel empowered to promise more funds to more parties and projects – but those in receipt of the funds develop a competitive mindset with respect to gaining their “fair share” of the increased funds. Those who are left behind in the process may feel cheated, mistreated, bitter and hostile.

Excess liquidity generates shifting price imbalances associated with capital misallocation. That is, the revaluation of goods, services and assets never proceeds smoothly when the value of money is disrupted by inflation.

In most cases, excessive increases In the money supply result in temporary and unsustainable but often dramatic bursts of economic growth, typically driving up the prices of materials or services which are in relatively short supply – often, and certainly in our present era – commodities in particular.

Periods of excess liquidity tend to drive increasing amounts of this new wealth in the direction of “new players” in the global economy, and this can be seen today in the flow of previously inconceivable quantities of funds to the Middle Eastern, Russian and Venezuelan oil producers, for example, and to the providers of low-cost manufactured products (in today’s case, typically located in southeast Asia).

Under these conditions, money is loaned and spent in increasingly irrational – even crazy – ways, and budgeting decisions are driven by ever shorter-term considerations (for example, “flipping condos in Florida,” packaging loans for low-income and unqualified home buyers, generating investor excitement over riding the wave of new trends – such as marketing portable communication devices in China and dominating the web search marketplace, launching grand military adventures that could not be considered in more sober eras – in our case, the American invasion of Iraq, and investing in ever-riskier and ever more improbable ventures – in particular, hyper-leveraged hedge funds, unprofitable technology companies, third world business ventures, low quality corporate and consumer loans, etc.).

The point I wish to emphasize is not that excess liquidity is monetarily risky, though it certainly is.

My primary point is that excess liquidity is psychologically, socially and politically risky.

The environment of global competition over how various assets will be revalued in response to monetary devaluation creates a background atmosphere of deep psychological insecurity.

This insecurity – caused by increasing financial uncertainty – is devastating in its implications for individuals, families, communities and societies. Ultimately, the process is politically disruptive as well, as individual strives against individual, interest group against interest group, and nation against nation, to be dominant players in the direction of the flow of the newly-created wealth caused – at its heart – by the devaluation of global currencies through the expansion of the global money supply.

Humans are extremely dangerous when they are insecure, and the policy of money supply expansion (excess liquidity), by its very nature, makes humans everywhere progressively more insecure – and therefore – progressively more dangerous.

I have stated several times that poor people are rarely dangerous or disruptive. Dangerous behaviour arises when anyone anywhere – whether poor or rich – is placed in a position to have to compete for new resources (and to defend the resources they already possess), particularly those coming available through disruptive adjustments in value resulting from currency devaluation.

In the Middle East, Russia and Venezuela, rising oil prices have forced the citizens of those societies into competition to be participants in the new wealth resulting from the rise in the value of a commodity (oil in this case) which is largely driven by the collapse in the real value of the currencies with which it is purchased (though this part will mostly be played out years later).

The competition to be participants in – and recipients of – the flow of new oil-generated wealth is creating massive psychological and social insecurity in the nations affected by the oil boom.

Because the new wealth is in fact of low quality (due to the collapsing value of the currency which is paying for the commodity), the competition for the inflow of new funds becomes more dangerous and disruptive still.

This drama is being played out many times over in many spheres around the world.

African despots and dictators are redirecting their energy to plays in the new global game of excess liquidity, creating disruptive social and ethnic conflicts over who shall and shall not participate in sharing the new wealth.

Pakistani clerics are preaching vitriol while funds flow into their coffers from wealthy donors who are themselves players in the global oil money game.

Latin American dictators (Chavez in Venezuela is most notable) are driving their popularity with anti-American and anti-business rhetoric while feathering their nests with the proceeds of oil revenues attributable to excess liquidity.

North American executives are rewarding themselves with ever grander salaries, option packages and bonuses in order to seize their over-sized slice of the excess liquidity pie.

North Americans generally are borrowing as never before (at artificially lowered rates driven by rapidly inflating currencies) in order to invest in anything that is increasing rather than decreasing in value – and the current craze remains for real estate together with consumer goods purchased with low or no-interest loans, particularly big-ticket items such as automobiles, furnishings, appliances and electronics equipment.

Anti-democrats are running roughshod over democracy advocates from Russia to Venezuela to Afghanistan to China to Africa so as to assure their monopoly over their piece of the overflow of devaluing global funds.

Mexican peasants have become unable to purchase cornmeal, their staple for centuries, because American government policy has sought to placate agricultural and environmental interests by artificially promoting the production of ethanol from corn.

What is the common theme here?

Again – excess liquidity (expansion of the money supply beyond the value of new goods and services produced) is making humans everywhere psychologically insecure due to the declining value of their money. Individual insecurity leads to social struggles focused around social alliances and political interest groups. Disruptions are visible at the community, national and international levels.

Too much money makes people feel insecure. Insecure people are dangerous. This pattern is repeating itself almost everywhere around the globe today, making our planet an increasingly hazardous one to inhabit.

Consider for example the rise of the National Socialist (Nazi) movement in Germany in the 1930s and 1940s following the notorious inflation of the Weimar Republic in the 1920s. (images of German citizens transporting money in wheelbarrows and burning money in place of firewood are iconic to the present day). It is almost certainly no accident that one of the most despicable political movements in recorded history arose immediately subsequent to such a great period of hyperinflation.

What is the cure?

It is both simple and painful. For some, this tried-and-tested solution will be unimaginable, perhaps because most all of us alive today are children of the great era of excess liquidity that with only brief periods of respite has dominated the post-World War II period.

I acknowledge that virtually no world leader will publicly champion the following plan, though history has shown across millennia that what I propose is always and at all times the correct response to the multitude of problems caused by monetary inflation.

As Paul Volcker (then the Chairman of the US Federal Reserve Board) did in the United States in 1980, we must slow the rate of money creation to match the natural rate of expansion in the production of goods and the delivery of services.

This simple measure will create – at this point – a deep, painful and extended economic recession probably lasting many years – and this is what will temper the excessive growth in the global money supply.

This recession will be more severe than past (recent) recessions because the duration and extent of the preceding monetary expansion has been so egregious (in fact, unprecedented in world history). The greater the excess of liquidity, the greater the resultant pain that must be endured in order to quell it.

The process of withdrawal from excess liquidity is aptly analogous to withdrawal from a severely addictive drug such as heroin. Liquidity is the addictive substance that the dependent user cannot get enough of. Withdrawal from the drug is the only prospective option for survival.

This will create a stable – and paradoxically more difficult – environment within which humans can and must re-learn how to work out the multitudinous problems involved in sharing wealth.

When access to wealth (money) by any means (including borrowing) becomes difficult rather than easy, humans revert to virtuous rather than reprehensible behaviours. Why we do this is somewhat mysterious, but it is a clear lesson from human history – perhaps a topic for another essay at some point in the future.

In response to the proposed necessary economic recession, poor business ideas will fail (they will no longer be sustained by excess liquidity) and good business ideas will thrive (though at a greatly tempered and much more manageable pace of growth), with the result that humans will gradually recover a sense of normality and with it an accompanying sense of recovered security.

This slower-paced and more secure economic environment will gradually restore us to psychological health, re-equip us for cooperation rather than competition, and quell the presently raging flames of liquidity-driven global strife.

Terrorists will return home to feed and care for their families. Self-serving executives will lose their jobs and learn to toil by the sweat of their (collective) brow. Politicians will return to reducing rather than expanding government debts. And warmakers will be voted (or otherwise driven) out of office as a consequence of a broad popular movement towards normalcy and restraint.

Excess liquidity is our present primary social and political problem because accumulating economic imbalances generate escalating psychological imbalances.

The restoration of economic balance through reigning in the growth of the global money supply will make possible the restoration of psychological, social and political balance.

While we humans are dangerous when we are insecure, we are generous and resourceful when we know where we stand and when we perceive that our situation is fair and just.

Bringing an end to excess liquidity is the key global economic policy step that will restore us to this more desirable state.

Piaf by Cotillard: An Insight into Deep Learning

2011-10-16T16:13:00.011-05:00

16 October 2011

I have just finished a run-through of "La Vie En Rose," the filmed biographical portrayal of Edith Piaf, as performed by Marion Cotillard.

In brief, Ms. Piaf's short life was not at all a happy one, though it was long on adventure, discovery, improbable twists and creativity.

The French love this film, which despite being created in the French Language, saw Ms. Cotillard win the 2007 Best Actress Academy Award for her performance. (She bested Cate Blanchett as Elizabeth, among others.)

My comment here is brief. What fascinated me is how Ms. Cotillard studied for her leading role in the film. She spent many hours reviewing historical information and documentary footage concerning Ms. Piaf.

However, she emphasizes that she never attempted to imitate Ms. Piaf's voice, gestures or mannerisms. Rather, she immersed herself in understanding who Ms. Piaf was....

The consequence? Critic after critic remarked that she had captured the very spirit of Edith Piaf.

The immediate lesson? Comprehension trumps imitation.

Once having seen it, you will not be able to forget this film. It burrows into deep places, and thus lingers afterwards.

The broader life lesson?

Don't plan a life based on "what" or "how" you want your life to be. Focus on who you want to be. The rest will follow.
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The Economy? Yes, We Know What's Going On...

2011-10-11T00:39:00.015-05:00

11 October 2011

My recent comment on Business Insider (I was responding to a statement by a reader, "Nobody knows what is really going on"):

As to knowing what is going on, it's pretty obvious.

The central planners have interfered in the marketplace and destroyed the currency and the economy.

The only way we can get good numbers is to torture the data and pretend that inflation doesn't exist. Thus we can now call negative numbers positive numbers, and lots of numbers ARE positive IF (and only if) the Shadowstats (real) inflation numbers are disregarded.

However, the over-riding facts of high unemployment, record public and private debt, absence of capital investment, etc., make clear that we are reliving a high tech version of the 1930s.

The gold price of course is a direct indicator of the destruction of the economy by our political leaders and government agencies.

I'd rather have an economy that works, but that is not where we are. It can only repair itself when the real damage is priced into everything, which will hurt a lot of people (and already has).

On the upside, the central planners will be in broad disfavour, and those who exploit their shareholders will be out of a job.

I live for the day.....

NOTE: In case you didn't know, San Jose, California is functionally bankrupt. It's one of the richest cities in the world - and it still can't meet its obligations. 2000 city workers have been let go, and obligations are still soaring - they will almost double by 2014, with no corresponding increase in revenues. Read about it here.

This is, unfortunately, the value destruction process at work. It hurts people.

We need to get out of the way and let markets start creating value again - without central planning!

Is this too anecdotal for you? Here are 100 US economic facts to feed your mind.
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Double Bottom in Canadian Gold Miners?

2011-10-05T23:47:00.005-05:00

5 October 2011

Unless this is worse than I think, the Canadian gold and silver miners have put in a double bottom against the gold price.

Both charts show the indices divided by the rising price of gold. This particular metric seems to have fallen far enough to satisfy most technical analysts!

The Canadian Venture Index divided by the gold price (exact double bottom?):

The S&P/TSX Global Gold Index divided by the price of gold (pretty much the same thing):

Of course, it can always get worse, but I can't think of any real reasons why this sector should continue to underperform in the current crisis-focused macro environment.

Onwards and upwards, my friend....
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Forget Greece, Forget Europe, Forget the US - This Week's Story is China & the Declining Copper Price

2011-10-02T21:45:00.007-05:00

28 & 29 September & 2, 3 & 8 October 2011

Thanks to Bruce Krasting and the Business Insider for this story.

Mr. Krasting reports: "Entities in China have been using copper warehouse stocks as collateral for financing all manner of things for the past two years (L/C backed financing)."

I was driving today and listened to the financial news on Sirius (it's a great service).

Here's what's happening. The declining copper price is pressuring a multitude of financial deals in China - and forcing selling in the base metal (it's no longer working as collateral).

Another piece on the news today: Chinese project developers are failing to meet payments on newly-ordered equipment. Just caught this on the radio, and the story is hard to track online.... I think this is meaningful information.

This is early-breaking stuff, but the collapsing copper price is a shot across the bow. It's linked to the late-day collapse in North American equities today.

China will soon be the world's largest economy in purchasing power parity terms.

The Chinese central bank has been tightening (raising interest rates) for 2-/12 years.

The Shanghai index has been falling for four years:

Figure it out. Greece is small stuff, as are the PIIGS. The US financial crisis has been well-described. But, until now, China has been "bullet proof." However, the collapse in copper will tip a few more dominoes in China. It looks like a big story from here.

My guess, this is bearish for most all asset classes for now, including gold and silver (people and financial entities under pressure will be forced to sell to meet obligations, particularly as the copper collateral system is failing. Longer term, gold and silver will remain a preferred asset class - in a sharply narrowing field!

For the first time in a long time, we have a "Made-in-China" problem on our hands.

We had better get used to it. This is likely to become THE BIG STORY by the end of this year....

29 September 2011:

Copper is trying to find a bottom. Up weakly today. The action is certainly not decisive.

However, I have been reminded by Bill Fleckenstein that, as the Chinese have been tightening (raising interest rates) for 15 months, "if things start to get dicey in China, they will cut rates AND relax credit." So China has other options besides sailing off into the sunset if the pressure continues to build (I think it will).

However, China's way out looks very much like the course followed by Ben Bernanke and our friends at the politburo - er, sorry, the Federal Reserve.

Thus, by some time in 2012, if not earlier, we could see China, the Europeans and the US all "forced" (by political pressures, not by necessity) to re-enter into inflationary policies to avert collapse in the credit markets, interlinked defaults, and protracted unemployment.

Wonder how that may impact gold?

Well, for a start, plan to buy your gold on the Pan Asia Gold Exchange. Yes, by June 12, next year, China will be on its way to becoming a major gold-trading hub. And eventually, perhaps THE major gold-trading hub.... independent of LME, CME and COMEX margin hikes, etc.

Read about it here. This is an important story too. Very important.

Here is Pan Asia's official link.

Another story here (from "Gold Wars").

2 October 2011: OK. Goldman's Jim O'Neill says we may be way over-reacting to events in China. His words follow (thanks to Business Insider):

It is pretty obvious that you will have some failed property lenders, where a country’s policymakers deliberately choose to stop a strong rise in property prices before it gets out of hand like the US and Europe, as the Chinese have done in the past 2 years. I can’t understand why it therefore translates into a “hard landing”. The Chinese property market has some issues because of deliberate policy. In fact, it is remarkably impressive, and a huge contrast to virtually any evidence I can see from my days in the markets, that a policymaker would choose to prick a property bubble before it gets to the stage that we all know only too well.

China, as I have written about now for nearly a year, has entered a new phase of development where the quality of growth matters more than the pure quantity, and with it, the sustainability of growth.

This does make sense. Obviously Chinese policy makers are trying to slow things down, and it's working.

Even lower copper prices - not so good for the copper collateral system, but good news for builders everywhere... so long as it lasts - in an environment where inflation is originating from many places other than China!

3 October 2011: Patrick Chovanec, a well-known China authority based at Tsinghua University, acknowledges that China is tightening, but cautions that speculation and leverage could cause a greater than expect contraction, particularly in response to a global slowdown.

There are multiple indicators that speculative excesses are causing an economic crunch, including multiple business failures, "disappearing" and bankrupt executives, abandoned property development schemes, and collapsing valuations on mainland Chinese bank assets in the Hong Kong market.

So yes, China is reining in speculation. The question is if it is still timely to do so, or if the speculative excesses have already been too great.

Click here for Mr. Chovanec's analysis.

Oh yes, the copper price is still falling. Click here.

8 October 2011: This quotation from Marc Faber is going around. As seasoned readers will know, Mr. Faber, a Swiss National, has lived and worked in Asia for decades:

"The price of copper is signalling a very serious slowdown (if not complete collapse) in China. This is what is really behind the move down in all commodities. A hard landing in China would be devastating for the global economy. The Shanghai composite is making new lows along with copper, which is very bearish. Also stay away from the Australian and Canadian currencies. If China crashes, these markets will get massacred"

However, Bill Fleckenstein remains less worried, as China has many options before the onset of any collapse, beginning with interest rate cuts.

That is, the current developments are the intended effect of present Chinese policy, which is to slow down rampant speculation and market excesses, and it seems to be working.
_

Revisiting BHP and Google at Year Four

2011-10-01T13:05:00.010-05:00

1 October 2011

Four years ago, I predicted that over the next ten years, BHP Billiton might increase in market value tenfold, while Google could fall in market value tenfold, making BHP worth 100 times as much as Google in terms of market capitalization. (Click here and here for the original articles.)

We are not there yet, but as the chart shows, the trend is clearly in favour of BHP, which has doubled relative to Google since the beginning of 2007. (I have continued to comment on the comparison between February 2008 & April 2011.)

Had we done the comparison in April of this year, BHP would have tripled in market capitalization relative to Google at that time (compared to January 2007). BHP happens to be in a downdraft right now over global recession worries. Of course, that hasn't stopped it from doubling Google's performance over the past almost 5 years!

By the way, both are great companies. All I'm saying here is (1) in our inflationary era, things that are real preserve their value relative to things that are "not," and (2) Equities are in a secular (multi-decade) downtrend which will return valuations to earth (as though they were pinned to the mat, to be blunt) - it's just what markets do.

All posts on this topic:

Revisiting BHP and Google at Year Four

An Early Update on Google versus BHP

Google versus BHP Billiton - Part II

Meet Me Here in Ten Years' Time: BHP Billiton vs. Google
_

The $100 Day in Gold I've Been Waiting For... Almost!

2011-09-23T20:30:00.005-05:00

9 August & 23 September 2011

This essay was originally posted August 9, 2011. As we've just had a $100 down day in gold (these go hand in hand with $100 up days), I thought I would repost it, with an addendum (see below)....

I've been saying for years that we were going to start seeing $100 days in the gold market.

I'm old enough to remember when this started occurring in the Dow. It is routine now, but it was a big deal at the time.

Well, here's what's happened so far: On Sunday night, we started the week with gold just over $1660 per ounce. As you've heard me say before, "That's a high price." Well, so is $1500, $1400, $1300, etc.

Except that in only slightly over 24 hours, gold had run as high as $1772.30. Granted, it took 31 hours to achieve this gain of approximately $110. However, gold appreciated at the rate of $3.55 per hour during this 31-hour period.

Jim Sinclair had been telling us to look for a $1764 gold price ($100 up from Sunday evening's start). So, hey, where we are now is pretty close. He'd been writing about $1650 gold for years. But $1764 - we had only five days to digest the transition.

The times they are a changing.

Will we see volatility from here?

For sure. We're going to need more than 5 days to adjust to this surge. Movements of this kind are always associated with increased volatility.

Will Mr. Bernanke announce QE3 today?

I'd be surprised - among other things, each infusion of newly-printed money produces less effect - and we've already witnessed diminishing returns with QE1 and QE2. The bankers get the money, but they're fearful of loaning it, so they increase their reserves, and deposit it with the Fed for a hefty 0.25% annual return - better than loaning it in this dangerous environment!

So Mr. Bernanke may announce an end to the 0.25% rate - to discourage the banks from socking away their Monopoly money....

But watch Jackson Hole later this month!

Will we have more $100 days in gold this decade?

My guess is - several per year - for the next decade. And a few years down the road - get ready for $100, $200 and $300 leaps. It's a process. But that is where we are headed.

This is the gold tsunami.

23 September 2011: Another $100 day in gold. No secret - this time down, from $1747.40 to $1629.50. And let's not forget that we were at $1923.70 on September 6, 2011, a lucky 13 trading days ago (and an almost $300 move - down - in less than 3 weeks)....

Is there any fundamental reason for the pullback? Not that I can tell. Banks are collapsing, currencies are imploding, and senior economic prognosticators are warning of recession. It is certainly in times such as these that gold does best.

The following headline may be significant, however:

CME Group Raises Comex Gold Margins By 21.5%, Silver Margins By 15.6%

Obviously some folks pull out when the cost of entering a particular trade rises. There's no conspiracy, margins have to rise as the price of gold rises. Certainly, if the CME thought that gold were headed back to lower levels, there would have been no need to up their margin requirements in the first place. So at least some of the players who had a hand in gold's fall today are anticipating higher prices in future (as am I).

Let me emphasize that while the "paper trade" in gold and silver is down (no physical delivery is involved in most global trading of the metals), it has again become difficult to obtain physical gold and silver for sale, due to the fact that physical demand for the precious metals explodes with every significant pullback in price. (As precious metals are sentiment indicators, their market prices are very volatile.)

While I pay attention to short-term moves, my primary investment strategy is to discern very long-term (secular) trends. At this point, there is nothing on my multi-decade radar that substantially threatens the rising price of gold. As the years pass, the price of gold will continue to rise. That is how it goes when the fundamentals are "at your back."

In fact, these fierce pullbacks actually create the conditions necessary to gold's rise. The "weak hands" sell. The "strong hands" hold. Those who have been sitting out start wondering if our favourite archaic relic might soon (or now) be trading at a bargain price.

Given our recent 15% pullback, expect gold to trade now (or soon) like a coiled spring.

Let me summarize it like this. If you are a gold investor, any price in this range is "high," whether near $1400 or $1900. You don't have to go far back in time at all to see when gold was priced much lower. And if you're a buyer? Gold at $1658.20 will certainly look economical when it ploughs through the $2000 and $3000 levels (and so on).

In fact, it is starting to seem somewhat absurd to value gold in moribund US dollars (yet another failing currency). Wouldn't it be more reasonable to ask how many ounces of gold a US dollar will buy?

Look at the CDNX index (Canadian small capitalization companies, mostly miners) valued in gold terms - it's flatlining - building a base! And... up a bit today from yesterday, relative to the only currency that wlil still be in existence at the turn of the next century....

May I coin a phrase here?

What comes down must go up!

See you soon, closer to $2000 than to $1500. Then at $3000. Etc. Sooner than you think.

Anything is possible.

This is the gold tsunami.

It comes in waves...

As it did on August 9, 2011 ($100 up) and today ($100 down).

And, as it will again - and again - and again....

Be ready.
_

Has Gold Broken Down?

2011-09-23T00:24:00.014-05:00

23 September 2011

I enjoy the financial news and analysis site "Seeking Alpha" because the site administrators have no axe to grind. Every view is expressed, and a broad range of contributors are permitted to post articles.

It is easy to locate others with a view similar to my own at Seeking Alpha, so the kinship of like minds can be found there. However, it is no secret that "too much" like mindedness makes us narrow and cloistered thinkers.

So... I often read articles by (usually intelligent) contributors whose view is entirely different than my own.

Such was the case recently, when I read Eric Steiman's article, "Gold Has Broken Technically and the Selling Will Be Scary."

Mr. Steiman's main thesis is as follows: "Gold (the author is referring here to the "GLD" exchange traded fund - a tradeable proxy for physical gold) has broken the 50-day moving average and may go all the way to the 200-day (moving average) at 148. I see potential downside of nearly 20%. Making matters worse is that the overall market is taking a major hit. Many investors that have been in the GLD trade will look to sell positions that are in the money or out of the money. You can expect major volatility in the GLD over the coming days, but I think overall it will be much lower in time. The move up was too dramatic, and the fall will be just as bad."

I found Mr. Steiman's arguments parsimonious and reasonable. However, I also disagreed with him.

My reply is presented below, and I will permit my own words to speak for themselves. For more context, please click here for the original article:

Eric,

I think your analysis is smart - you have covered the bases. My critique is that you are using a rear-view mirror. We are not replaying 2008-09 in gold, though we could do so in stocks (the bad news is pointing to recession).

Operation Twist is not inflationary, in that it does not expand the money supply. However, it moves money into the MBS (mortgage-backed security) market, and will presumably stimulate the mortgage refi (refinance) trade. That of course does free up a modest amount of spending money, which will work its way into the consumer markets (at the expense of the banks, who will be collecting lower levels of interest on the refis).

However, look at the fundamentals, Eric. Is the collapse of the monetary system as we know it not gold bullish?

Of course, anything can happen short-term, and I understand why pinched investors sell their winners. But then you've gotta think, in a recession, where are your next winners going to come from? Then I'm with most of the crowd that has amassed here.

If I were to start picking my expected winners for 2012, I'd have to nix general equities, the banking sector, the USD, etc. What is left? Real interest rates will stay low in a recession. And when and where does gold thrive? Right in that sweet spot.

What then is the argument for gold stocks? Try running the CDNX ratio chart over GOLD.

We have already hit the bottom in the small cap miners in gold terms. That implies that the way from here is up. Add to that the new mutual fund buying in the large miners. And where are they going to go in a recession?

Who is it that has been saying gold stocks will be the next utilities - Jim Sinclair? Yes:

Jim Sinclair "This will result in producing gold mining shares becoming the utilities of 2016 onward."

I think he has got it. With the big miners now paying dividends, and doing fine in terms of revenue and profit growth, and with the Yen, Euro and USD in their death throes... Hey Goldcorp, Yamana and Newmont are now utility stocks!

Last but not least, what technical guy is not going to look for those gaps to be filled in the above charts? October is weak seasonally for gold. A few weeks' of underperformance and base building is reasonable to expect.

But the technical analysis has to be informed by fundamentals.

My fundamental analysis tells me that currency collapses and bank failures are gold bullish - to a very high degree!
_

Take Your Pick, Stocks or Gold....

2011-09-21T00:26:00.004-05:00

21 September 2011

Where would you rather be for the next decade, general equities (stocks) or gold?

Here's the 105-year chart.

Make your choice for the next decade.

Posted by Joe Weisenthal, at Business Insider, and the chart is from Citi's Tobias Levkovitch.
_

Time for a New Direction in Gold Mining Stocks!

2011-08-22T19:27:00.010-05:00

22 August 2011

This seems so obvious it doesn't require saying. However, I'm saying it.

Gold is doing well because the folks who manage our economy are not doing their jobs well. I have commented on why that is the case in many previous posts and won't repeat it here.

Look at gold - doing fine:

Now, take a look at Canadian gold mining stocks compared to gold on this ratio chart.

Does anything strike you as unusual?

Hey, these companies mine and sell gold. Gold is going up. The stocks should go up too, and faster than the increase in the price of gold.

Why? Because production costs are rising more slowly than the price of gold, and gold miners' profit margins are therefore rising faster than the market price of the product they sell.

This trend has continued for ten years, but has not been reflected in the share prices of the gold miners.

Therefore, in my opinion...

It's time for a new direction in gold mining stocks!

We've come to a fork in the road....

If I'm right, gold stocks can double from here like falling off a log.

In fact, as this relative downtrend in the gold miners has progressed, I've actually been raising my targets.

Why?

I think we are seeing tension analogous to a spring under pressure. With release of the downward force (the broad markets have not believed in the 10-year gold trend), the prices of the miners should spring upward with ever more force.

Watch out above....
_

Gold, the Obvious Investment

2011-08-08T00:42:00.017-05:00

8 August 2011

It is now early morning, the first trading day after the S&P downgrade of US debt from AAA to AA+.

Gold has spiked higher, most recently, from prices in the $1660 range to prices in the $1710 range.

I wrote last week about the correlation of the gold price and the national debt.

Many now feel that gold has become an "obvious" investment.

I see it differently.

I think that gold was already the evident (not yet obvious) way to go in 2001, following the crash of the internet bubble - which even at that time was fuelled by Federal Reserve money printing and US government debt (Remember? It seemed like a big bubble at the time....).

If gold was the evident go-to investment in 2001, then by 2003, it had reached the stage of obviousness that the metal of kings would preserve its value better than any currency that was backed by a central bank whose members (and later chairmen) used helicopter analogies when talking about how to stimulate a slowing economy!

It just took some folks a little longer to catch on (for example, by buying at $1710 today, rather than at $330 in 2003!)....

I'm still waiting for gold stocks to trade at "bubble valuations," as the NASDAQ did in the 1990s - oh yes, and still does!

In fact, the better gold miners are trading at roughly a 60% discount (or more) to the value of their gold in the ground (after production costs). John Doody has calculated that his top ten gold stocks can easily double as a group, just to reach their inherent value at $1500 gold (Wait, isn't gold now $1700? Oh yes, he was writing last month!).

Gold has been "obvious" for the past 8 years and for the past $1400 in appreciation.

My advice?

Stick with the obvious.

This is the gold tsunami.
_

Debt Ceiling Up... Gold Price Up... What's Next?

2011-08-02T20:23:00.009-05:00

2 August 2011

I think this chart, posted on Zero Hedge, requires no explanation.

Now that the debt ceiling has been lifted $2.5 trillion, what do you think will happen to the gold price?

(Hint: simple correlational analysis suggests $1950 gold.)

Of course, the two charts could decouple at some point.

However, if this occurs, it presently seems that gold may break higher before the debt ceiling because:

(1) investors are catching on that we are past the point of no return,

(2) the gold universe is much smaller than the debt universe, and

(3) Asians understand the gold market better than Western investors, due to the long-term view that characterizes Asian culture.

This is the gold tsunami.
_

China Will Not Unload Its US Government Bonds Because of the Debt Ceiling Crisis

2011-07-31T12:05:00.015-05:00

31 July 2011

I thought I should write this while the debt ceiling debate is still raging. I want to make these statements before the matter is settled.

To begin, the debate over the ceiling is for real - it's not a charade. The Tea Party folks were elected to reign in US government spending. They aren't faking.

Further, let's say a deal is not reached by August 2. This would not necessarily mean that US government bonds would collapse in value. Continuing revenues could still be channelled to meet interest payments on US debt (which are presently only about 10% of US government expenditures - though solely because interest rates remain low).

Since the US prints its own money, it is well-known that the country cannot run out of cash (it can only run out of cash that has lasting value). This is unlike Greece, which shares the Euro as a currency along with the other members of the European Monetary Union. Greece cannot “print money,” but the US can.

However, there has been talk that the Chinese, who now hold something like $1.2 trillion in US debt instruments, could “foreclose” on the US, basically tanking the US currency and with it the US economy.

This argument misapprehends why the Chinese have accumulated $1.2 trillion US dollars in the first place.

If you want to understand this better, I recommend that you read an excellent article by a professor at Tsinghua University's School of Economics and Management in Beijing. In a very concise piece, Professor Patrick Chovanec makes clear why the current Chinese economic strategy not only requires China to keep its existing US government bonds, but in fact to continue buying more (though they are certainly diversifying).

Professor Chovanec states, "China’s growth model for the past 30 years relies, in large part, on running a trade surplus (selling more than it buys from abroad) in order to maximize capital accumulation and therefore investment at home. At the same it, it encourages inflows of foreign investment into China in order to speed up that process even further, while restricting Chinese money from flowing abroad, in all but a few controlled circumstances.

"The result is that foreign currency flows into China and piles up, with no outlet to flow back out again. Normally, all those excess dollars that were piling up in China would fall in value relative to the RMB, until the imbalances corrected themselves. However, in order to keep those imbalances in place, the Chinese government intervenes to buy up all those excess dollars (and euros, and yen) itself, to keep its currency from appreciating, and accumulates them as official reserves. It has to invest those reserves somewhere until it decides to use them to buy U.S. goods or make more direct investments with them abroad.

"Since the U.S. is China’s largest customer, and since many smaller customers also settle their international trade in U.S. dollars, roughly 70% of China’s $3 trillion reserves are in dollars. In theory, it could sell some of those dollars for other currencies or for commodities, like gold or oil, but in practice, given the huge sums they are already holding, its hard for China to sell off even some of its dollars without undermining the value of what it has left. Even if it could do that, there just aren’t any markets that are as large or liquid as the market for U.S. Treasuries, to accommodate the amounts of money we’re talking about. The fact is, as long as China wants to sell goods for dollars, and decides to accumulate those dollars as reserves rather than spending them on imports or investments, it has little choice not only to hold the Treasuries it already owns, but keep buying more and more."

---

I'm not saying the US is not headed down the road to disaster. It is. Things have already gone too far. But the Chinese are not going to upset the applecart next week, whether the debt ceiling is raised, eliminated by presidential decree or maintained.

Click here for Prof. Chovanec’s article.

---

Oh, just in case you thought that the Tea Party folks are really here to fix the problem, have a look at which party ran up the biggest tally of new Federal expenditures in US history:

I'm not calling Mr. Obama innocent. He has certainly been a big spender - but he has been no match for the George W. Bush Republicans! As they say, politics makes for strange bedfellows.

Linguistic and Numeric Literacy in Leadership

2011-06-23T13:21:00.015-05:00

23 June 2011

I am not convinced that US President Obama has a handle on either domestic or global economic troubles, nor am I quite sure what he did to earn the Nobel Peace Prize.

However, he is able to pronounce almost all the words he says correctly.

I noticed on the news last night that he used the term "Taliban" correctly, emphasizing the "ee" sound (Ta-lee-BAN).

After hearing GWB say "nukulur" a few too many times, it is refreshing to have a literate and articulate president.

If Mr. Obama doesn't win re-election, I hope we don't see another president who is "absent a brain" elected (Sarah Palin being the most obvious present example).

Ron Paul keeps standing up and nailing the truth about the economy. I have no idea if he is fit for the presidency, but he is certainly economically literate, and in this case, much more so than Mr. Obama.

In Canada, the literate, engaging and articulate Michael Ignatieff was trounced by the broadly unpopular Harper Conservatives, perhaps due to overlooking coalition opportunities with Jack Layton's far less astute populist hordes.

Though Mr. Harper is literate, he is uncommunicative, thus undoing the entire point of literacy.

As to economic literacy in Canada, Paul Martin had it nailed. He did EVERYTHING right economically, as far as I can tell, aided by his background in business.

By way of contrast, Harper, abetted by the evil Jim Flaherty and Mark Carney, overlooks no opportunity to pillory small investors and savers in the interest of minority factionalism.

So, in the US, let's keep Mr. Obama in the presidency due to his ability to speak without mangling the language, and just put Ron Paul in charge of finances.

In Canada, let's bring back Michael Ignatieff as leader based on his brilliance as a communicator (he is already re-ensconced in academia, unfortunately), and we'll return Paul Martin to the post of finance minister to save the day for our country!

Let's not let Mr. Harper throw us another curve ball!

That would fix everything important, as far as I can tell!
_

This Is a High Gold Price

2011-05-05T11:09:00.009-05:00

5 May & 25 June 2011

Gold is now down almost $100 from its recent peak of $1575.10 (which occurred earlier this week).

This is still a VERY HIGH gold price.

Gold is doing fine. The miners will do exceedingly well anywhere within a couple hundred dollars of here - either way - and make no assumptions about which way!

Take Goldcorp, for example, who just released first quarter earnings - what a quarter!

Anything is possible.

Half hour before market close. Still falling. Down about $115 from the recent top.

This is OK too. There is nothing wrong with the gold price.

In a year or two, brief $100 moves will not be unusual, as gold will be much higher than it is today. I guess we'd better get used to it now!

25 June 2011: Just checking in to remind readers that the gold price is still high. $1558... $1500... $1400... $1600... does it matter? It's just high - and going higher!

The gold miners are doing wonderfully. Their stocks are selling at incongruously low prices. Though anything can go lower on a short-term basis, long-term, they can only go MUCH higher.

Nothing has changed.

Gold mining is the best business on the planet.

23 September 2011: Hmmm. Gold has fallen off sharply this week, recently trading in the $1720 range, and down $200 from its early September (2011) high of $1923.70.

As time has passed, I hope my point has become evident.

$1920 is a high gold price. $1720 is a high gold price. $1520 is a high gold price.

The fundamentals are entirely in gold's favour, and it will continue to be worth a lot for at least the next decade (by then we'll know if our leaders have been able to do anything mature and responsible in managing the economy - for example, by encouraging saving and reducing debt.

I will paraphrase Jeff Berwick at The Dollar Vigilante. If gold retraces to $1500, go out and collect cans by the roadside and borrow money from all of your relatives to buy gold and gold stocks.

The major trend is up, not down. The volatility is just noise - plain and simple.

Want To Buy Gold Miners? Take Advantage of the Insanity Now!

2011-05-03T13:26:00.020-05:00

3 May 2011

The word "duh" no longer describes what is happening to the market prices of gold miners. This is insanity, plain and simple.

The gold price is doing fine today, presently in the $1530 range.

In fact, this is an awesome, really wonderful gold price for gold investors!

Among other metrics, gold is now trading $50 higher than Goldman Sachs' $1480 intermediate target price for 2011, and much higher than all but the most optimistic analysts thought it would trade this year - thanks, of course, to demand in China and India, whose citizens and governments now consume - between them - over 70% of the world's gold.

However, gold stocks are falling out of bed... again! (It's getting tedious, and perhaps a little too predictable....)

Have a look at Goldcorp, the fastest growing - and best - major gold and silver miner. It is being pummelled, and is (again) back below early 2008 levels, where it is revisiting its peak levels even of May 2006. I had to draw up a 6-year chart to illustrate this numbingly obvious point!

Why is Goldcorp pulling back to these levels? In fact, there is no fundamental reason for the stock to trade anywhere near its current range....

If the gold price were to fall back to say, the $1000 level, it might begin to justify the current pricing of the miners. Anywhere in the current broad range that is well over $1000 allows gold miners to rake in profits. Their business is not just "fine," it's unbelievable! Gold mining companies are generating unprecedented profits, probably the best in any industry (as gold mining shares receive a premium over base metal mining shares, because gold trades as both a currency and a commodity).

Let's look at Goldcorp again, in relative terms.

Contrasted to the gold price, apart from its similarly bizarre dip in January of this year, the share price of Goldcorp is at its lowest level since November 2008, at which time gold was priced at $700 - that's right - less than half today's prices! The following relativity chart divides Goldcorp's share price by the price of the GLD ETF - a gold price proxy which allows me to show today's intra-day action:

So, are you worried that gold may pull back to $1400? $1300? $1000?

Forget about it! It doesn't matter. Today's gold mining stock prices would still be justified - even a bargain - at such levels - particularly as no one could suppress the price at such levels for long!

So if, like me, you're not gravely concerned if gold falls back a bit - even quite a bit - from its recent record highs in the upper $1500s, then you are looking at screaming buys across the entire gold mining sector. Keep in mind that no investment product can set a record high day after day. There have to be intermediate peaks and valleys - it's no big deal... and it's certainly not a sign of a topping long-term market price (gold has thousands of dollars to go from here)!

My suggestion, load up on the premium quality gold miners, the Doody Top Ten if you will: Goldcorp, Franco Nevada, New Gold, Yamana, Gold Resource, Royal Gold, Minefinders, and more. In the area of silver, Silver Wheaton is a giveaway, as is Alexco - which in my opinion is the best Canadian-based silver miner.

Stock up now, and offer special thanks to the momentum traders who will sell you the best companies in the world today - in any sector - at one-half to two-thirds their inherent value!
_

Gold Mining Investors Hate Record Highs in the Gold Price - Huh?

2011-04-25T15:01:00.025-05:00

25, 26 & 27 April 2011

Gold mining investors absolutely hate new record highs in the gold price. Every time gold moves to a new high, the gold mining shares plummet.

I understand why. It's because the investors who accumulate gold stocks think gold is too high and has to go back down again.

Huh?

If that's the explanation, though, what (the heck...) are they doing investing in this sector???

Case in point. Gold soared to a new record high in the $1518 range overnight. As is so often the case, it was sold off in New York (that is a recurring pattern too).

But as I write, the gold price is doing just fine, acting quite comfortable in the $1500 range. And last week, people seemed to think $1500 was a pretty high price for gold. (In 2008 and 2009, they though $1000 was pretty high, and so on and so on, back to $300 in 2002, which seemed like quite a lot at the time also!)

So what did gold stocks do today, as indicated by the HUI Gold Bugs Index?

They sold off hard. Every time this happens, a text box pops up above my head with one word in it:

How, then, are gold stocks looking relative to the gold price? Here is the ratio chart, using the GLD ETF to create an intraday chart.

Hmm. This looks really bad - trending sideways, and actually falling when the gold price climbs!

Well, perhaps it's not as bad as it appears. It does seem that investors are willing to dip their toes back into the market when gold holds at new prices for a few days. It's just a very skittish crowd, for reasons I don't totally understand.

Of course, this broad behavioural pattern has actually caused gold mining shares to underperform the gold price since 2006.

So, yes, you can still buy gold shares very cheaply, relative to the cost of gold, which, surprisingly enough, is what they happen to produce and sell - the better ones in increasing quantities and with rapidly rising profit margins... making gold mining more or less the most profitable business on the planet at this particular juncture in history.

However, at some point this pattern will change, and cheap gold stocks will no longer be readily available.

For the holdouts in the crowd, I'm warning you now.

You are getting gold stocks at a steal. Enjoy it while it lasts, because, hey, it's not gonna last forever!

And think about this: When the gold price sets new record highs - for example - for the last ten years in a row, that might be a reason to hold gold miners, not sell them!

So, why not buy and hold gold mining stocks now? It's just a thought on my part....

Looks like it's been a good idea for the past ten years.

Have you ever noticed how, when a trend sets in motion, it just tends to keep going that way?

Seems to me we might have some kind of trend going on here! So... why not stick with it?

26 April 2011:

Here's an update for you.

Gold, in my opinion, had an uneventful though somewhat lower day (after all, it's a bit hard to trade higher every time an all-time record high has been achieved...):

Gold stocks of course, were smacked down for the second day:

And HUI:GOLD, the ratio chart, is back to valuing gold miners - relative to the gold price - about where they were in late January, when gold was trading $200 lower, in the low $1300s.

Duh.

Let me do the math for you. When the gold price is $200 higher, gold miners make more or less $200 more in profits per ounce of gold sold.

That is, if math is tough for you - as it obviously is for most gold mining investors, then at this level, the miners' margins might be up by, say, 25%.

Let me explain.... Suppose their production costs are $500 per ounce - it can vary considerably, from $0 to $800 or so. Then from late January to late April this year, the miners' profit per ounce of gold sold has increased from something like $800 per ounce to something like $1000 per ounce.

So, independently of the gold price, the miners should trade on the order of 25% higher now than they did in January. In this case, that would constitute a rise in the HUI index from the bottom-feeding 492 in January 2011 to a still undervalued 615 today (the HUI actually closed today at an absurdly low 574).

Let me tell you now - this logical increase in the market value of the gold miners is systematically not happening! The gold miners have lost traction as the gold price has risen for the past 5 years, just as has occurred over the past 3 months, with an additional 33% underperformance from already undervalued levels!

So long as mining company investors go running for cover - like cockroaches under an upturned rock - every time the gold price drops from a new high, that pattern is not going to change!

I guess a smart speculator could play this game for profit, just by going short the miners every time gold sets a record high.

In fact, I'm going to guess that some do, as many commentators on Eric King's program have been maintaining (Dan Norcini and others, for example)!

Shorting the investment sector I believe in more than any other is contrary to my ethics, but what an easy way to make money for the past 5 years!

27 April 2011:

OK. Anywhere around $1500 is a perfectly fine gold price for now. Watch out, as we're setting yet another new record high in gold.

It would be nice to see gold stocks respond positively to a record high in the gold price for once. They are still below last week's levels.....

If that occurred, it would be a watershed event!

Oh, Ben Bernanke is speaking now. The first news conference ever for a Fed Chairman. I disagree with every Fed policy and every statement he makes. However, I admire his courage in attempting to make the Federal Reserve and its policies more open and understandable to the public. That single decision on his part is entirely admirable, and increases my underlying sense of hope for the future.

That is, I believe Mr. Bernanke is wrong about literally everything, but I have total respect for his openness and directness.

You can't help but notice Mr. Bernanke's voice shaking from time to time. He is a courageous and well-intentioned man who is really trying to do a good job! Oh, by the way, his job is probably impossible. He can't fix everything by himself. For example, you'd need a few committed politicians. And how can they do it if the citizens themselves are not willing to take the road less travelled?

You need an entire people working together to respond to a crisis of the present proportions. I hope that will happen one day. But, unfortunately, today is not that day. Almost everyone still wants the easy but short-term solution with higher long-term costs!

Post-News Conference comment:

Hmmm. Mr. Bernanke and I agree on one important point. He stated that the US Federal budget deficit is "unsustainable," and that US Federal debt is "our most serious problem." Wow! That is exactly correct.

Obviously we have different ideas about how to respond to that problem, but yes, we are all looking at the same problem.

Mr. Bernanke was somewhat happy about the S&P downgrade of US debt (S&P warned that its rating of US debt may fall below an "AAA" credit rating, which would drive interest rates powerfully upward!). Obviously Mr. Bernanke hopes that something will get the politicians (and public) moving, so he won't have to do the whole job by himself - which, as we have discussed - he can't possibly do in any case!

As to the gold price, it is soaring on an intraday basis, higher still post-news conference. Somebody somewhere believes that inflation is going to continue....

Are you surprised?

Jim Sinclair's $1521 gold price target was met (and surpassed) today. It hovered at that level following the Fed announcement (due to a promise of continued dovishness in a situation where something entirely different is obviously needed), and the gold price moved over the $1521 level following the conference with Mr. Bernanke. Note that $1600 seems to be the next stop....

Mr. Bernanke still believes that he can act effectively when long-term inflation expectations get out of hand.

Just a small caveat on that one.... We are long past that point, and Mr. Bernanke has obviously missed this critical historic juncture! Pandora's box was actually opened back in 1987, when Alan Greenspan took over the chairmanship of the Fed. That is an event that has been unacknowledged for the past 24 years!

Oh, the question I would have asked... "Mr. Chairman, given that you have announced your intention to cease purchasing US Treasuries in June of this year, what will be the result if no one steps in to take your place?"

Not sure why no one asked that question. It would have been my first!

And... are gold stocks still underperforming the gold price?

Radically so. It is a shocking disconnect! However, the long tail and the trend reversal in today's chart looks optimistic for gold mining shares in the short-term....

If we had a new high in gold and gold stocks climbed... that would be a BIG DEAL! Let's wait and watch for that one....

That would change everything.
_

Goldcorp: Cup and Handle Base Pattern

2011-04-20T00:00:00.008-05:00

19 & 25 April 2011

I'm not an expert in technical analysis, but I know from experience that the "cup and handle" is about the nicest chart pattern you will ever see.

Wanta see one?

Then look at the current chart of Goldcorp.

It's a beauty.

And this one is somewhat aggressive. Notice how it is already angled upwards....

What do cup and handle formations do?

They go up (other things being equal, such as the stock market not crashing this week, etc.).

Oh yeah, here are a couple of examples (from the textbook).

McDonalds 1998-99:

And the Euro in Australian dollars (2008):

Wow!

(UPDATE: McDonalds is still looking great in 2011. The Euro - not so hot, for now, especially in Australian dollars. My call for Goldcorp? Looking very good for a very long time to come - about as far as the eye can see!)

Enjoy.

25 April 2011:

Oh yeah, some other gold miners and royalty companies are showing similar cup and handle patterns. Here are some.

Franco Nevada (one of my favourites:

Royal Gold (this one's a little skewed, but it's aggressive):

Yamana Gold (getting ready to move, a bit of a slow starter....):

Alexco Resources (creeping steadily upwards to double digits):

New Gold (give it time, it just swallowed a big bite of Richfield Ventures....):

And Minefinders is just an old-fashioned bottle rocket, with its "cup" having formed back in 2010 (the formation still works, obviously!):

Look like a pattern?
_

Atlas Shrugged: The Movie Is Worth Seeing Despite Its Obvious Failures

2011-04-16T01:35:00.011-05:00

15 April 2011

OK. Just caught the premiere of Atlas Shrugged: Part I this evening. I read the book in high school (at which time it was still fairly new - it was published in 1957). The movie is only on 200 screens.

In my view, Ayn Rand, the controversial and celebrated author, was not a great novelist. She used the form of the novel to express ideas about her personal philosophy ("objectivism") that had been formed by her personal survival of Russian collectivism and a genocide twice the scale of Hitler's. This woman definitely has something to say. As to the film, I was most struck by the conflicting and deeply compromised premises at its core.

Rather than seeing the film set in historical context, we find that it opens in the year 2016. Gas is $36 a gallon, everybody is unemployed, and evil politicians scheme to loot the last few of the country's wealthy and successful people.

Sound like Russia? You've got it. And we are also taken back to the original story of railroading, iron, steel and coal – and ballroom cocktail receptions. That is quite a disconnect, and at least for me, I couldn't set the railroad story in our present decade.

There are other problems. I was bugged by the characters' inability to construct grammatical sentences (“we/us,” “is/are,” basic stuff). The dialogue itself was probably taken from the book, but honestly, that is not an inspired source. Rand's characters can speak for 50 pages without taking a breath. So a lot of the pieces of the story didn't work together.

I also have the impression that the screenwriters (John Aglialoro and Brian Patrick O'Toole) don't know much about modern business. For example, and most tellingly, they stayed with Rand's notion that individuals would be outlawed from owning more than one company.

Hey, individuals don't own any major companies anymore – and don't want to! Everything has been floated on the market to exploit shareholders! Why do it yourself, when you can suck the shareholders dry?

This problem is in fact one of the contemporary manifestations of exactly the problem that Ms. Rand was trying to illustrate from the middle of another century.

That is, the evils of our age are different than those of the mid-20th century. So if we're going to set this story in 2016, then let's see the collective thinkers mired in political correctness and tortured compromises, trying to rescue the economy by destroying the currency. Hey! That is actually happening – and it would make the same point in a contemporary setting, as I think the screenwriters intended.

So, at least for me, this WAS still worth watching. I guess the producers didn't have much money or time. I understand. This is not a big budget film, and that's OK. Give them a break.

I think what everyone involved in this shoestring effort was trying to get across is that individual initiative is the only thing that can save us (as opposed, say, to organizing various factions into groups and going at each others' throats – as seems to occur on Fox News nightly!).

So yes, this film is trying to be about courageous people believing in something and doing it, not unlike trying to produce this film with no money! Good for them. It's probably still the right answer.... I commend them for trying!
_

Gold Bulls are Tougher Than Wall Street Bears

2011-04-14T00:43:00.035-05:00

13 & 15 April 2011

Just about everybody who follows the markets knows that Goldman Sachs smacked the commodities and precious metals markets Tuesday when they issued a "sell" recommendation on commodities, because the oil price was high enough to slow economic activity.

(As stated in the recommendation: “At prices above $125 per barrel… the risks are becoming more symmetric, which shifts the risk/reward of being long oil.” Note also that Goldman is recommending that clients remain long gold, as gold "looks like a reasonable speculation in the short term," but "gold is overpriced by historical standards and will correct at some point.")

So everything "commodity" got sold, and hard, on Tuesday - including gold (despite Goldman's equivocal quasi-endorsement).

Such power to move markets! It is awe-inspiring. Or is it?

Here's the problem with Goldman telling the gold market what to do.

One, and most importantly, their clients are rarely gold "holders." They might be traders of gold. That is not the same thing.

Two, how can you sell gold if you don't own it? (They can sell it short, but one might wish to take pause first and consider the recent 10-year journey of the gold price - from $259 to $1476 so far - before engaging in risky behaviour of this type.)

Three, the people who own gold are not listening to Wall Street analysts. We have analysts of our own.* We have tuned out of the Wall Street channel many years ago. We do NOT sell when the clever boys at Goldman say to do so. In fact, as a general rule, we do not sell, period. We just hold on with a greater end in sight.

So yes, when Goldman says, "Sell," there are many traders who unload their positions. I'm just saying, that is not "us." We are not traders of gold, silver, and precious metal mining stocks. For the most part, we just buy them and hold them - or if we do sell a gold mining stock, it's to buy another one that we think might have better prospects.

We have discussed the next issue here before. When the traders sell, that tends to exhaust selling at the price levels sold. You can see it on the charts.

Apart from major corrections following steep rises, which occur maybe once or twice a year, once selling at a certain level has been exhausted, the gold price just tends to move on to the next level, as there is no one left who will sell it to you that cheaply!

Why is that? The traders who take their selling advice from Goldman are gone. Prices are not extreme enough to justify the gold bears' taking a short position. And.... most importantly, we - the gold bulls - are still here...

...and we aren't selling. We are just watching and waiting, possibly for a chance to buy a little bit more, if the price is right, perhaps due to selling at irrationally low prices by scheming (or panicked) Wall Street traders....

We have been through a lot. We exist outside the mainstream of the market. What we do doesn't make sense to most investment professionals. While we have been scorned and ridiculed at times, for the most part, we are just forgotten.... We do not exist - or so it seems.

We have watched gold stocks underperform gold year after year.

We shake our heads. Sometimes we sigh. We do get tired, frustrated and discouraged. Things often don't go our way. But... we don't sell when Goldman says, "Sell."

Who are we?

We are the gold bulls, and we are tougher than the Wall Street bears.

Oh, and for my link of the day, Peter Zihlmann sums up our present situation well. Peter went "long" gold stocks (the HUI index) in 2003.

Amex Gold Bugs Index (HUI)
Buy Date	Amount	Buy Price	Total (USD)	Price Today
March 12, 2003	1	125.54	1
Total	1	125.54	1	606.28
Profit				480.74
Profit (in %)				382%
OUR LONG-TERM RECOMMENDATION				BUY
OUR SHORT-TERM RECOMMENDATION				BUY

Where is he today? Still long. No change in 8 years. It has been a profitable position. Peter believes it will continue to be. He is a gold bull. He is one of us. Click here for his recent and very inspiring article.

* NOTE: The following are only a few of the analysts followed by gold bulls - this list is far from inclusive: Richard Russell, John Doody, Marc Faber, Jim Rogers, Bill Fleckenstein, Byron King, John Hathaway, Eric Sprott, Pierre Lassonde, Doug Casey, Bill Bonner, Pamela and Mary Ann Aden, Harry Schultz, Jim Dines, Jim Sinclair, Dan Norcini, Clive Maund, David and Eric Coffin, Peter Zihlmann, Goldrunner, Rick Rule, John Embry, James Turk, Adam Hamilton, Przemyslaw Radomski, Jim Grant, Ben Davies, Rob Arnott, Ed Bugos, Jeff Berwick, Jim Rickards, John Mauldin, Steve Saville, Paul Kasriel, Mark Lundeen, Paul Tustain, and even Ron Paul, the US Congressman.

Yep, we're too busy to spend much time listening to the folks on Wall Street! You might say we're on a different road entirely!

15 April 2011: Goldman are repeating themselves (click here). In my book, that is a sign of weakness. Gold has burst through their $1480 target, so now they think it is too high. My guess, this may be why gold stocks are trading unchanged today, as though the gold price has not broken out (yet again) to record highs. Thanks, Goldman, nice try:

(Kitco News) -- Goldman Sachs says it is recommending an “underweight” allocation to commodities for the next several months. However, Goldman says, “we maintain an overweight on a 12-month horizon on tightening fundamentals over the next year.” Goldman notes commodities have “outperformed” lately largely due to loss of Libyan oil output amid unrest in the Middle East and North Africa.

However, Goldman says, crude may have pushed ahead of where fundamentals suggest, leaving near-term downside risk. “Further, softening near-term base metals balances suggest that a stock-out in copper inventories and associated price spikes has now been deferred beyond 2011, and recent gold price strength has pushed us close to our near-term price targets,” Goldman says. “As a result, we now recommend an underweight allocation to commodities on a 3- to 6-month horizon.”

Despite this, Goldman is setting higher 6 and 12-month targets for gold, as follows: "In a research report released Friday, Goldman’s gold forecasts are $1,565 and $1,690 per ounce in six and 12 months." I guess that's too far away to interest traders who follow Goldman's advice, at least for now.

In my view, Goldman may have an inordinate influence on the street. That is, those who sit and watch today because Goldman's near-term targets have been surpassed will just end up paying higher prices later. Certainly the gold bulls will be buying today on strength.

And if John Hathaway is right, a few too many may have arrived late at the station, and will have to buy later if they want to ride the gold train.

Mr. Hathaway is describing "decisive action" in gold, leaving "a lot of people still mystified and basically out of the game." He added "We could have a very quick move of a couple hundred points, and maybe see $1600 before anybody realizes what is going on." He notes that gold stocks are lagging, and therefore, "People (will) have to revise their earnings expectations in the gold stocks!"

Mr. Hathaway allows that gold stocks could possibly gain an additional 40% in market value this year, simply to begin to catch up to historic valuation levels on much higher profits due to the rising gold price.

Oh yeah, as if that weren't enough, Jim Grant (who predicted the 2008 financial crisis well in advance) is now suggesting that the United States will resolve its debt problems "necessarily by undertaking the step of restoring the dollar to convertibility into gold.”

Mr. Grant, a specialist in interest rates who is one of the world's most sober and conservative investors, continues, “To me, the gold price takes the form of a very uncomplicated formula, and all you have to do is divide one by ‘n.’ And ‘n,’ I’m glad you ask, ‘n’ is the world’s trust in the institution of paper money and in the capacity of people like Ben Bernanke to manage it. So the smaller the ‘n,’ the bigger the price. One divided by a receding number is the definition of a bull market.

He concludes, "You’ll notice that this has nothing to do with security analysis (a method favoured by many professional investment analysts). This is conceptualizing, brainstorming, nothing to do with price/earnings ratios, other valuation methods like cash flows. It is a proposition or a hypothesis on what is driving the gold market. So the gold market is necessarily a speculative piece of business.... Anyway, I happen to be bullish on it, but not for reasons that I can readily defend before a member of the fraternity of chartered financial analysts."

ADDENDUM: OK. I couldn't resist this bit of hijinks. My faithful adviser Bill Fleckenstein was on holidays this week. It seems the markets often go wild while he is away. So I chose to reassure him as follows:

Fleck,

I hope you had a great holiday. And your timing was good. It turns out we didn't need your analysis this week after all. It was easy to understand everything that happened all week long. Goldman told people what to do, and they did it.

Oh, one thing though. Goldman thought gold was high enough at $1480, but gold got a little feisty and decided to go higher without permission. But, yeah, apart from that, everything was as scripted.... Even the gold stocks obeyed. It was just gold that got out of line there. Yep. That was the only part I didn't quite understand!

LATE DAY NOTE (15 April 2011): OK, let's do a run-through of what happened today in the gold market.

(1) Gold set a new record high. Ho-hum. What's new?

(2) As we have often noted, record high gold prices tend to be BAD NEWS for gold stocks. Why? Just to reiterate this point and drive it home, gold stock investors (at least the traders out there), believe that new high prices in gold signal a trend reversal, and that means gold has to go back down soon, because how can it sustain such excessive price levels? As gold "obviously" has to exhaust itself, new highs are interpreted as a sell signal.

And how did gold stocks respond today? You guessed it - back down again. Despite the surging gold price, it was thus a bad week overall for the HUI gold stock index, as illustrated below, though it is not far off its highs.

All right, that was predictable. How about the SPTGD Toronto Global Gold Index?

Oh! This one is almost 10% off its December 2010 highs, when US dollar gold was at least $40 cheaper. Note that the Canadian dollar gold price was briefly slightly higher in December 2010 than it is today (during parts of 3 days only), and that there is certainly no 8-10% differential to justify the marked decline in Canadian gold mining share prices that has been observed since:

(3) As we have been discussing all week, our friends at Goldman Sachs issued a sell recommendation on commodities, and a "high enough" call on gold. Well, didn't that reinforce the above point? You got it. All week, gold stocks have traded down, particularly relative to the gold price. Check out the HUI Gold Bugs (Basket of Unhedged Gold Stocks) Index, divided by the gold price:

Yes - you can really see the persistent downward pressure on that one. And here is the SPTGD TSX Global Gold index, relative to the US dollar gold price.

Pretty similar, don't you think? May I therefore just refer to this week's action as "the Goldman cap?" Yes, you just have to marvel at Goldman's ability to influence the market.

Is that all there is to it? Are there any leaks in the dike?

Well, actually, yes. There is one. Basically, world markets obeyed Goldman on every call this week, except for one market. The gold price was supposed to top out at $1480.

But the gold price didn't cooperate fully with Goldman's target price. In fact, it didn't really slow down at $1480. It actually barrelled on through to $1487.90, and closed at $1486.40.

That was "unexpected."

So we have something to watch next week. Does gold get back down under the $1480 level, like it's supposed to? Or does it continue to be uncooperative, and keep on rising to "unpermitted" levels?

Let me say this. So long as the market obeys Goldman's rules, Goldman calls the shots. When some part of the market gets unruly, then perhaps investors will begin to think for themselves, and take the obvious action - before time has passed them by.

People actually sold gold stocks at lower prices today as the gold price continued to rise. While selling gold mining shares on strength has proven a clever strategy for most of this year, at some point, it may begin to appear perhaps... unwise.

My guess, that day of reckoning may be coming sooner than expected....
_

It's a "Duh" Kind of Day in Gold Stocks

2011-04-12T12:00:00.005-05:00

11 & 12 April 2011

(The first part of this post was published on April 11, 2011:)

The trend continues....

We not only had a record closing high in gold last Friday (blue graph), but we opened Sunday night with further advances to new all-time highs (red graph).

Well, you know the pattern. Record highs in gold, 3% declines in gold mining shares.

I am not kidding.

There is only one scenario under which this makes any sense at all: Holders of gold mining stocks think that the gold rally is exhausting itself and heading back down - and soon!

Well, I've got news for you. That is NOT what is happening.

What is happening is that those who do not wish to make gains by holding undervalued gold mining shares are selling their shares at discount prices to those who do.

On a positive note for our side, the repeated - and now predictable - dumping of gold mining shares cleanses the market of sellers.

And... you know how supply and demand work.

When the sellers keep exhausting themselves, then on the next surge in demand, buyers have to pay premium prices, causing the massive one-day advances we've been seeing.

Gotta tell you. I'm buying in this market!

Duh!

Hold on to your gold stocks. Gold is rising. What do you think the mining shares are going to do???

12 April 2011:

Another day, another sell-off. Today's was a 50% Fibonacci retracement (we're back at the midpoint of the previous advance).

This is standard stuff, but the talk out there is emotion-laden, to say the least.

Our friends at Goldman, who advised their clients to sign-on for $1480 gold just a couple of weeks ago, are now advising their clients to sell commodity positions. (Does this strike you as visionary, consistent, or maybe just pragmatic, short-sighted, perhaps?)

"According to Anthony Neglia of Tower Trading, the metals were getting bullied by Goldman Sachs. The investment firm issued a note Monday urging clients to take profits in commodities as the broad rally might not last as high oil prices eat into demand. All commodities were taking a hit Tuesday, oil prices were down almost $4, especially after mixed earnings from Alcoa."

The fear in silver is most striking. I quote: "Scott Redler, chief strategic officer for T3Live.com, who shorted the SLV (Silver ETF) Monday, is looking to add to his silver short Tuesday, and recommends that long term investors wait for the recent volatility to shake out before getting more heavily invested."

And, get this: "Silver had been holding up in early trading despite the fact that Bloomberg reported Monday a $1 million bet by an options trader that the iShares Silver Trust would fall 37% by July. Currently 22.6 million shares are sold short."

I guess my thinking is simplistic. Gold is not even close to being overbought. The fundamentals are intact. Traders skitter away EVERY TIME a new record high is set, despite the somewhat obvious trend in the gold price! New record highs in gold are good for gold investors and gold mining company investors, not bad. Silver is overbought, but it's not going to retreat if gold is climbing. Investing in things that are going up is usually safer than investing in things that are going the other way, or in no clear direction.

So my thoughts are as follows: continue to relax, have fun with your family, read a good book, watch a good movie, etc.

Let's leave the Byzantine strategizing to the game players on Wall Street. They have their own reward....
_

Test Your Telomere Length... Now!

2011-04-11T16:05:00.015-05:00

11 April 2011

I've been following the scientific study of telomere length since reading Matt Ridley's classic popular science work: "Genome."

To cite a recent online article in Scientific American:

"Telomeres are caps on the ends of chromosomes, protecting them much as plastic tips on the ends of shoelaces keep the laces from fraying. Whenever chromosomes—the storehouses of our genes—are replicated in preparation for cell division, their telomeres shorten. That shrinking has led many scientists to view telomere length as a marker of biological aging, a “molecular” clock ticking off the cell’s life span, as well as an indicator of overall health.

"Studies comparing the telomere length of white blood cells among groups of volunteers show distinct correlations between telomere length and lifestyle. Those who exercise regularly have longer telomeres than those who do not. Folks who perceive themselves as the most stressed have shorter telomeres than those who see themselves as the least. Certain diseases, too, correlate with shorter telomeres, including cardiovascular (illness), obesity and Alzheimer’s."

Well, the long and the short of it - in this case, in fact the critical factor - is that it is now possible to get your telomere length tested.

Scientific American is not a "commercial" publication, so they did not provide the link to the company that plans to offer this service, but here they are: "Life Length."

Contacts for the company are as follows:

Stephen Matlin
smatlin@lifelength.com

Nuño Arroyo
narroyo@lifelength.com

Marisol Quintero
mquintero@lifelength.com

I have already e-mailed Mr. Matlin, and he indicates that the test is presently available at a cost of €500.

His contact information is as follows:

Stephen J.Matlin

Chief Executive Officer

Agustín de Betancourt, 21 – 8^th floor

Madrid, Spain 28003

T +(34) 91 395 6368

M +(34) 629 343 694

www.lifelength.com

I'll let you know exactly what's up as I find out more.

Again, telomere length is one of the critical factors in aging.

Though we're a long way from being able to modify telomere length in individual humans, another company (Geron Corp.) is working on doing exactly this. Their present focus is on the use of telomerase blocking to control the proliferation of cancer cells.

From Geron's website:

"We and others have shown that when the enzyme telomerase is introduced into normal cells, it can restore telomere length - reset the "clock" - thereby increasing the functional lifespan of the cells. Importantly, it does this without altering the cells' biology or causing them to become cancerous.

"Human telomerase, a complex enzyme, is composed of a ribonucleic acid (RNA) component, known as hTR, a protein component, known as hTERT, and other accessory proteins. In 1994, we cloned the gene for hTR, and in 1997, with collaborators, cloned the gene for hTERT.

"The 2009 Nobel Prize for Physiology and Medicine was awarded for the discovery of how chromosomes are protected by telomeres and the enzyme telomerase.

"The Nobel laureates were early Geron collaborators, Elizabeth H. Blackburn and Carol W. Greider, along with Jack W. Szostak."

Without further ado, let's start by checking out our telomere length with the help of the folks at Life Length.

Then we'll take it from there.

For other advances in genetic testing, please visit my earlier post on the (now private) genomics pioneer, deCODE Genetics (also featured in Ridley's book).
_

Fuel: By Josh Tickell

2011-04-11T02:45:00.016-05:00

11 April 2011

I just watched the film "Fuel," on DVD, by my fellow New College of Florida alum, Josh Tickell.

This is basically the story of Josh's life's work. He has had an interesting life, and tells his story well. He happens to be a gifted environmental activist, plus a talented film maker.....

Josh majored in sustainable living at New College of Florida (yes, you can do that - that is, you are allowed to invent your own major, and this is what Josh did).

Basically, this film is about biodiesel. Biodiesel is not good. Biodiesel is revolutionary.

Biodiesel is NOT corn-based ethanol. It is not food-to-fuel. It returns the energy input 3:1 or better. It is safe and even edible. It pollutes less than so-called fossil-based diesel fuel. There are many ways to produce it, and more and better ways of doing it are being found all the time.

As an aside, the US can produce all the biodiesel it needs, and never has to import oil from anyplace again, if it chooses this path.

As Josh says, "War is not required."

Willie Nelson, Neil Young and Richard Branson are among biodiesel's better-known advocates.

Oh, and this film isn't only about biodiesel. It is also about how to live, how to conserve energy, the history of our present fossil fuel-based energy system, other ways to produce energy besides fossil fuels, the life story of Rudolph Diesel, a lot of Josh's own life story, interviews with scientists and business people, finance, educational graphics, statistical analysis, etc., etc. I hope you're getting the idea. My impression is that there are investible ideas here too, and why not?

Anyway, (1) you have to watch this to learn more, (2) you need to figure out how to get biodiesel and related sustainable technologies into your home, your life and your communities, and (3) you need to tell other people about this.

Again, this has nothing to do with corn-based ethanol, which is not a particularly good idea at all, at least, not much better than fossil fuels. This is entirely different. You can make this stuff from trees that grow to maturity in 3 years, from algae (thank Jimmy Carter for getting this started), from sewage sludge, etc., etc.

Again, the US does not need to import oil. Neither does any other country that wants to do this. This is good, very good.

Watch.
_

It's a "Duh" Market

2011-04-07T16:33:00.010-05:00

7 April 2011

These comments are from a letter to a friend.

Hopefully they will stand on their own, in light of my frequent statements about the sure tendency of gold and silver miners to sell off (or "go nowhere") when gold and silver reach new record highs:

I'm just standing back and looking at all the post-breakout selling that is going on.

I am calling this a "duh" market. There is almost nothing you can invest in, in this sector, that will not be moving higher, yet sellers predominate over buyers.

Obviously the prevailing belief in the broad market is that each time gold and silver reach record high prices, it is an "apex," following which prices will drift back down again in future. However, gold (followed only a little later by silver) has been forging new highs since 2001. For me, ten years is long enough to be convinced that there is a secular (long-term) trend at work, and that the future will continue to hold higher prices for gold and silver, not lower ones.

"Duh."

Yeah. It's a good time to watch movies, read books, go for walks, spend time with family members.

Time is ONLY on our side. There is no downside from here. We're in gold/silver stock investors' heaven (even though it doesn't necessarily feel like it).

There is huge action beneath the surface, and it will keep erupting, moving prices higher from here. It is obvious to any objective thinker.

You can only lose if you think too much about it!

Oh yeah. Sometimes the seismic activity is not "volcanic."

It bubbles up like mudpots.

But it is very hot beneath the surface.
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Enantiodromia: The Word of the Day....

2011-04-05T02:37:00.012-05:00

5 April 2011

The following is a comment I made on the Dollar Vigilante Blog. If a little more context will help you after reading this, then click here for Jeff Berwick's thought-provoking article ("Mortgaging Our Grandchildren's Future? That's Being Optimistic!"). In any case, my recent thoughts on enantiodromia:

Jung (the Swiss psychiatrist) used the term "enantiodromia" to describe the psychological principle of "running into opposites."

Historically, no people have ever been more opposed to centrally-planned, non-free-market economies than the citizens of the US. That, of course, has changed, and it is perhaps instructive to analyze why.

The healthcare system is one example.

Layers of bureaucracy and regulation have accreted over the years to PREVENT the emergence of government-provided healthcare in the US. The notion that government regulation can advance a free-market system has made the quasi-free-market health-insurance-encumbered US health system perhaps the most expensive in the world.

Like it or lump it, but government-run healthcare in Canada costs half as much, and for most people, it is also better.

Somewhere, the idea that the government and the Fed have the "responsibility" to rescue an economy in trouble became acceptable (our forefathers would not have accepted this idea for a moment), and the executives on Wall Street have been feeding at the publicly mis-regulated "private" trough for decades, making Animal Farm no longer an allegory (the pigs are running the farmyard).

A guy I respect (Bill Fleckenstein) says that the Fed (the US Federal Reserve Bank, headed by Ben Bernanke) has more implicit responsibility for this situation than any other body, including the big spenders in Washington and the over-leveraged risk-takers and game-players on Wall Street.

That is, easy money creates a climate in which elected representatives, business leaders, et al, simply believe they will be rescued.

And of course the public buys into this idea.

Who in Wisconsin is demonstrating in the streets, saying, "Hey, thanks for saving us taxpayers the money we can't afford to pay!"

Anyway, the greatest opponents of the centrally-planned economy have now morphed into its greatest advocates. Read more about it at the Dollar Vigilante....

Enantiodromia: the word of the day.....
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The Heroes of 2011: Japanese Nuclear Workers

2011-04-02T03:22:00.008-05:00

2 April 2011

I've been following the New York Times Asia-Pacific page since the Japanese earthquake and tsunami.

I wish to make one point. We knew from the start that the reactors would leak as a consequence of the damage from both an earthquake and a tsunami. Come on, nothing is built to withstand such dual forces of destruction.

And yes, there is serious local leakage of very poisonous and persistent radioactive substances - plutonium, iodine, cesium and more, and they will spread. It's horrible.

But we must remember that (1) nothing nuclear blew up or (fully) melted down and (2) nothing nuclear burned.

Yes, it's disastrous, unimaginable, really. But it could have been far, far worse.

I give full credit to the courageous frontline workers, who knew from the start they would be over-exposed to life-threatening radiation.

They did this for us, and I thank them for their sacrifice on our behalf. When Time Magazine chooses the "person" of the year this year, I hope they remember these workers!
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My Question to Mr. Ignatieff

2011-03-31T16:34:00.004-05:00

31 March 2011

On Sunday, April 3, at 11:00 am EST, The Liberal Party of Canada will host a special live town hall meeting that will be streamed online at Liberal.ca. During the event, Michael Ignatieff will unveil the Liberal Platform and answer questions from Canadians.

The Liberal Party is inviting Canadians to pose questions to Mr. Ignatieff.

I have responded by submitting my question. Honestly, I don't think my question is very easy, but here it is:

"Mr. Ignatieff,

"I regard our present time as the era of investor exploitation. Mr. Harper's dismantling of the income trust program selectively harmed small Canadian investors and sold off Canadian assets to international bidders. Low interest rates punish savers and motivate investors to take excessive risks or to misdirect investments. The broad markets have been flat for a decade. In the western world, only the Australians have a different (high interest rate) policy. Capital investment (saving) is at the heart of economic growth. Do you favour restoring the income trusts, raising interest rates, and undertaking other policies to benefit savers and to restrain high-risk (speculative) activity?"

Well, I'm hoping for an answer.....

I'll keep you posted.
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Why Canada Is Doing Well

2011-03-26T23:14:00.009-05:00

26 March 2011

Things are getting better in Canada, compared to almost every place else.

According to Niall Ferguson, here's why:

That's Canada at the bottom, trending downward. Our debt is falling relative to GDP - unlike virtually everybody else! (Australia is also doing relatively well, but it's not on this chart.)

Why?

1. We are a small country that leads the world in commodity production - mining, timber, agriculture. We have it all - including 60% of all the mining companies in the world.

2. Paul Martin (our former Liberal Prime Minister and Finance Minister) rationalized government expenditures and brought the country into surplus. He ran Canada like a business. (He was followed by an imprudent - and impudent - fellow named Stephen Harper who has gotten Canada into trouble by disenfranchising senior citizens and other savers/small investors. Fortunately, Mr. Harper has just lost his job!)

3. What Canada produces - raw materials - is in demand from the rapidly growing Asian economies. Commodities have been in a decade-long secular bull market, and that market appears set to continue into the present (upcoming) decade.

4. Both the Canadian government and Canadian banks are relatively conservative. We tend to avoid bubbles and manias. We keep speculators on a short leash.

5. We have affordable, publicly-funded health care and social insurance.

Canada is not perfect, but, compared to almost every place else, it might as well be. It doesn't get much better than this in the real world.
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The End of Extend and Pretend

2011-03-24T01:14:00.010-05:00

23 & 25 March 2011

As a subscriber to Bill Fleckenstein's bargain-priced financial advisory service, I have the privilege of popping off questions to Mr. Fleckenstein from time to time.

Tonight, I thought I had finally grasped the fundamental paradox facing the most indebted nation in world history.

Here is my latest question to Mr. Fleckenstein (who is taking a well-deserved day off tomorrow):
_______________________________________________________

Fleck,

Sorry to trouble you on a day off, but I have a simple question.

Let's say that there is no crisis and no "flash crash" between now and June 30, and that the Fed decides to halt QE (Federal Reserve money-printing) ad infinitum.

Given that the central bank will not be buying $75 billion per month in US treasury bonds, does that not mean that there will be MORE upward pressure on interest rates?

That is, QE = more money supply (inflation), but "No QE" means higher interest rates, and eventually higher federal debt payments?

(Note: a 7% rate on the existing $14 trillion plus US federal debt = $1 trillion in interest payments per year.)

And the fix is for our elected leaders to come back to us and say, "Sorry, we can't give you what we promised you after all. We're shutting off the tap. It's all over."

I think I'm truly beginning to grasp the Catch 22. Every option is "impossible," yet as in all paradoxes, and as always through history, the paradox will have to be navigated in real time.

If I've got it right, is there a timeframe (or interest rate level) beyond which extend and pretend is no longer sustainable?
_______________________________________________________

There it is. My latest question to Fleck. I'll share any answer that comes my way.....

25 March 2011: Mr Fleckenstein replied today to my question as follows: "In my opinion, austerity is a short sale, no one will stand for it, when we can just print money. I don't think there is any set level of anything that would end extend and pretend, it will end when it does, but I'd guess it will be 'unwinding' in the next 6-9 months or so."

Again, my advice for my readers is that you subscribe to Mr. Fleckenstein's economically-priced advisory service!
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Military-Industrial Malinvestment

2011-03-22T00:06:00.015-05:00

21 March 2011

I wish I had time to say more on this topic, but for now, here is my quotation of the day, from my friend and adviser, Ed Bugos at the Dollar Vigilante website (I recommend that you join as a subscriber):

"If the world were on a gold standard, governments could not afford the wars they are involved in today, and there’d be no question of the West withdrawing from the Middle East, because we would not be able to afford it! If, instead of printing the money, the government said that it will increase taxes for everyone by $20,000 this year to fund their ongoing intervention in the Middle East in the name of democracy, there would be a lot less "Gotta Support The Troops" going around! Without the ability to print money, there’d be no military industrial complex."

- Ed Bugos, from The Dollar Vigilante Blog

In fact, I can say a little bit more on this subject, as I commented on Ed's post at the Dollar Vigilante site, as recapitulated below:

"OK. That was an interesting twist at the end. Where does the excess money printing end up? In the hands of terrorists, despots and dictators in the oil producing nations, and in the hands of the Military-Industrial Complex on our side of the pond! Now, you could write a book on military-industrial malinvestment!

"As to the crisis that produced Reagan and Thatcher, I suspect the next one will somehow be a blend of the 30s and the 70s, but I do not know which parts will figure into the final blend. Unfortunately, it will not be pretty, and it will be the direct result of money-printing!

"What I do know is that nobody will be calling, "The bottom is in! Buy real estate/stocks/whatever now!" The bottom will appear endless, and gold will be the ONLY bright light at that point...."

That's all for now, folks!

(Credit: The poster used above and the US dollar chart below came from this interesting article.)

(Disclaimer: The above comments are not directed at any particular military venture, some of which are needed in my view, but rather at the type of world that is created by printing money rather than paying our bills....)

Additional comment: Regarding the present intervention in Libya, the application of the above lesson runs something like this: (1) Money-printing (inflationary monetary policy) made oil expensive, enriching (and arming) such despotic leaders as Qaddafi. (2) We "solve" the problem with MORE money-printing, to pay for military interventions to protect the Libyan people from the ruthless leader whose ascendancy we funded in the first place! (3) The devastating consequences? We'll "solve" that with money-printing yet again! I hope you can see where this is going.... The cycle continues literally until the currency reaches the point of inflationary collapse. Then, hopefully at least for a while, we learn to live within our means again!
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Sure the Market's Rational - Just Give It Two Decades!

2011-03-08T14:49:00.025-06:00

8, 21 & 27 March 2011

In Canada, gold stocks have been lagging the price of gold from the start of the gold bull market in 2002 (they were quite lively in later 2003, from May 2005 - May 2006, and of course after the October 2008 crash, but that's about it!).

Of course, the Canadian dollar has run up from $0.62 US to $1.03 US during that same period (a trend that will continue for most of this decade). That is a 66% gain - no small headwind against the US dollar gold price! (Unfortunately, I can't chart the SPTGD Canadian Gold Miners Index against Canadian dollar gold, or I would!)

However, even when we look at gold mining stocks in US dollar terms, we still see a decline in the ratio of the stock prices of gold miners (the HUI "Gold Bugs" index) to the price of gold from 2003 onward.

What's wrong with this "ratio" decline? I can tell you - gold miners' profits are rising faster than their costs, due to the now 10-year long gold bull market - but the miners are losing in value against gold, whereas rationality tells us that they should be gaining as their margins inexorably rise!

Consider too that gold has been quite strong - more than sufficient to cover rising costs - in Canadian dollar terms as well, as seen below (Canadian dollar gold had risen from $390 to $1405 as of March 7, 2011):

Is the market therefore irrational?

My gut response is to say, "Yes, absolutely - this downtrend in gold mining stocks relative to gold is totally crazy!"

However, as we have discussed here many times, this is just the "wall of worry" that all bull markets climb. In fact, I'll tell you exactly what is happening. Gold has been gaining in price for 10 years - and it has at least 7-9 (and perhaps many more) years to go.

However, every time gold makes a new high, the broad majority of investors start to prepare for the possibility that "the top is in." Then when gold sells off even $10-$20, due to normal market fluctuations, they unload the gold stocks they had bought a few days or weeks earlier. On a daily or weekly basis, this pattern of fluctuation looks like noise, but as you can see on the long-term charts above, the market is now dramatically underpricing the stocks of global gold mining companies (60% of all mining companies are listed on the Canadian exchanges).

That is, everybody knows this is a 10-year bull market, but the great majority entirely lack confidence that it will be an 11-year or 12-year bull market, let alone a 17 to 18-year bull market (which is typical of such cycles), or perhaps a 2 to 3-decade bull market, as we have seen recently in bonds - which surely are topping out somewhere about now.

Take today's action as another example of that consistent pattern. Only yesterday, gold made a new all-time record high of $1444.40. However, today it sold down to as low as $1423.40 (a $21 decline, but from a record high level!).

What then happened to the gold stock sector? Let this come as no surprise to you - gold stocks were smashed, with both the HUI and SPTGD gold stock indices losing over 1%. Hey, and what happened yesterday? Oh, the same thing. On that day, gold sold at the highest nominal US dollar price it has ever commanded in history - and the stock prices of gold mining companies sustained losses of about 1.5% on both the US and Canadian exchanges - greater than their losses today!

Again, on a daily basis, this looks like noise. but it actually represents a cumulative 9-year downtrend in the market price of gold mining companies relative to the soaring price of the commodity they sell at ever-increasing profits - gold!

If the market is indeed irrational, as demonstrated above, will it then correct at some point for such obvious mispricing of gold mining companies?

You betcha!

If history is any guide, the odds are 99.99% that the answer is "yes." At some point, the market will price gold stocks rationally - and then, more confoundingly still - it will go on to over-value them!

So what am I claiming here?

Basically, I am stating that markets are in fact 100% rational - just not in terms of their daily behaviour, which over time may accumulate to periods of years and - as we see in the present example - decades!

What then are the lessons?

Pretty simple, actually.

Investors who hold on to gold mining stocks at today's prices will virtually certainly see fabulous gains at some future point, probably still several years in the future, as gold stocks move from being undervalued to being rationally valued, and then to being overvalued.

Sounds crazy?

Hey, this is human nature we are discussing - cumulative human psychology if you will! This is just what humans do. All the charts are doing is reflecting our own behaviour back to us - bizarre though it may be!

Based on historical trends, gold stocks are likely to be fairly valued (again) a few more years forward - perhaps as soon as 2012, based on multi-decade patterns of strength and weakness in this particular sector, which have been identified by Pamela and Mary Ann Aden.

Then what? Well, a few years further out, the market will over-value gold stocks, and then it will be time to sell them - but by my reckoning, that period of over-valuation will not occur until near the end of the present decade - or perhaps even later.

In fact, the consistently negative relative price action of the past decade has been very bullish for gold stocks!

Why is that?

Basically, contrarian psychology is at work here. After ten years, it should be quite obvious to essentially everyone who is paying attention that gold is in a sustained bull market.

As obvious as this sounds, the great majority of investors do not yet perceive this. They view the entire period to date as an anomaly - a mysterious or irrational trend that at any moment is likely to reverse.

After 10 years, you might think that such twisted logic would no longer be persuasive. Yet one need study the price action in gold and gold stocks over only the past two days to see that the same pattern which has kept gold stocks undervalued for a decade is persisting at this very moment!

Here's the funny thing about markets though - and all investors who have studied history know this - the present pattern of pricing gold stocks will not end until it has turned around to its opposite.

That is, to anyone with historical awareness, the recent top in the gold price ($1444.40) cannot possibly be the top price in the present trend, because the market is still undervaluing - vs. overvaluing - gold mining companies.

Historically - these two patterns have never occurred at the same time. That is, the gold market can "top out" only when gold mining stocks have become overvalued. There is no precedent for such an occurrence at a time when mining stocks are under-priced relative to gold, particularly while still in a 9-year relative downtrend!

Again, reversals at junctures such as we see at present simply do not happen - ever!

(To be clear, I'm not saying that we will necessarily ever recapture the ratio highs of 2002-2003 - or that gold mining shares can't randomly fall quite a bit below where they are priced today. Rather, I am discussing larger patterns. What I maintain is that the bull market in gold stocks can end only when gold stocks are over-valued, that is, when they are in a sustained uptrend relative to the price of gold. Such ending patterns have no resemblance whatsoever to the pattern we have witnessed for the past 9 years!)

History teaches an incontrovertible lesson. No sectoral bull market has ever ended with stock prices at undervalued levels. All bull markets end in overvaluation - every one, every time! And again, if history is our guide, no commodity has ever advanced for ten years and then reversed while the shares of companies that produce the commodity were lagging in price. This just plain does not occur - ever!

Now, that is about as close to a golden guarantee as you are ever going to get that the present bull market in gold has years to go, even if on many days gold stocks fall off a cliff when we see price declines in gold itself of $10-$20 or more - even when those declines follow record highs!

As has been said, "Don't sweat the small stuff - and it's all small stuff!"

What's the big picture here?

This is a bull market in gold, and at some point mainstream investors will wake up to this fact and drive the prices of gold stocks much higher than they are today.

And, if you're holding gold stocks already?

Just relax and take the ride.

It may be bumpy, but the ultimate direction is always up in markets of this type.

It is your golden guarantee!

21 March 2011: For your edification, I am posting below the most subtle chart of a rising trend that I have EVER seen:

The above chart is of the ratio of the "HUI" gold stock index to the price of gold. Now, look at the four "bottom" points on the chart starting on August 4, 2010. Now, do the math to a few decimal places. That's right!. Taking the last four bottom points into consideration, gold stocks are now rising against the price of gold - with the differential across the four bottom points amounting to a cumulative gain of .0034!

That, my friends, is perhaps the most subtle rising trend you will ever witness in a lifetime, but - and this is very important - the direction is up!

Savour it, gold investors! This is good.... you may never see anything like this again!

For the doubters in the crowd, here is the same chart from January 2010 through the present:

Yes, indeed. It's an uptrend... still!

27 March 2011:

Ho hum.... Gold set another record high this week.

The consequences? Well, things were going great until a new all-time record-high gold price was set at $1447.30 on Thursday. Then all hell broke loose!

Gold sold off and gold stocks sold off on Thursday and Friday both (though it was otherwise a net positive week for both gold and gold mining stocks).

Here is the 5-day gold chart:

And the 5-day chart of the HUI "basket of unhedged gold stocks":

Yep. There is nothing worse than record high gold prices for the gold stocks - or even for gold itself!

And yes, the psychology will change at some point. But don't hold your breath!
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Buy Goldcorp Now

2011-02-27T12:09:00.009-06:00

27 February 2011

Here is perhaps the most important chart for Goldcorp:

Goldcorp has been declining against gold since May 2006 (see chart).

Goldcorp has just released a blow-out report. It is now performing better than ever, with increased production, increased reserves, new mines opening, an increased dividend, ballooning profits, etc.

I submit that the reversal of this almost 5-year downtrend (the ratio of Goldcorp's price to the price of gold) may have started in January 2011. If this is the case, Goldcorp's upside (from a ratio low of .0293 in January 2011) could be a recapture of the .05 level - even higher.

Let's say that gold is at $2000 by the time Goldcorp retakes the .05 ratio. This would put Goldcorp's share price at $100 (from today's $46.00).

Now I'm speculating. If we see $2000 gold in 2012, that means that Goldcorp could gain 100-150% by some time next year.

Short-term moves are hard to predict. but my intermediate target for Goldcorp is now $100.

Buy Goldcorp.

1 March 2011: FYI, the Gold Stock Analyst has just raised his long-term target for Goldcorp, based on the recent news. I recommend that you subscribe. Click here!
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Financial Disaster Update

2011-02-16T18:17:00.016-06:00

16 February 2011

I have blogged previously on the topic of impending financial disaster. Hey - you don't have to be a genius to see it coming!

A toxic mix of excess liquidity (money printing) and capital misallocation (new investment flows directed towards assets of declining value such as uncompetitive automakers and residential real estate) has resulted in falling employment, declining tax revenues, and skyrocketing consumer and government borrowing. Inflation in consumer prices is now wending its way into the mix. Both government officials and Federal Reserve Board members believe that we can spend our way to prosperity. Wait a minute! Don't you increase wealth by saving, not by spending?!?!?

For those perhaps new to the topic, here is a link to a concise Business Insider article offering a quick overview of the fundamentals of financial disaster (US style): "10 Charts That Embody Everything That's Wrong With the U.S. Economy."

I wish it weren't true, but this is what is happening, and the people in charge are trying to fix it by borrowing and spending more. You don't need a degree in economics to know that an approach of this kind is doomed to catastrophic failure!

As to the topic of inflation - don't believe the totally made up government figures of 1-3 percent per year. The chart below tells it like it is (based on the way inflation was calculated in the "olden days" of 1990):

As you can see, real inflation (according to Shadowstats) has been running at about 10% per year since 2000, and it began travelling above 5% as early as1987. That is a lot of currency devaluation, and has much to do with explaining the decade-long rise in the gold price....

What has saved the US in the face of such a disastrous inflationary policy? Well, so far, everybody else is inflating their currencies too.

The problem? It's just that the US owes more in debt payments ($50.7 trillion in 2009 and rising at about $2 trillion/year) than all the other countries of the world put together (total world debt is about $100 trillion).

Now that is a hard problem to solve!

17 February 2011: This embedded video is not the scenario I most expect for how the US dollar collapse will play out, but it does serve as a reminder that gradual changes can lead to sudden changes.

Presented by the National Inflation Association, an organization which anticipates hyperinflation. In my view, other things will more likely happen first. But it could happen as this video predicts. Something to think about....

Click here if the video doesn't work.
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