Finally, Gold Has Reached a New High in Canadian Dollars!

25 November 2007

It has been a long wait. Gold has been logging new highs in US Dollars for much of the latter half of 2008.


On Friday, gold eked out a new high in Canadian Dollars, at $813.00 (CDN), finally bettering its $807.00 level in February 2007 and its $810.00 level in May 2006.

Gold's recent $848.00 high in US Dollars did not phase the Canadian market, as our dollar had soared to $1.10 US at that time. Since then, the Canadian Dollar (along with the other resource-based global currencies) has retreated, in our case, to parity with the US Dollar.

So, for Canadians, gold's early November 2007 $848.00 US Dollar high was not sufficient to move the precious metal into record territory, but the recent $824.70 US Dollar close on Friday, November 23, 2007 moved us to a 27-year high gold price.

I note that gold has also attained a 27-year high in Australian Dollars.

The gold bull market continues to unfold.

It is most meaningful when gold rises in all currencies, and finally, that is now happening. Gold's ascending move as the resource-based currencies consolidate is particulalry meaningful, as this development reinforces the message that gold is a currency, not a commodity.

A Better Way to Understand Excess Liquidity

23 November 2007


Excess liquidity is a difficult concept to grasp.

Let’s try this explanation for simplicity:

In 1980, there were 1.8 trillion US dollars in circulation.

Now there are 13 trillion US dollars in circulation.


That is an increase of 722% in 27 years.

Is the US producing 7.2 times as many goods and services now as in 1980?

Of course not – the economy has grown, but not that much.

This means that, in fact, too many extra dollars have been produced during the past 27 years.

Who dishes out the extra dollars?

This is the designated role of the US Federal Reserve Board.

Who, therefore, do you conclude that Wall Street watches most closely? (a) The US consumer? (b) US business leaders? (c) The Chairman of the Federal Reserve Board?

If you guessed “c,” move to the head of the class!

The Federal Reserve Board is more important than either the US consumer or US business leaders in creating a flow of money in the country. And, by producing so many US dollars, the Federal Reserve Board has had a major role in enhancing the flow of US dollars around the world at large as well.

Now, what do you think happens when too many US dollars chase too few goods and services?

Great! You’ve got it again! It now takes more US dollars to buy the equivalent goods and services, and we call this “monetary inflation.” No wealth whatsoever has been created, we have just increased the number of dollars that are required to purchase more or less the same quantity of goods and services.

Are you ready for the next question?

How do these new dollars get distributed – after the Federal Reserve Board has dropped them out of a metaphorical helicopter?

You’ve guessed it again!

Everybody who is alert to this game scrambles to get their hands on them first!

And who watches this game most closely? You guessed it – the professional investment community!

Now – who do you think actually lays their hands on these excess dollars before anyone else?

If you guessed “Wall Street financial firms,” then keep your seat at the head of the class.

The denizens of Wall Street watch every move that Ben Bernanke (the current chairman of the Federal Reserve Board) makes, and every breath he takes. They read tea leaves to divine his every move!

Why?

Mr. Bernanke dishes out the excess dollars that the Wall Street players desire to get their hands on first – ahead of you, me, or anyone else.


Do you imagine that this is an orderly process?

Aha! You’ve guessed correctly again! The process is in fact quite disorderly – in fact, it is a mad scramble.

The financial professionals on Wall Street (figuratively – really the US and global financial services industry) engage in inventive processes to rake in the new funds as fast as they flow out of central banks around the globe (as central bankers almost everywhere engage in more or less the same process as the US Federal Reserve Board).

In the late 1990s, these “financial innovators” promoted IPOs (initial public offerings) of technology and internet stocks. More recently, they have capitalized on the liquidity-inflated housing market, creating “mortgage-backed securities,” “collateralized debt obligations” and off-balance-sheet “structured investment vehicles.”

They sell them to second, third and fourth parties down the line, charging significant fees in each case. Ultimately, the money that we invest in housing and mortgage payments flows through these vehicles. It is a game of hot potato – as the last one holding the hot potato (yet another over-valued and over-hyped Wall Street investment product) loses the game.

How do human beings feel – psychologically – when the quantity of money keeps increasing – and as the value of the money we hold in our pockets inevitably dwindles?

You’ve got it right! We feel insecure.

Case in point – the real rate of inflation is on the order of 10%. Let’s say your bank is paying 3-4% interest on savings. If you are a saver, you are losing, say, 6-7% per year. On a long-term basis, your savings will so substantially dwindle in value that you will not be able to guarantee a secure retirement.

Add to that the fact that your take-home pay is probably not increasing at a 10% per year rate to match the rising real cost of living.

How do humans respond to such a guaranteed losing game?

We enter into higher-risk games, attempting to protect and enhance the value of our diminishing (due to monetary inflation) assets.

In the 1990s and early 2000s, we bought internet and technology stocks.

Then as the technology and internet bubble faded, we increasingly bought homes (as a “real investment”) and risky investment products based on questionable mortgage loans to unqualified buyers.

Many Americans (in particular) pulled equity out of their supposedly ever more valuable homes in order to pay down other debts and to purchase consumer products (as saving had become increasingly counter-productive, spending was the remaining alternative for many).

International interest in casinos and other forms of gambling has exploded as the money supply has ballooned out of all proportion to the real growth of the domestic and global economies.

Result?

The gap between the rich and the poor in the US has increased to its greatest level in history.

The middle class has stopped participating in the wealth creation process.

Many speculators, borrowers and risk takers have lost much or all of their risk capital – and in too many cases, their life savings.


Chief executives of Wall Street firms have recently lost their jobs due to the emerging discovery of the worthlessness of the investment products they have been buying and selling (taking with them $150 million compensation packages, as well as the proceeds from commissions on the worthless pieces of paper that they had been buying and selling, often many times over).

Where did the $150 million packages come from?

Remember – that was the money that Mr. Bernanke – and before him, Mr. Greenspan – handed out – and which came back to Wall Street through mainstream investors’ purchases of hotly-promoted financial products (most recently, “creative” mortgages and home equity lines of credit, etc.).

What is the solution?

The increase in the money supply should not exceed the increase in production of goods and services – period.

Reining in money supply growth would bring the current madness to a screeching halt – initially creating substantial economic disruption – but ultimately allowing for the restabilization of financial, real estate and other markets, thereby – somewhere down the road – making saving worthwhile again – and financial speculation and risk-taking considerably less attractive.

What would it be like on Wall Street in such an environment?

At first, it would be like watching paint dry, there would be almost nothing for the Wall Street professionals to do, and many would leave the business as the commissions and speculative gains evaporated. But gradually, over time, there would re-emerge an honest business in selling much more modest and straightforward investment products of real value to American and global investors.

But that is not here or now. Not yet. Not for many years to come.

We have to wring out the excesses of the current glut of North American and global liquidity.

This wringing out will be a lengthy and painful process. But its eventual outcome will be positive – normalizing and restabilizing our economic system – at a much scaled down pace and scope of operations.

What to do here and now?

Gold and silver remain wise investments when the financial system is insecure, though their volatility (in terms of unstable US and other world currencies) will continue to reflect the vagaries of wide-ranging and often irrational human sentiment.

Buy gold and silver and diversified shares of the mining companies that produce them, gradually, fewer ounces and shares when prices rise, and more ounces and shares when prices fall. Over time, the value of precious metals and mining companies will certainly rise, and you will be well-rewarded for your self discipline and longer-term vision.

I am hopeful that this brief lesson may prove of value to you…………………

The Swiss Franc Continues to Climb in Canadian Dollars

21 November 2007

Just an update from my November 9, 2007 post.

The Swiss Franc has continued to climb steadily since I recommended it as a purchase for Canadians on November 9.


As you can see, this one has legs. There is still further room to move just for the Swiss Franc to get flat for the year (2007) against the Canadian Dollar.

The Swiss Franc is still a good buy, even here, though most of the quick and easy gains have been taken.

See my more recent Swiss Franc comments here, here and here (9 February 2008).

My July 14, 2008 analysis of the Swiss Franc (based on conservative money supply growth in Switzerland) is here: "All You Need to Know About Global Money Supply in One Place."

Here is a list of my blog entries concerning the Swiss Franc:

1. Canadians, Buy the Swiss Franc Now!

2. The Swiss Franc Continues To Climb in Canadian Dollars.

3. My first compliment from Fleck.

4. Currencies 101.

5. Another Swiss Franc Buying Opportunity for Canadians.

6. All You Need To Know About Global Money Supply in One Place.

7. The Swiss Franc Is Still Strong.

8. Use "FXF" (CurrencyShares Swiss Franc Trust) To Buy the Swiss Franc.

9. Gold is Better Than the Swiss Franc.

10. Swiss Franc Alert.

11. Gold Isn't Gaining All That Much... In Canadian Dollars!

Addendum: Many visitors to this site have enquired about how to purchase the Swiss Franc. The most direct method is simply to purchase Swiss Francs from a currency dealer. In Canada, Custom House Currency Exchange offers competitive rates. You may also wish to contact your broker about an exchange-traded fund or a Swiss Franc government bond (which would pay interest on your investment, but could be subject to decline in value even if the currency itself rises relative to other currencies). Additionally, some banks permit investors to maintain foreign currency accounts. Sophisticated investors may wish to enter this trade through purchasing futures contracts or other types of options, such as calls. Many brokers specialize in foreign currency purchases, so I suggest that you start with a broker familiar to you. As I understand it, Pamela and Mary Anne Aden at Aden Research, for example, will execute foreign currency trades for their customers. But for those who don't know how, simply purchasing the currency from a competitive currency trader (possibly your local bank, or a trader recommended by your bank) will be a good place to get started. Ideally the "spread" between the buy and ask price for the currency should be less than 4 cents on the dollar (roughly 4%). That is, you should not pay a premium of greater than 2% to purchase the currency. This being said, my own experience with currency dealers is that it is very difficult to exchange currencies in this idealized range. Our local broker's rates are much higher, for example. Never exchange currencies in large amounts at airports, hotels and other locations that are charging large premiums to provide a convenience service to travellers. Look for the best rates any time you exchange currencies!

August 5, 2008: As currency purchases at fair exchange rates are extremely difficult to obtain, I am now recommending that mainstream investors simply purchase the FXF exchange traded notes, "CurrencyShares Swiss Franc Trust" (denominated in US dollars) through their broker. This exchange traded note uses the interest on its deposits to cover the management fees of the fund, with the result that you will receive modest interest income via this method.

Note (9 August 2008): Most global currencies happen to be weak against the US dollar right now, as the US market is presently driven by the fantasy that the US government's now $800 billion rescue of the financial system by "nationalizing" the government sponsored enterprises (Fannie Mae and Freddie Mac) and using taxpayer money to guarantee worthless bank assets will make everything "all right again." That fantasy will persist for a season, and then it will fade, as all fantasies do.

In the meantime, the Swiss Franc may not have bottomed for US investors. However, I note that the Franc is holding up fine against the Canadian dollar, as both are under pressure versus the US dollar, which is presently enjoying a transient upward move due primarily to concerns about the stability of the Euro. Pamela and Mary Ann Aden advise that the market value of the Euro is presently stronger than that of the Swiss Franc. My own take is that the Swiss Franc clearly possesses superior fundamentals compared to the Euro, which relies upon the historically unproven concept of international cooperation (don't expect the cooperation of the European countries to be maintained in hard times or in crisis!).

October 11, 2008: If you're interested in Swiss Franc Government Bonds, here is a recommendation from WikiAnswers. This brief note recommends EuroPacific Capital. Its C.E.O. and Chief Global Strategist, Peter Schiff, is a long-term US dollar bear who saw the present economic meltdown coming years ago. EuroPacific Capital is a secure and well-managed company, and I can certainly vouch for the reputation of Mr. Schiff, whose articles on the mismanaged US economy I have been reading for years on Safehaven.

While I am currently recommending gold as a superior store of value to the Swiss Franc, gold trades as both a commodity and a currency, with the result that its market price is much more volatile. If you are a long-term buy-and-hold investor, gold will certainly outperform the Swiss Franc as a long-term store of value. But if you don't like $100 price moves in a day (gold has had two such moves in the past month - including only yesterday!), then holding the Swiss Franc may prove less unsettling.
_

Canadians: Buy the Swiss Franc Now!

9 November 2007, edited 27 July 2008

The Canadian Dollar "bubble" is now winding down. (We bought our US Dollars for travel on Wednesday, when the Canadian Dollar hit its peak. It's lost its bloom for now.)

The Swiss Franc has been traded much more conservatively this year, as it is a low-interest carry trade currency, similar to the Japanese Yen, but with better fundamentals in my view.

Carry trades are gradually unwinding, meaning that the carry trade currencies are rising.


The Swiss Franc is now taking off relative to the Canadian Dollar.

Canadians - buy the Swiss Franc now!

You heard it here on November 9, 2007!

Here is a list of my blog entries concerning the Swiss Franc:

1. Canadians, Buy the Swiss Franc Now!

2. The Swiss Franc Continues To Climb in Canadian Dollars.

3. My first compliment from Fleck.

4. Currencies 101.

5. Another Swiss Franc Buying Opportunity for Canadians.

6. All You Need To Know About Global Money Supply in One Place.

7. The Swiss Franc Is Still Strong.

8. Use "FXF" (CurrencyShares Swiss Franc Trust) To Buy the Swiss Franc.

9. Gold is Better Than the Swiss Franc.

10. Swiss Franc Alert.

11. Gold Isn't Gaining All That Much... In Canadian Dollars!

Addendum: Many visitors to this site have enquired about how to purchase the Swiss Franc. The most direct method is simply to purchase Swiss Francs from a currency dealer. In Canada, Custom House Currency Exchange offers competitive rates. You may also wish to contact your broker about an exchange-traded fund or a Swiss Franc government bond (which would pay interest on your investment, but could be subject to decline in value even if the currency itself rises relative to other currencies). Additionally, some banks permit investors to maintain foreign currency accounts. Sophisticated investors may wish to enter this trade through purchasing futures contracts or other types of options, such as calls. Many brokers specialize in foreign currency purchases, so I suggest that you start with a broker familiar to you. As I understand it, Pamela and Mary Anne Aden at Aden Research, for example, will execute foreign currency trades for their customers. But for those who don't know how, simply purchasing the currency from a competitive currency trader (possibly your local bank, or a trader recommended by your bank) will be a good place to get started. Ideally the "spread" between the buy and ask price for the currency should be less than 4 cents on the dollar (roughly 4%). That is, you should not pay a premium of greater than 2% to purchase the currency. This being said, my own experience with currency dealers is that it is very difficult to exchange currencies in this idealized range. Our local broker's rates are much higher, for example. Never exchange currencies in large amounts at airports, hotels and other locations that are charging large premiums to provide a convenience service to travellers. Look for the best rates any time you exchange currencies!

August 5, 2008: As currency purchases at fair exchange rates are extremely difficult to obtain, I am now recommending that mainstream investors simply purchase the FXF exchange traded notes, "CurrencyShares Swiss Franc Trust" (denominated in US dollars) through their broker. This exchange traded note uses the interest on its deposits to cover the management fees of the fund, with the result that you will receive modest interest income via this method.

Note (9 August 2008): Most global currencies happen to be weak against the US dollar right now, as the US market is presently driven by the fantasy that the US government's now $800 billion rescue of the financial system by "nationalizing" the government sponsored enterprises (Fannie Mae and Freddie Mac) and using taxpayer money to guarantee worthless bank assets will make everything "all right again." That fantasy will persist for a season, and then it will fade, as all fantasies do.

In the meantime, the Swiss Franc may not have bottomed for US investors. However, I note that the Franc is holding up fine against the Canadian dollar, as both are under pressure versus the US dollar, which is presently enjoying a transient upward move due primarily to concerns about the stability of the Euro. Pamela and Mary Ann Aden advise that the market value of the Euro is presently stronger than that of the Swiss Franc. My own take is that the Swiss Franc clearly possesses superior fundamentals compared to the Euro, which relies upon the historically unproven concept of international cooperation (don't expect the cooperation of the European countries to be maintained in hard times or in crisis!).

October 11, 2008: If you're interested in Swiss Franc Government Bonds, here is a recommendation from WikiAnswers. This brief note recommends EuroPacific Capital. Its C.E.O. and Chief Global Strategist, Peter Schiff, is a long-term US dollar bear who saw the present economic meltdown coming years ago. EuroPacific Capital is a secure and well-managed company, and I can certainly vouch for the reputation of Mr. Schiff, whose articles on the mismanaged US economy I have been reading for years on Safehaven.

While I am currently recommending gold as a superior store of value to the Swiss Franc, gold trades as both a commodity and a currency, with the result that its market price is much more volatile. If you are a long-term buy-and-hold investor, gold will certainly outperform the Swiss Franc as a long-term store of value. But if you don't like $100 price moves in a day (gold has had two such moves in the past month - including only yesterday!), then holding the Swiss Franc may prove less unsettling.
_

Social Stability, Population Regulation and Global Warming

4 November 2007

A brief comment.

In my view, the global warming debate boils down (no pun intended) to a question of how we regulate the size of our planet's human population.

I don't see how our planet stands a chance if population continues to grow vigorously from its present base of 6.75 billion souls.

But there is a deeper conundrum.

How can we go about answering the questions of regulating population size and carbon and greenhouse gas emissions and promoting resource conservation, etc., without first answering a far more fundamental question?

The fundamental question is, what kind of society do we wish to inhabit?

Specifically, how do we wish to balance the competing demands of civil freedom, economic freedom, the rule of law, security of title/ownership, limits on license, protection of the vulnerable, restraint on the powerful, etc.?

Until we have decided what kind of society we desire to share with our fellow homo sapiens, there is literally no hope of resolving the critical questions of human population regulation, environmental degradation, resource conservation, global warming, species diversity, ecosystem preservation, etc.

In the interim, I favour a single strategy: role-modeling.

What do I mean?

Those who think they have a better idea for how we should resolve these fundamental and vexing problems should demonstrate the solutions by living them out in their own lives.

I am intolerant, for example, of demonstrations, activism, continental campaigns mounted in diesel-spewing busses (even if it is bio-diesel), attack ads, public griping and complaining, and blaming the villain of your choice (indolent citizens, greedy corporations, short-sighted governments, Islamic extremists, religious fundamentalists of all stripes, heathens, scheming and manipulative US or Chinese totalitarians, the military industrial complex, bureaucracies at all levels (including the UN), resurgent Venezuelan, Bolivian and Russian Communists, emerging and unstable nuclear powers, oppressive dictators, etc.).

If you think you have a better idea, do it.

If it’s more than you can do alone, find some others to join you, and do it with them.

Don't talk about it. Don't complain about it. Don't blame others for the problem. Just do it.

Live your dream and vision.

Inspire others.


My own role-models remain Helen and Scott Nearing. They wrote about their thoughts and ideas, but simply lived the lifestyle they thought was necessary to make human survival possible. I also believe that Ivan Illich did this well. Ludwig von Mises laid out the theoretical basis for how societies can work in terms of social and economic freedom, and accomplished this from a psychologically enlightened perspective. Hernando de Soto and Muhammad Yunus have articulated how these solutions can be applied to disadvantaged third and fourth world societies.


Therefore, don't be a global griper. Be a global role-model.

$800 Gold, No Headlines

2 November 2007

My wife Susan and I watched as gold crossed over from $799 to $800 per ounce at midday today. Gold has previously traded above $800.00 on only two days in January 1980.

As this is a historic milestone, I immediately checked the news services for the headlines trumpeting $800 gold. I looked all over Yahoo.com's news feeds. Nothing.

In all fairness, both Bloomberg and Reuters UK carried stories, posted at 1:50 and 2:16 pm. Eastern time respectively. Marketwatch picked up the story at 3:21 p.m., and this briefly surfaced on Yahoo’s specialty Marketwatch section for about half an hour before disappearing again. This story didn't make the top ten in either Yahoo business or Canadian business news, let alone “Top Stories” or “World News.” I had to go to Kitco (a specialty precious metals investing site) to find the Reuters and Bloomberg versions of the story.

What does this tell me?

Gold is going much higher than $800.00 this time around. This gold bull market won't slow until virtually everyone has noticed. And it appears that this development will be many years in the future.

At the present juncture in history, gold’s trading in all-time record high territory is news only for those with a special interest in its coverage.


Gold did trade briefly at $887.50 on January 21, 1980 before collapsing in the 21-year bear market that took it to its dismal February 20, 2001 low at $255.00.

Now let’s see if anyone notices when gold reaches $875.00 per ounce.

By the way, on February 20, 2001, the US dollar index traded at .4424 times the price of gold. On October 31, 2007, this same ratio stood at .0961. That is, the US dollar index has lost 77.3% of its value against gold during the relatively short interval from February 20, 2001 to October 31, 2007 (a brief 6-1/2 year period).

My advice – don't let the news pass you by any longer. If you have not already done so, do consider investing in gold in the near future. (By the way, I am not a registered investment adviser, and I can offer no predictions about short-term trends in the gold price, which is very volatile.)

Haven't I suggested investing in gold on this blogsite before – on July 28, 2005, when gold was trading at $425 per ounce?

Susan and I purchased our first gold mining stocks (Northgate Minerals and Bema Gold Corporation) on August 26, 2003. On that date, gold was trading at a price of $362.00 per ounce. Now, 4 years later, gold has gained $444 in added value, in US dollar terms. That is a 123% gain over this period (though the gain is much more modest in Canadian dollar terms, due to the soaring international value of the Canadian Loonie).

With a closing price today of $806.00, the price of gold is still attracting little notice in the mainstream media.

Figure it out – it’s still not too late to be an owner of gold!

I'll meet you here again when gold tops $887.50 per ounce, and moves into all-time record territory. And we'll again examine the headlines on that day. My best guess – our next meeting will be only a few short months away.

Google versus BHP Billiton - Part II

11 October 2007

I wrote recently that in ten years' time, it is conceivable that BHP Billiton could be worth 100 times as much as Google, in terms of market value.

Again, BHP Billiton is the world's largest integrated miner. They sell real raw materials that are in acute demand as the world's population soars past 6.75 billion souls.


Google is an absolutely great company that among other things sponsors the site which hosts my web log. However, Almost no one who uses Google's services has to pay anything for them, with the exception of advertisers. Thus, Google's business is very vulnerable to the vicissitudes of the consumer marketplace, particularly to periods of recession, which predictably come every few years.

BHP Billiton is somewhat insulated from marketplace pressures, as it takes 10-15 years to bring a mine from the exploration to the production stage. Thus, there is a large barrier to entry in BHP Billiton's core market.

By way of contrast, anyone who wants to can host internet services. Thus Google potentially faces competitors who may be as smart as or smarter than the very smart people who run Google.

Google just hit a new intraday stock price high today of $641.41. At that level, the company was briefly worth more than $200 billion in market value. That is against annual earnings of $3.69 billion and revenues that could run as high as $15 billion, assuming business continues at its current clip (always an assumption – never a certainty).

Here is the fact that I found most interesting today. Google is now worth more than Viacom, CBS, Time-Warner and Disney combined (and recall that Time Warner still owns and operates the internet phenomenon of the past – America Online... remember that company?).

I doubt in ten years' time that Viacom, CBS, Time-Warner and Disney combined will be worth less than Google. I also doubt that they will fare so well as BHP Billiton during this period.

However, I will add to my earlier proposition that in ten years' time, Viacom, CBS, Time-Warner and Disney (combined) will almost certainly be worth ten times as much as Google.

That is just how things go in the real world. While Google inhabits an unreal world, companies such as Viacom, CBS, Time-Warner, Disney... and BHP Billiton... conduct their operations in the real world. The next ten years will be hard for Viacom, CBS, Time-Warner and Disney, whereas the next decade is likely to treat BHP Billiton kindly.

I hope that Google does well over the next ten years, as I really like the company. But I am not optimistic that the events of the coming decade will support its present stock valuation at anything close to its current ($200 billion) level.

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
_

Ontario Provincial Elections – Stumbling at the Threshold of Opportunity in Northwest Ontario

3 October 2007

It is no secret to my readers that I have often written on the topic of mining, but rarely about mining in Northwest Ontario.

As the Ontario provincial election nears, perhaps it is time to rectify that, though my time is brief.


I have just reviewed the statements of all four Northwestern Ontario candidates, and not one of them has voiced the recognition that mining is the future of Northwest Ontario.

The Conservative candidate Penny Lucas came closest, with a proposal to remove the diamond mining tax.

But that is all that has been said on the issue so far.

The focus is retrograde, a backward look at the decline of the forestry industry, rather than a forward look at the rise of mining.

How sad.

In a decade’s time, with mining activity far advanced globally, I'm sure this issue will garner the attention it deserves.

Let me reiterate: mining is the future of the north. And we’re not talking small stuff. Anyone who has visited Red Lake recently is aware that gold exploration and mining are ramping dramatically. Believe me, that is not even the tip of the iceberg. Everything we have seen so far – including the current explosion in exploration activity in Red Lake – is only an intimation of where we are going.

The tip of the iceberg fails as an analogy. We have seen perhaps only the single molecule of the ice on the tip of the iceberg.

For every job now being lost in forestry, some multiple of that will be created in mining over the next 2 to 3 decades – perhaps there will be 10 new jobs in mining for every job lost in forestry by 2037.

With its rich but forgotten mining heritage, Northwest Ontario is in a position to become the “next Alberta” in Canada. How unfortunate that our leaders, and perhaps many among our populace, have forgotten where we came from in this region.


How far have we drifted from our traditional focus on mining activity?

We no longer even train people in mining occupations in our region. Decades ago, it was possible to receive mining skills training in Sault Ste. Marie, for example, as a geologist’s assistant. That program has closed.

Confederation College, with campuses throughout our region, offers few if any courses relevant to mining skills training.

We are not without our visionaries and our leaders. Certainly Rob McEwen's return to Red Lake through his investment in Rubicon Minerals is a strong affirmation of our region’s future. And I am a great advocate of Ewen Downie and the Stares brothers in Thunder Bay.

In fact, our region has a rich mining heritage, and we have the skill and knowledge base to refocus on our future in this booming global industry. But the potential place of mining in our region is taking a backseat to discussions about forestry’s decline, the needs for education, health care and roads, and specific proposals to throw money at the forestry industry to arrest its inevitable decline.

Northwestern Ontario residents and the candidates vying for election in our district, seem largely unaware that mining activity will be our future direction. Based on their stated platforms, I am finding it difficult to locate a candidate in whom I can invest my vote.

How do the parties stack up with respect to their vision of the north’s future?

Well, the Conservatives at least want to remove the diamond mining tax – and to arrest forestry’s decline, improve infrastructure, etc. The usual stuff.

The Liberals – regrettably – are proposing to throw a billion dollars of taxpayer’s money at the forestry industry to see what sticks to the wall. Believe me, it will be less than we desire. My estimate – a billion dollars, thoughtfully directed to spur mining activity – would create 10 jobs for every one that the Liberals’ new forestry initiative will bring to pass – and perhaps 100. The Liberal’s regressive and costly forestry policy gives good reason not to vote for this party.

The Green candidate is proposing growing hemp. At least this person has considered that new industrial development is needed in our region. But we are not a traditionally agricultural region, and I doubt that hemp will be our future, but more power to her.

Mr. Hampton, our NDP incumbent, is very clued-in to the pulse of the north, but seemingly paying little attention to mining, perhaps because the population itself has not yet awakened to this issue.

So – the critical issue of our era – the need for infrastructure, facilitative legislation and government policy, the reopening of local mining offices, training in mining occupations skills, incentives to attract the best and the brightest to our area, incentives for mining exploration and mine development – is receiving no attention In the present election.

To be honest, how we vote this month will thus have little impact on our future. But perhaps we can at least begin to promote discussion about the issues that concern our region.

Regardless of what happens at the political level, entrepreneurs such as Mr. Downie, the Stares brothers, and many more, will move forward in mine development. Perhaps they will have to travel far beyond our region to find the skilled employees they need to carry out mineral exploration and mine development in Northwest Ontario, but it will happen, no matter how backward looking the citizens and political leaders of the north remain.

In summary, all four candidates seem to be marching backwards into a future that will be dramatically different than the recent past, and not one candidate seems to be prepared for the dramatic opportunities that rest at our doorstep.

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

2 October 2007

One of my mentors and financial guides, Bill Fleckenstein, commented today on the utter mindlessness in today's stock market.

Mr. Fleckenstein stated the following: "I was quite struck by the number of e-mails I received yesterday from thoughtful people I know who feel like we're in an environment that no one has ever seen, in which thinking is totally useless. While that does seem to be an accurate assessment, it occurs to me that market action this seemingly mindless can only occur once you're near the end of whatever the process is that's under way."


In particular, he cited the soaring market capitalization of Google, which I'll grant you is a great company (and also my sponsor without charge at this site), but whose income is entirely dependent upon a somewhat fragile and obviously market-sensitive base of paid internet advertising.

Google as a company seems also to be trying to do almost everything at once. The managerial boundaries and cost controls do not appear to be totally clear. Certainly there is risk here, particulalry when one considers that revenues are not profits. In fact, considerable discipline is required to generate profits from revenues, and Google has yet to prove that it can accomplish this mission.

I read only last week that Google has now approached the market capitalization of BHP Billion, the largest integrated mining company on the planet – a massive global company brimming with real, irreplaceable and increasingly valuable material, technological and human assets.


In recognition of the current "mindlessness," I'd like to propose an exercise regarding Google's stock price.

Presently, Google (stock symbol: GOOG), today’s most successful internet services company if you will, is approximately equal in value to BHP Billiton (stock symbol: BHP), our globe’s largest mining company, and one that has been tried and tested through decades of often harsh experience.

According to Forbes Magazine, in March 2007, Google had a price to earnings ratio of about 45:1. By way of contrast, BHP had a price to earnings ratio of about 12:1.

Let me propose - as a thought experiment for the presently unthinking – that in 10 years' time, Google could well have declined in market capitalization by a factor of 10 (at $18 billion, it would still be worth more than most of today’s mining companies).

Contrariwise, BHP's market capitalization could increase by a factor of 10 (possibly becoming the world’s first, or one of the world’s first, trillion dollar companies).

Thus, the relationship between today's two virtually equivalent companies could be one in which BHP is of greater value than GOOG by a factor of 100:1.

The name "Google" is based on "googol," a very large number, conssiting of "1" followed by 100 zeroes. 100:1 is hardly a googol, but it is certainly pointing in that direction....

Just to stimulate thinking during an era of supposed thoughtlessness....

Today’s values:


BHP stock price $79.80 / market capitalization $229.74 B / Annual revenues of $32 billion/year / #205, Fortune Global 500


GOOG stock price $584.39 / market capitalization $182.41 B / Annual revenues approaching $15 billion/year / Not yet on Fortune Global 500

I'll meet you here on October 2, 2017, and we'll have a look at the market capitalizations of what are today two of the most valuable companies on the planet. Let’s see how this thought experiment plays out….

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
_

Code 46 - Another Authentic Science Fiction Film

2 October 2007

I have had further success in finding an authentic science fiction film.


Code 46, starring Tim Robbins and Samantha Morton, is another low-budget effort that for the most part could have been a stage play. The director is Michael Winterbottom.

That’s right. This one is about the acting, and Robbins and Morton excel. But the premise is pure science fiction. What if biotechnology had become very advanced, and humans were widely reproduced through in vitro fertilization and cloning in order to regulate the emergence of troublesome genes?

This particular effort is low budget enough that there was no attempt to construct futuristic settings. Shanghai seemed a sufficiently futuristic city, so the crew operated in that city for two weeks (due to limited funds) – and the interiors were shot largely in London. The buildings, household items, and vehicles are exactly those you would have seen in 2003 when the movie was filmed.

Particularly during the scenes inside the vehicles, with evident contemporary Toyota logos, I was once again reminded of Godard’s use of “intergalactic space” in Alphaville.


The film is set nominally in a future different than our own due primarily to the presence of advanced biotechnology (fingers can also be regrown), ozone-piercing ultraviolet radiation from the sun forcing a nocturnal lifestyle, further multi-ethnic blending in the world’s leading urban centres, and the rigid segregation of the genetically pure from the genetically tainted.

However, given that there was so little effort dedicated to creating a futuristic set, my own preference would be to consider this an alternative reality film. What if Alejandro Zaffaroni had been born 50 years earlier and nothing had been done about chlorofluorocarbons? Let’s just think of this as a self-reproducing fractal universe parallel to our own, courtesy of superstring and inflation theory (now perhaps increasingly in question, due to oscillating universe theory, but that’s another matter).

Now, let’s add a couple of additional elements. How about a virus that is neurologically active, enhancing empathy? Add to this a chance meeting with a woman who might be the clone of your mother – but she is young – near your age. Your genetic similarity is 50%, and perhaps you have never met your mother, due to being raised by host parents.

How might you respond to this person with whom you are deeply biologically but not experientially linked? There is only enhanced empathy to guide you.


How refreshing that this is not a film “about” technology. Nor is it a disguised thriller, action or horror movie.

Code 46 is quite simply the story of how two human beings might respond to a new type of situation that could be made possible only through the implementation of technologies which are presently conceivable, but not yet in application.

Robbins and Morton seem to understand this intuitively, and everything in the film is focused around their very human solution to this dilemma – a solution, of course, which the genetically regulated society cannot permit. I do not think this film could have been better acted. It is first rate.

Watch and enjoy. It’s the real thing!