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Gold – Catching a Falling Knife Can Cut You Badly – New York Hard Asset Show

I recently attended the New York Hard Asset Show, which was quite interesting. There were many speakers and the viewpoints were quite divergent. The main theme was either a) all currencies were valueless because of printing money, of b) the USA is pulling out of the recession slowly and leave things be.

An Analysis of The Price of Gold
A common theme of the conference was that gold had to increase in value because there was so much currency being printed around the world.

Unfortunately, this analysis is looking at the world with blinders on. Some essential points follow.

Currency Has Always Been Printed and Will Always Be Printed
Over and over I hear the theme that we are printing money and this makes money worthless. What nonsense. Once the world started to ignore the gold standard, which was inevitable as modern central banks and financial markets developed, governments worldwide printed money as the population grew, as political demands grew, for purposes of government, for payment of imports (such as oil in the USA), and so on.

The modern world exists on printed money, on the circulation of money, and on the sophistication of current financial markets – regardless of how evil and mercenary some of the people in those markets are. Currency is a modern method of buying and selling, just as copper coins, or arrowheads were in years gone by.

Gold is a Commodity
Just as copper and soy beans are commodities, gold is a commodity. It rises and falls in accordance with demand and supply. When more people want it, or are hoarding it, the price rises. It falls when there is less demand.

Perhaps factors other than normal factors account for some of the demand, as people believe it to be an alternative currency in some regards, but it is still a commodity that rises and falls according to supply and demand.

Thinking that the small amount of gold in the world can somehow replace the enormous amount of paper currency in the world, is nothing other than naivety.

Catch a Falling Knife
In this entire discussion, there is one over riding fact. A fact that can’t be denied. A fact that can’t be ignored. As much as people wish to discuss whether gold is this or that, gold has fluctuated in modern times dramatically. It has fallen in value even more dramatically than it has risen.

In 1980 it rose to over $800 an ounce. People were sure that it would continue rising. It shortly thereafter fell back to where it started. Believers got crushed.

Gold is Falling Today
On several occasions, we warned about the dangers of investing in gold as it reached its peak. We said that investing in gold as it reached dizzying new heights was more dangerous than going to your local casino. At least there, you have to repeatedly place new bets.

Look At The Chart of Goldd
Since gold reached $1,900 in September 2011, it has continually fallen. Each peak in each rise has been lower than the previous peak. Each bottom after each fall, has been lower than the previous bottom. These are classic symptoms of a DOWNTREND.

The Trend is Your Friend
If the trend is down, and it most certainly has been downward for some months now, investors have to respect the trend. A fool’s wager is against the trend.

The US is Showing Strong Signs of Recovery
A Keynote Address was from Mr Dennis Gartman. He stated that there was a parallel to 1933 when the US decided to deal with a recession by cutting spending, reducing debt and removing currency from circulation. The result created The Great Depression.

Mr. Gartman felt that if politicians in the USA followed a policy today of taking similar action, of cutting spending, of reducing debt drastically, and reducing the amount of currency in circulation, the result again would be disastrous.

He feels that simply limiting future increases in spending would allow the economy to grow and in a few years, the deficit would be gone by simply letting the economy grow.

Cymorfund Has Repeated This Obvious Fact a Number of times
I refer you to our commentary on numerous occasions over the past two years, when we repeated that the way to solve the debt crisis was to arrest the continued increases in spending, and run small current account surpluses, or just spend what you take in.

The Canadian Example
Canada had an enormous debt problem in the 1980′s and although successive governments have claimed credit for wrestling this debt down, in fact no political party did anything except limit the future increases in spending.

As years passed, what was an enormous debt in comparison to the GDP of that time, became less and less of an issue as the GDP grew every year. In recent years, Canada has been held up as a model society which conservatively managed its debt, unlike the rest of the world. What utter nonsense.

What Nonsense.
Politicians are politicians everywhere. Canada’s politicians didn’t have the courage to do anything, so Canada did nothing to solve its debt crisis. The natural growth of the economy solved the debt crisis.

So essentially that is specific proof that Mr Gartman is correct in his analysis of how to deal with this debt.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.

Commodities & the Decline of the the TSXV – A Perspective

A Reprint of a View on the Commodities Market

The following is reprinted from Pinnacle Digest. It is a perspective on how to view the current Junior Resources market. The message is that in this era of fear and uncertainty, a longer term perspective helps you understand the opportunities.

Article Reprint from the Pinnacle Digest
The TSX Venture has been the worst performing stock exchange in North America for over a year now.

For many companies on the TSX Venture, this is a time period filled with anxiety; much like it was in late 2008, the TSX Venture has fallen to the hands of panic sellers. Investors are scared and have been thinking illogically for several months now. Companies that were being bought for $1.00 per share with heavy volume, just 12 months ago, are having a hard time finding bids in this market for $0.30. Volume and risk appetite have vanished. Again, this is similar to how it was in December of 2008 in that respect.

It’s funny how quickly the psyche of investors can change. And this latest correction in the TSX Venture (a 1 year collapse in value of roughly 45%), is a testament to how powerful emotions are when it comes to moving markets.

This latest correction is the second worst (from a percentage standpoint) in the TSX Venture ‘s history – yet commodity prices remain at historically high levels and the Dow continues to shake off all negative macro-economic data.

Venture investors are scratching their heads as to why this is happening. The truth is that the  TSX Venture has always been a boom/bust exchange. It’s extremely volatile. The exchange has existed for 11 years and during that time, it has gone through 7 bear markets of its own (market downturns of 20% or more).

Let’s think about the global economic situation for a few seconds. What has really changed in the last 12 months that would cause the Venture to lose 45% of its value?

Last year we were all well aware of Europe’s debt crisis and the potential for it to spill into other countries. We were all well aware that America’s national debt was skyrocketing out of control. We knew inflation was going to hit the world in a meaningful way (good news for commodity plays), but didn’t know exactly when. We knew China’s growth was going to temporarily slow down. Commodity prices were flirting with record high levels. Unemployment in the Western World was historically high. What’s changed?

The answer is nothing. Uncertainty has hung around the market for a couple years now. The only thing that has changed is the date on your calendar. We are living in just as uncertain times as we were in April of 2011. As mentioned, this hasn’t bothered the Dow Jones. It has continued its ascent to flirt with record highs. Meanwhile, the TSX Venture, an exchange that is heavily weighted in commodities, and more specifically, mineral exploration, has collapsed.

If you had been living under a rock for the last 12 months and woke up looking at a one year chart of the TSX Venture, you would make the assumption it has fallen because gold, copper, silver and oil have probably dropped in value at a rapid rate. This is of course, not the case. Sure, gold and silver have come off their record highs in 2011, but they still remain at historically high values. The miners of these two precious metals are making record margins. Fundamentally, that is fantastic news for the TSX Venture and the explorers which trade on the exchange. However, the reality is quite different than fantastic. Share prices of these exploration companies have been decimated over the last 12 months.

This sell-off has been entirely fear driven. Uncertainty and long-term unknowns, in respect to many of the largest economies in the world, have taken the risk appetite out of the markets and left the Venture alone at the bottom of a dark hole.

Fear has taken over the TSX Venture and the last time that happened, the greatest buying opportunity of our lifetime knocked on the door.

The TSX Venture is Trading at the Same Level it Did Nearly 9 Years Ago. In October of 2003, the TSX Venture Exchange traded at the same level it does today. What’s important to note about October 2003 is that gold traded for roughly $380 an ounce – it trades 425% higher today. In October of 2003, silver traded for about $5 an ounce – it trades 600% higher today. In October of 2003, a barrel of oil traded for $30 – it trades 320% higher today.  In October 2003, Comex copper traded for $0.92 – it currently trades 415% higher.

Aside from these commodities trading near record highs (the main commodities the 1275 explorers/miners on the venture are drilling for), it has become increasingly difficult for explorers to make economic discoveries. Many of the world-class deposits are being mined right now because of the record high prices. Simply put, there isn’t nearly as many world-class commodity assets on the globe as there were in 2003. So wouldn’t it make sense that these companies, with proven discoveries, be valued higher in this market environment?

Fortunately for us bottom fishers, ‘risk’ has become a dirty word. This mindset has resulted in fire sale prices on many great investment opportunities within the TSX Venture Exchange .

As everyone already knows, the TSX Venture is predominantly a mining and commodity based exchange. Its value, historically, has risen and fallen with the price of commodities. There are 1,275 mining/exploration companies on the TSX Venture alone – no exchange on the planet even comes close to that amount. It’s the ‘go to’ exchange when looking to invest in the next major discovery.

Looking Back on The TSX Venture’s Many Downturns and the Amazing Opportunities That Have Always Followed

The TSX Venture is no stranger to volatility and sharp corrections. It’s a small-cap exchange comprised mainly of exploration companies – both early-staged and advanced. The exploration companies on the Venture don’t cash-flow, that’s not what they’re about. These companies are about making discoveries and being bought out, or years later going into production and then cash-flowing. When a company doesn’t cash-flow and only drills, it must regularly go to the market for financings. This creates uncertainty and volatility. This creates the fear factor we are seeing in the market right now. During uncertain times, investors are fearful that many companies on the Venture won’t be able to raise capital and could potentially dissolve. This, in most cases, is an irrational fear. Many companies have deep pocketed management teams which can raise capital in any market. Some companies won’t need to raise capital for another 2 years.

Let’s not forget that we recently came off the greatest rally in the TSX Venture’s history (December 2008 – March 2011) and the fundamentally sound explorers were able to raise major cash at much higher levels than today. Many of these prudent juniors are sitting on several million dollars in their treasuries from previous financings.

Let’s also not forget how nimble these junior explorers can be when hard times hit. These companies don’t have hundreds of employees on the payroll. Drillers are typically on contract work and many of these junior explorers have a dozen full-time workers or less. A junior with a burn rate of half a million dollars a month can quite easily cut that down to $50k by stopping drilling during a down market. After all, as you will soon see, a typical bear market for the TSX Venture only lasts 5.8 months anyway.

Because of the Venture’s capital intensive business models (particularly with its 1275 mining/exploration companies), it should come as no surprise that this exchange has experienced 7 bear markets (a correction of 20% or more) in its 11 year history.

History of Major TSX Venture Corrections And What Followed
(Defined a major correction as a 20% decline or more in the overall TSX Venture Index)

The TSX Venture officially formed in 2001. Its starting value was 1,000.

The TSX Venture’s first major correction began on June 4, 2002 after it hit 1,244 (at that date it was a new all-time high). By October 30, 2002, it had bottomed out at 899.30 (losing 27% of its value). This marked a nearly 5 month long correction (downtrend). After bottoming out on October 30, 2002, the TSX Venture went on a 16 month rally and peaked out on February 17, 2004 at 1,931.61. This marked a 114% rally from bottom to top over that 16 month period.

The next significant correction occurred from February 17, 2004 through to July 27, 2004. This was when the exchanged collapsed from 1,931.61 to 1,467.59 – a modest correction in comparison to what we are seeing today. Over that 5.5 month period, the TSX Venture lost 24% of its value.  However, once it bottomed out on July 27, 2004, it proceeded to go on an 8 month rally and touched 2,040.29 on March 7, 2005. This marked a 39% gain for the TSX Venture in that 8 month period.

The next significant correction was short-lived. The TSX Venture Exchange dropped from 2,040.29 on March 7, 2005 and bottomed out on May 17, 2005 at 1,593.63. This marked a 2 month decline of 22%. It was quite a vicious decline considering how quickly it happened. However, once the correction bottomed out, the TSX Venture went on a monster rally. After bottoming on May 17, 2005 at 1,593.63, the TSX Venture went on a 12 month rally to 3,292.49 (hit May 11, 2006). This marked a gain of 106% in a year.

Following that massive rally, the TSX Venture collapsed from 3,292.49 on May 11, 2006, to 2,322.48 on October 4, 2006. This marked a 5 month decline of 29.5%. However, following that correction, the TSX Venture rallied to all-time highs. It hit 3,369.79 on May 7, 2007. This marked a 7 month gain of 45%.

The next significant correction, after the TSX Venture hit an all-time high, was short and vicious. The TSX Venture went from 3,369.79 on May 7, 2007 to 2,445.23 on August 16, 2007. This marked a 3 month decline of 27.5%. However, following that correction, the TSX Venture rallied to 3,173.64 on November 6, 2007. This marked a 3 month gain of 29.5%.

The next significant correction was the worst any of us have ever seen, but it set up a golden rally for those that stayed at the table and kept buying. After hitting 3,173.64 on November 6, 2007, the TSX Venture went on a 13 month decline and bottomed out at 686 on December 9, 2008. This marked a 78.3% decline over a 13 month period. Great companies with world-class assets were deemed worthless by the market. What a mistake that turned out to be for those selling anywhere near the lows. After the TSX Venture bottomed out, it went on a 27 month rally and hit 2,439.83 on March 4, 2011. This marked a 255% gain in just over 2 years – the greatest rally for any of the major markets in North America during that time period.

The next significant correction for the TSX Venture is the one we currently find ourselves in. Although there was a short-lived rally at the start of 2012, the downtrend in the TSX Venture has beensteady since March 4th of last year. Since hitting 2,439.83 on March 4, 2011, the TSX Venture has collapsed down to as low as 1333 on October 4, 2011 (it has been bumping along the bottom ever since). That marks a 45.5% decline from its March 4th 2011 value. That also marks the 2nd largest drop in the history of this exchange. Now, given that we have been bumping along near the bottom of this collapse for 7 months, one can argue that ‘this time is different’. However, every time a market crash occurs, that argument is brought to the forefront.

Those are the statistics behind the 7 crashes the TSX Venture has experienced in its 11 year existence. Crashes and rallies are a part of its genetic make-up. No one will deny that it’s a boom/bust index and if timed well (doesn’t have to be perfect), it can make> investors fantastic returns in very short periods. This is what will keep investors coming back to the TSX Venture – the greed factor.
Let’s look at the TSX Venture’s historical averages:
Average loss (in percentage terms) during a correction (peak-to-trough): -36.25%

Average duration of a bear market in the TSX Venture:   5.78 months

Average gain after a correction (trough-to-peak):   98.08%

Average duration of a bull market in TSX Venture:   11.83 months

It can be argued which stage the Venture is in for its boom/bust cycle right now. However, historical statistics are showing us that at these levels, the Venture is looking like a buy. There is no doubt that volatility is going to be around for a long period of time (for all stock exchanges), but that isn’t necessarily a bad thing.

Aaron
PINNACLE DIGEST. COM
(The article went on in a similar vein, which for the sake of brevity, I abbreviated.)

The Cymorfund is in agreement with this well written analysis of where we are.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.

US Unemployment Numbers Mislead and Distort. Rate fell from 9.9 to 8.1. Good News

A Commentary from a Major Brokerage Firm

On May 5, the following report was issued.

One should never put too much weight on any one month of employment data. These figures are subject to revision, and further revision. However, the recent employment reports have painted a consistent story. This was an unusually mild winter. As a consequence, the December-to-January decline in unadjusted payrolls was lower than usual and the February payroll gain was higher than usual. The seasonal adjustment
turned these into outsized gains in January and February. The March and April payroll gains, in turn, were biased lower.

Now if you understand what all of this means, and you combine it with all of the other data that gets thrown at us daily, you are quite unusual. Add the monthly revision to the previous month’s estimates, and the picture gets a little further murky. But one has to take a higher view and not be immediately swayed by this or that number.

The Important Numbers
US unemployment reached a high of 9.9% during the downturn. It stayed stubbornly at that level and then started dropping (which is good news). It is now at 8.1%.

The change form 9.9% to 8.1% is very significant. One can argue the merits of the importance of these numbers until the cows come home, but the fact is that unemployment numbers, which are comparable to previous methods of accumulating this data, are dropping.

The economy is improving. We have said for a long time, that the US economy will improve, that this is a cycle like all other cycles, and that buying value and good management is a logical and profitable manner of investing.

The Economist
An interesting feature in the Economist Magazine last week enlightens us as to what is important. The essential comment is that manufacturing is changing dramatically. The labour costs of manufacturing an iPod are only a small part of the overall cost. Whether the labour cost rises or falls a bit is becoming less and less relevant.

There are many stories about how Chinese labour costs are rising, and how labour costs in other countries are now lower than in China. There are stories about factories moving to the interior of China, or to Malaysia, or to Viet Nam.

The Real Story
The real story as set out so well this week in the Economist, is that the very nature of manufacturing is changing. Many products are now “printed” in computer software. Enormous and simplified assembly lines, such as what was created by Henry Ford, are now becoming less commonplace.

They are being replace by the ability, because of computer software and computer printing, to produce single items as cheaply per unit as producing enormous quantities on an old-fashioned asembly line.

If you look at the US employment numbers in some detail, a very interesting statistic emerges. Manufacturing jobs ARE INCREASING in the USA. Amazing isn’t it? Some jobs are staring to shift to where the technology and skilled workers exist, and away from low cost labour jurisdictions.

This trend will continue. The USA will gradually outpace the world, and investing in the good old US of A will again become fashionable.

A Record of Accuracy
Te Cymorfund blog has published a large amount of opinion in the last two years since inception. We have been remarkably accurate over that period, and suggest that you might wish to view some previous commentary. One of the consistent themes has been the position of the USA throughout this fiscal disaster.

The US is a good place to invest because of its inherent strengths. It will remain so.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.

Sell in May & Go Away – How the Wisdom of the Ages is Time Sensitive

May 2, 2013 Sell in May and Go Away

A tried and true investing maxim is “sell in May and go away.” Loosely translated, this means that in most years, the stock market has a seasonality to it that is quite reliable in predicting the rise and fall of the market.

Essentially history has taught us that that investors should cash in their investments before mid May and take the summer off. In most years, this hasn’t been a bad strategy. Traditionally the market starts rising in the fall (usually October) then pauses, then rises at the end of the year in the Santa Claus Rally. January through May usually sees a run up and then June through September have been the worst four months of the year for the S&P 500 Index since 1988. For the commodities markets, and the junior commodity stocks, this has been even more exaggerated.

But not in 2012 and not in 2013.

The Unpredictability of the Market
Recently I published a blog that discussed how old adages have to be taken into account as they are often quite accurate, but at the same time there is no such thing as conventional wisdom about the stock market.

In that blog I discussed how the expected Santa Claus Rally never occurred in 2012, even though seasoned investors were sure the rally was coming.

Similarly, many of the tried and true axioms of the past, have to be taken in context of today’s circumstances.

Today’s Circumstances
The economy and the stock market run in cycles. This is a Cycle Just Like All previous Cycles.

There have always been cycles and there will always be cycles.

A Brief History
Like many government well intentioned efforts, the removal of the division of the four pillars of financial, coupled with laws to promote availability of housing loans to those unable to afford them, resulted in a meltdown in 2007 of structured loans and funds. This was followed in October 2008 witha stock market meltdown of historic proportions. A slight stock market recovery in 2009 resulted in a further meltdown of the stock market in March 2009.

Money became impossible to loan and large and small businesses globally became threatened by bankruptcy in 2009 and 2010. The government stepped in with a series of quantitative easing, resulting in public debt reaching highs unmatched since war years.

You Can’t Slove a Debt Crisis With More Debt
While debating the wisdom of governments supplying all of this printed money, its effect was more massive public debt piled on top of already government existing debt of unusually high proportions.

As prosperity grew in the 2000′s, people failed to see reality and more and more borrowing for ‘The Good Life” became the norm. Don’t worry about owing money became the mantra. If we want anything or feel like having anything, just borrow the money. Paying back debt became a non-issue for governments and individuals alike, the reason being that more debt to pay off old debt was easily available.

The Result
So when governmental Quantitative Easing was piled on top, the debt became unmanageable. US government, although both parites were equally responsible, became entwined in a political statement over debt. China saw threats to its export machine and instituted Quantitative Easing. Europe was already in so much debt, that Quantitative Easing did not appear until a year later.

Where We Are Now
All of these massive distortions to the world economy have caused havoc with the timing of the old adages. For every government action, there is a reaction. These reactions, most of which are not foreseeable or predictable, have caused distortions to the stock markets of an unprecedented scope. So when we expect to Sell in May and Go Away, it isn’t true this year.

What should have been the strong season for stocks – March & April – were periods of weakness. Stocks generally fell.

What Will May Bring to the Stock Market
It is beginning to look as if May might be a very strong month with rebounding of values. Obviously it is too early to judge at this point, yet strong signs are in evidence. It could be that all of the disruption in normal economic cycles have brought a pent up demand that is straining against normal hesitations.

Buying Value
The question is how do we deal with this? We have patience and we buy value. A strong company with underlying value and good management is going to be there this year and next. It is important to realize that the stock market, with all of its fraud, malfeasance and trickery, is still where people invest their money and is still the marketplace for companies to raise capital, to merge, to acquire, and to deal.

All that has changed is that government has artificially affected the market, as it always tries to do with good intentions and with bad results.

Investors should have patience and realize that as the economic circumstances of the world’s population improves, so does their appetite for goods and services. Normality will return.

In the meantime, don’t be totally reliant on old maxims of thought and wisdom.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.

China & the World Economy – The End Of “Cheap” China

Firstly let me apologize to my readers for the slight absence in publishing.

China and the World Economy
Have you noticed that figures coming out of China show a trend that varies with conventional wisdom. Inflation in China is a force that the Chinese government mentions and tries to combat. You don’t hear about that problem elsewhere. Europe and the USA are battling economic weakness and interest rates remain very depressed.

Yet China is battling inflation.

Have you noticed that many other countries from South America to Asia are now producing products at competitive prices, while China is fighting to stay competitive? Have you noticed that the enormous imbalance between Chinese imports and Chinese exports is moderating? Have you noticed that even in the USA, manufacturing is surging?

Economic Cycles
As with all economic miracles and economic cycles, each cycle comes to an end. We refer you to our blog of March 2011 wherein we spoke about economic cycles and what to expect. In every cycle what seems to be inevitable or widely accepted as fact, turns out to be just a feature of that particular cycle.

One must keep in perspective that the obvious is not necessary the long term truth and is not necessarily long term reality.

Japan of the 1980′s
A very vivid illustration is Japan  in the 1980′s. The economic miracle of Japan, when Japanese were traveling the world and buying up assets in North America, Europe and elsewhere. We published an interesting analogy in 2010, where we pointed out that the unstoppable economic colossus that was Japan was feared everywhere, and it was thought that Japan was taking over the economic world.

It turned out to be far from the truth.

China will turn out the same. The economic powerhouse that is the USA will remain the strongest and China will join the group of modern economically strong countries.

The following is an interesting article that we re-publish as an illustration.

The End Of Cheap China, March 9, 2012By Sydra Farooqui
TRAVEL by ferry from Hong Kong to Shenzhen, in one of the regions that makes China the workshop of the world, and an enormous billboard greets you: “Time is Money, Efficiency is Life”.

China is the world’s largest manufacturing power. Its output of televisions, smartphones, steel pipes and other things you can drop on your foot surpassed America’s in 2010. China now accounts for a fifth of global manufacturing. Its factories have made so much, so cheaply that they have curbed inflation in many of its trading partners. But the era of cheap China may be drawing to a close.

Costs are soaring, starting in the coastal provinces where factories have historically clustered. Increases in land prices, environmental and safety regulations and taxes all play a part. The biggest factor, though, is labour.

On March 5th Standard Chartered, an investment bank, released a survey of over 200 Hong Kong-based manufacturers operating in the Pearl River Delta. It found that wages have already risen by 10% this year. Foxconn, a Taiwanese contract manufacturer that makes Apple’s iPads (and much more besides) in Shenzhen, put up salaries by 16-25% last month.

“It’s not cheap like it used to be,” laments Dale Weathington of Kolcraft, an American firm that uses contract manufacturers to make prams in southern China. Labour costs have surged by 20% a year for the past four years, he grumbles. China’s coastal provinces are losing their power to suck workers out of the hinterland. These migrant workers often go home during the Chinese New Year break. In previous years 95% of Mr Weathington’s staff returned. This year only 85% did.

The article goes on to describe similar effects on a number of other Chinese manufacturers. On the other hand, the loss of cheap labour in China is resulting in more mechanisation, more efficiencies, and more robotics amoung other improvements.

China will not disappear. It has become one of the world’s economic powerhouses, and there it will stay.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.

Caterpillar Cat Construction Equipment Sales in China Fade & The Price of Gold

Caterpillar Earnings Report April 12, 2012
Wall Street Journal Business Report 3:12 PM March sales of construction excavators in China look ugly, plunging 47% Y//Y to 23.3K units, with Caterpillar (CAT) sales off 51%. The numbers may not bode well for CAT Q1 earnings (report date 4/25), or the DJIA, over which the stock has a large influence.

Cymorfund
On March 1, 2012, we noted that Investment Analysts had made Infrastructure Equipment Manufacturers, such as Caterpillar, top picks.

Large Equipment Manufacturers – Another Example of Relying on Outdated Theories
We cautioned investors that buying a stock because the company or the stock, did well last year, or the year before, was not a wise way to invest. Looking at the current headlines makes our predictions look quite accurate.

Infrastructure Spending and The Business Cycle
We suggested that business cycles come and go, and there are reasons companies do well at certain periods in each business cycle.  We suggested that infrastructure spending by governments climbs dramatically in lean years, but as the business cycle turns, these stocks lose their “darling” status.

The Top Picks of last year, are not necessarily this year’s top picks.

Capitalism You Can’t Solve a Debt Crisis With More Debt

  Cymorfund
On February 4, 2012, we discussed how the world was getting deeper and deeper into debt, and how Capitalism was being defeated by government interference.

The published results of Caterpillar are a prime example. Here we have one of the largest companies in the US Stock Market (DJIA) , and its results are dramatically affected by government interference in the the Free Market. When the Chinese government was pumping money into their economy, Caterpillar recorded stellar results. As a result, because most Investment Advisors look at the numbers and not the reason for the numbers, Caterpillar became widely recommended as a top pick.

Caterpillar is a great company, but it was an out performer because of government interference in the market. The US Quantitative Easing boosted Caterpillar sales also. When the economy falls, governments invest in infrastructure and large equipment is required to build infrastructure – hence Caterpillar does well.

Economic Cycles
As we have said so many times, the last cycle has bottomed out and the next cycle is beginning. Economic cycles have been with us since the start of the Industrial Revolution, and investors need understand them.

Gold and Prediction of the Price of Gold
A few months ago, the price of gold hit $1,900 per ounce. That is by far, the highest price that gold has ever been.

Pundits everywhere were predicting $2,200 gold by the end of 2011. Price estimates ranged from $2,100 to $5,000 per ounce of gold. Taxi drivers were buying gold and pontificating on the future price of gold.

We cautioned them, and we caution now, that the price of gold is subject to many factors. We suggested that a number of factors had to be considered, including the oddity that when taxi drivers become experts in anything, the end of that price rise is near.  We suggested that buying gold at $1,900 was a large gamble.

Gold fell in stages to the current price of $1,600 and is now somewhat range bound.

Where Will the Price of Gold Go
There remain many gold buffs around the world. People still watch the massive debts being accumulated worldwide. People see the Europeans now printing money, and the Chinese instituting Quantitative Easing.

People fear that money everywhere will lose its value, and only gold can be trusted.

But there is a difference today. A very large difference from prior cycles. The world truly has changed. Communications for the first time in recorded history have become instantaneous. Money flows around the world instantaneously. News flows around the world instantaneously.

If we have inflation, it will flow around the world much quicker and  much more severely than every before.

If you look at history, gold did not do well in periods of inflation, and did not keep its value. In fact it lost value. If you look at the price of gold in 1980 when gold hit $800 per ounce and subsequent, you will see that gold down-treaded for most years until it started it recent relentless increase in value.

We caution again, that even though gold has fallen from $1,900 to $1,600, it remains a large gamble, and it can as easily lose value as gain value.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.

Are Genetically Modified Foods Safe? Latest Research Says “BEWARE”

Cymorfund generally publishes Blogs on Investments, Economics, Trends, Commodities and the like. Forgive this digression, but there is so much information coming out recently about genetically modified foods, that today we digress.

Genetically Altered Foods – The Dramatic Rise in Autism and in Allergies
If one searches the web, there is a growing body of opinion describing genetically altered foods, the poor supervision of them, the lack of research on them, and the trend in North America which differs dramatically from the trend in Europe.

A Striking Coincidence of the Dramatic Rise in Autism and Allergies
There has been a dramatic rise in Autism and in Allergies in North America which remains a mystery. Strikingly, the time frames of the growth in these medical issues is similar to the time frame of the growth in genetically altered foods.

Robyn O’Brien
We recently came across a woman who is trying to educate North America on what is happening around us, and she claims that her motive is the astonishing effects of these developments on her children, in terms of allergies and health.

Attached is a link to one of her presentations. I urge you to watch it. It is very powerful and very convincing.

Robyn O’Brien – A Powerful Expose of Genetically Altered Foods and Alergies

But she is not alone in these opinions.

There are many more people trying to alert us to these dangers. The following article is a reprint from NewsmaxHealth – Total Wellenss For a Better Life. There are many similar items published by others.

Are Genetically Modified Foods Safe? Friday, January 15, 2010 7:49 AM
By Sylvia Booth Hubbard

Genetically modified foods have come to your local supermarket, even though most Americans don’t want them and many believe they’re dangerous.  A CBS poll found that 53 percent of Americans wouldn’t buy food they knew had been genetically modified. But here’s the rub—there’s no easy way to know which foods contain genetically modified ingredients.

Genetically modified foods are made by inserting genes from another species into a food’s DNA. About 60 to 70 percent of products on grocery store shelves contain at least one genetically engineered element. These foods include corn, strawberries, tomatoes, lettuce, potatoes, soybean, and canola.

The public is generally unaware when they purchase genetically modified foods (called GM or GMO, short for genetically modified organism) since manufacturers and producers aren’t required to disclose the information on labels. The European Union, Japan, China, Korea, Australia, and New Zealand require GMO foods to be labeled. And despite a CBS News poll that showed a majority of Americans want labeling, no such laws exist.

Many experts as well as concerned customers want to know if GMO foods are safe. A few troubling reports have been released. A study published in the International Journal of Biological Sciences revealed the parameters of 60 different biochemicals in rats. Rats fed genetically modified corn were compared to their parents who had been fed non-GM corn. The results clearly showed a difference between the two groups. Rats fed GM food had signs of liver and kidney problems. Effects were also found on the heart, adrenal glands, and spleen.

According to PhysOrg.com, a Russian study found that 55.6 percent of the newborns of female rats fed genetically engineered soy flour before, during, and after pregnancy, died within three weeks. Only 9 percent of the offspring of rats fed non-GM soy died.

In addition, 36 percent of the rats in the GM-fed group were underweight, compared with only 6.7 percent of the control group. In another study, groups of rats were fed GM tomatoes for 28 days. Seven of 20 developed bleeding stomachs, and seven out of a group of 40 rats died within two weeks.

Opponents Fear GM foods could:
• Trigger the emergence of new diseases due to the use of viruses and bacteria to modify some GM foods. These new diseases could be resistant to antibiotics.

• Raise the risk of developing cancer

• Trigger food allergies as a result of a food that causes allergies in some people being placed in another organism

• Harm the ecosystem by removing a pest that could be an important source of food for another animal

• Be toxic to an organism and lead to its extinction

Proponents of GM foods say benefits include:
• Higher crop yields to feed a hungry world

• Higher profits because GM foods need fewer herbicides and insecticides

• Longer shelf life

• The ability to withstand wider fluctuations in climate

• Overall higher levels of nutrients as well as the ability to be created with higher contents of specific nutrients

Another Option
If you’d rather not eat genetically modified foods, you can take the following steps to avoid them:
• Look for foods labeled “100 percent organic.”

• Read fruit and vegetable numbers on the produce sticker. Five-digit numbers beginning with an eight mean it is a GM food. Five-digit numbers beginning with a nine indicate organic foods. Conventionally produced foods have numbers containing four digits.

• Hunt for products that are labeled GM-free.

• Buy from small, local farmers. Most GM foods come from large commercial farms.

• Avoid processed foods.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds

Ron Paul on Lobbyists & The Faults With Capitalism

The Faults with Capitalism
In my blog of March 13, 2011, as part of a series of 10 recommendations to improve our economic system, I spoke to the impropriety of public servants leaving public service and immediately becoming highly paid “consultants” or “lobbyists”.

The Effects of Government Intervention and a Review Cymorfund’s Track Record for 2010 and 2011 are found at the following link.

Capitalism and Government Intervention

This has Now Become a Political Campaign Issue in the US Republican Nominations
Ron Paul, who has little chance of winning the Republican nomination, has spoken out strongly about this impropriety. His actions follow.

Rand Paul Introduces Amendment To Force Former Elected Officials To Forfeit ALL Benefits If They Become Lobbyists
From: The Daily Bail – 12:03pm – February 4, 2012 (Video) Sen. Rand Paul on the Senate Floor – Jan. 31, 2012 This law is approximately 40 years overdue, and it took a neophyte Senator to be the first to propose such legislation in the history of the U.S. Senate. $20 bucks and box of Cracker Jack says it has exactly zero chance at passing our captured Congress. — Another short clip of Paul discussing Ammendment 1490 to the STOCK Act.

What Makes Common Sense in the USA
It is a soft barrier in the USA between what they refer to as the Freedom of Individuals and the Rights of Individuals. Without turning this commentary into a philosophical discussion, let me just limit this comment to some obvious conclusions.

The successful person in the USA believes that he/she should be entitled to pursue any course that they wish, so long as those actions are not criminal. Therefore when a person has acquired some knowledge, insight or connections through public service, that person feels fully entitled to take economic advantage.

On the other hand, this gives an unfair advantage over those without that knowledge, insight or connections. Obviously this causes inequities. It can be detrimental to the country as persons with private agendas can influence elected officials in directions that are bad for the country as a whole. It also causes the unfair enrichment of those who should be giving their time and efforts for the benefit of the country …. and so on.

The Barney Franks of the world and others who claim knowledge of complicated matters, while having never understood what is going on around them

The following repeats some of my commentary from that earlier blog of 2011.

The duties of persons leaving the private or the public sector for the other sector
There seems to be little understanding of the difference between earning money as an individual, and the selflessness of serving in the public realm. The definition of when a person can shift from one sector to the other, and the obligations of a person to the sector he/she is leaving have escaped us. The result is bad policy that protects the status quo.

How Can Government Attract the Best and the Brightest
This is a difficult subject. On the one hand, the private sector produces the best and the brightest and government always needs people of this caliber to help govern the country, to create appropriate laws and regulations.

These people understand the sectors from whence they come. They have insight into what is wrong and what is right. They know what to implement to bring greater prosperity to the country and to the world.

Yet there is something wrong with the morality of how this is done.

Outrageous Executive Bonuses Rewarding Inappropriateness
Abuses occur, and some of those abuses are astounding in their magnitude. A recent example is the bailout of the financial institutions with the public’s money and then the chutzpah of the financial executives to give themselves enormous bonuses. You and I know that the bonuses were in reality, a bonus for screwing the government.

The people in government who authorized these enormous payouts, were former, and future executives of those companies receiving the payouts. Yes – shake your head. It is quite remarkable in its obscenity.

Commentary on the Ineptitude of Government

I would like to say to people – have a look at your own standards of morality. You should scorn people that move freely between the sectors only to protect their own interests and enrich themselves. They should be reviled like O J Simpson, like Bernie Madoff.

A Moratorium on Service
At a minimum, there should be a moratorium of time following government service, when a person who has moved to a government position, cannot return to the private sector.

A Pension Reward
Perhaps government should provide a full 5 year pension at an attractive rate, with the provision that the person in order to get this pension, cannot rejoin the private sector in any capacity for those 5 years.

Making Money Without Shame
In some cultures, executives fear public exposure and the shame of exposure. In America, there is little shame of success, regardless of how achieved. We eagerly buy books written by convicted felons. We seek out the companionship of famous people even if that fame came from notoriety – think of O J Simpson, or Michael Jackson.

Perhaps our society is too diverse to have a historical culture that causes us to avoid people that have been shamed.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds

Seasonality and the Stumbling Stock Market

The Stock Market is Stumbling Today
There has been somewhat of a meltdown in the markets this week. Both yesterday and today, saw major losses in the TSXV and in commodities. A wave of gloom and doom is spreading across the industry.

The Seasonality of the Market
Most securities professionals understand that historical trends have a tendency of repeating. There is even an ETF named Horizons Seasonal Rotation (HAC) that bases its performance upon seasonal trends in the market. This ETD was launched in late 2009 and has shown a remarkable consistency in increasing value until the fall of 2011. It accomplished this enviable track record by understanding and trading based solely on historical seasonal trends.

The Unpredictability of the Market
These seasonal trends are fooling us right now. The ETF HAC shows a radical departure from previous seasonal expectations.  At the end of 2011, this ETF lost ground at a time that almost anyone would have said that the markets should rise.

The Santa Claus Rally
There is something called the “Santa Claus Rally”, which is a way of saying that the market usually improves in the late stages of the year. Some say this is a concentrated efforts by funds and money managers to show good results and get their bonuses based on performance, so they trade stocks higher as the year end approaches. Thise less cynical attribute this normal year end rally to market forces. Whomever is correct, it is rare that the markets fall as the year end approaches.

The TSXV fell in late 2011

The PDAC
In March each year, there is a major mining show called the PDAC.  Historically, the commodities market has shown increasing strength coming up to the show and that strength normally continues until late May, when the surge abates and the markets weaken. Hence the phrase “Sell in May and Go Away”.

Once again the markets weaken at a very unusual time. The weakening started just before the PDAC, which rarely happens and continues until today. if anything, this weakening is exacerbating.

Once again the Seasonal Rotation ETF shows a fall in a period when it should be stronger.

What is Happening
There are many pundits that say we are on the verge of a major bull market. Historically the markets weaken and frighten away investors who finally just “give up”. It is at this low that the next great boom usually occurs, and the professionals make hay from anticipating the recovery while the retail investor sits on the sidelines.

What is very different this year, is that seasonality is a bit ‘wonky’. The predictive value of seasonality is fooling us.

The Economy is Improving and the Next Cycle is Starting
As we have repeated previously, almost all indicators coming out of the USA are stronger, in spite of day to day fluctuations. Jobs are increasing. Productivity is increasing. Energy imports are decreasing. Housing seems to have stabilized. The politics are starting to irritate the voters who want action rather than political bickering, and so on.

Don’t abandon ship. Stay strong and be rewarded with increases in the stock market. The world is recovering, as it always does. The next big cycle is starting as it always does,

We finish with a quote from Richard Bernstein, who essentially repeats our opinion.

February 3rd, 2012 Richard Bernstein Advisors
The market generally proves the consensus wrong, and 2011 certainly adhered to that historical precedent because the consensus “must owns” at the beginning of 2011 generally underperformed during the year. What is somewhat startling to us, however, is that conviction has yet to be shaken. ……..

We continue to favor US assets as the core of our strategies.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment fund.

What The Average Investor Should Look For – Patterns and Trends & The Height of Folly

The Market Moves in Swings and Cycles That No-one has yet Figured Out
When someone figures out what the future price of the stock market will be, it will a momentous day. Until them, I urge the investor to use the tried and true methods, which I describe hereafter.

First, on a regular and repeating basis, every sector, has waves of prices moving higher and afterwards waves of prices moving lower. After a dramatic rise in value, a fall back in value normally occurs. If a trend is strongly in one direction, after the fall back, movement in the original direction usually starts again and continues. However the fall back can be quite punishing and destructive with investors left reeling.

Gold at $1,900
I cautioned investors at that time that buying gold at the $1,900 level was an enormous gamble, and I urged patience and caution. That time I was right on the money. My call was dramatically correct. I only wish I were always correct. No-one ever is always correct in the market.

Secondly, Pick Stocks That Have Real Value
Most advisers look at trends in sectors and advise investors based upon the general trend of that sector. If the trend of junior gold miners is up, then a rising tide carries all boats up. This is generally true, yet a falling tide falls far faster than a rising tide rises, so when the inevitable pullback comes, stocks with real value remain afloat. I have previously mentioned some of those stocks.

Lastly, Patience and Following the Charts
If a stock has excellent underlying value, and if it falls in value, one must reexamine the underlying factors to see if those values actually were as good as originally estimated. If they are, hang in, and have patience. Riding a tide does take time, but value is value.

Watch the pattern of the stock on the chart. If there is a trend or a pattern, pay attention. Pay close attention. Even if you are correct in your beliefs, if the market is moving against you, pay attention.

Technical Indicators
Many years ago, I used to seek advice from so-called “people in the know“. At those times, in the early days, I would think that Investment Advisors knew what was good and what was bad. What I didn’t know, is they are in their own world and advise based on factors that are often completely extraneous to what my intentions are.

I also thought that what happened to a stock previously was not terribly important and only the future counted.

As I became more knowledgeable, I started listening to the technical analysts, and I started looking at the charts. Now I know, that if you buy or sell something without a close look at the charts, it is the height of Folly.

It is Essential to Look at the Charts
The best advice that anyone can follow, is before you buy or sell, always look at the charts. Just about every online broker publishes charts. There are dozens of free sites on the web that publish charts, such as “Big Charts”, or “Kitco”, or many others. These charts are usually 15 minutes behind real time, but to the average investor, that is irrelevant.

You simply cannot buy a stock when its trend is in the wrong direction. If you think a stock is a good value, and it is moving DOWN in the charts, buying that stock until it bottoms is pure foolishness.

Have you ever heard the phrase “Catch a Falling Knife and it Will Cut You“? If a stock is falling, there is a reason. Think about those reasons.

Perhaps others know more than you do about a situation.
Perhaps that sector is falling out of favor for some reason.
Perhaps someone is shorting the stock and trying to force it lower.
Perhaps your take on the matter is a misunderstanding.
Perhaps a lot of other things.

But if the Trend is Against You, Never Fight the Trend.

Bottom Line – Before you buy something, always take a moment and look at the chart. Obviously the converse is true if you are shorting or selling a stock.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment fund.

Silver Thurs – March 27/80 Infamous “Silverfinger”: Nelson Bunker Hunt, Gets Smacked FInancially

March 27, 1980 _ Silver Markets Tumble
The anniversary – 32 years ago – of when infamous Bunky Hunt, the Oil Baron of Texas, came to the end of his efforts to corner the silver market.

The price of silver fell 10% in a single day, which was cause for World Wide Headlines in 1980.

Today of course, we have experienced many single day enormous disruptions to the stock market, but this was an event of significant importance in 1980

Nelson Bunker Hunt, attempted to corner the silver market, and succeeded, if only briefly
There is really nothing ever new in the silver market. Today evokes memories of Silver Thursday, March 27, 1980, when there was panic in the markets over the price of silver as traders everywhere tried all at the same time to liquidate their positions in silver.

Current Dramatic Moves in the Precious Metals Markets
Last year the dramatic fall in precious metals was not due to a similar failed attempt to corner the silver and gold markets as happened 32 years prior. Last year, and in so many other instances, “Programmed Trading” and widespread “Stop Losses” caused a more precipitous fall, and the falls have been more severe than Infamous Silver Thursday.

A far more important question this year, is how was it that tried a redux of the Hunt brothers (and Warren Buffett of course), and when will someone take their place next? Seems to be always someone who has so much money that they forget their brains in ever more outrageous attempts to increase already fabulous wealth.

The market is a dynamic place, and these attempts, even in today’s era of fabulous money flows, usually fall as a result of their own weight.

Silver Thursday March 27, 1908
Silver had slow but continually increases in price over some decades until January 1979 when silver reached the high price of $6/oz. At that time, according to most observers, Bunky Hunt started accumulating silver in a serious fashion. The price of silver started to move up in ever more dramatic fashion, and Bunky kept accumulating, even as the price kept rising.

Traders started to notice, and more and more speculators started jumping on the bandwagon. Does this sound like the events leading up the Mortgage Based Asset meltdown of 2007 through 2009? It does to me. As always, there is nothing new, just history repeating itself in a slightly different fashion.

The price of silver peaked at $52, just before the crash. Mr. Hunt owned – depending on who you are listening to – between 50 million ounces and 150 million ounces of silver at the time of the crash. On Silver Thursday March 27, 1980 silver dropped $10/oz in a single day and the Hunts lost over $2 billion that day.

Historical Price of Silver
In the years 1975 thru 1979 silver averaged about $4.50 an ounce, then moved to a high if $52 in 1980, and then settled gradually back to the $10 range falling by 1986 to the $5.30 average, and then losing value until 1999 when it averaged in the mid $3.50 range.

Silver remained in the $3 to $8 range until 2005, when it rose suddenly to the $13 range, after which it varied dramatically with increasing volatility rising to the $50 level in 2011, and then then falling to the $30 range, where it now resides.

Gold’s Spike Compared to Silver’s Spike
It is interesting to compare the price of silver to the price of gold. Gold also spiked in 1980 reaching above $800 per ounce. That price however pales besides the $1,900 an ounce that gold recently reached before moderating somewhat to the $1,600 range in which it today resides.

Silver reached $52 in its frenzy in 1980, and only in 2011 did it reach that price again, before falling to today’s range of $30+

A Warning to Watchers
Does January’s breach of the $30 mark signify investors’ renewed confidence in silver, heralding the start of a potentially strong bull run? Or, will Eurozone troubles undermine industrial fabrication sufficiently to see prices soon weaken once more?

In my opinion, the price of gold is influenced far more by financial instability and varies accordingly, whereas the price of silver is based upon supply and demand. Demand is outstripping supply, so the price of silver will maintain or increase. We remain convinced that junior silver miners are the place to be.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment fund.

A Toxic View on Greg Smith’s Departure from Goldman Sachs

The Hunt for Muppets
While most Americans associate the Muppets with Jim Hensen’s furry creatures, it turns out that “muppets” is slang for “stupid people” in Britain, where GregSmith worked in the bank’s London office.

Most people on the street are focusing on Goldman’s Response, and on whether #Goldman Sachs is really still trying to #screw their clients for their own enrichment.

Investors now are fearful of admitting that they deal with the firm, for fear of being ridiculed as Stupid by everyone around them.

Selling Toxic Investment Garbage to Clients
Goldman Sachs (according to author Michael #Lewis) made their money by deceiving their clients and selling them toxic investment garbage while Goldman was secretly ‘shorting’ that very same investment garbage that they were selling to clients as an excellent investment.

Perhaps the ultimate in two faced #hypocrisy, but apparently normal to Goldman Sachs.

However, that is the nature of the business and most everyone in that business is as cold and uncaring about clients’ money as everyone else in the business.

It’s just “f…… paper” is a favorite phrase.

Let’s Stop and Think about This
Do you really believe that someone that worked in that environment is an innocent nice guy?

This “nice” guy worked there for 12 years and essentially received his entire business education there, and made a lot of money there.

Now we are expected to believe that Greg Smith has FOUND RELIGION. After 12 years of dealing in the Goldman Sachs atmosphere, Mr. Smith has found a conscience, where no conscience existed before.

He didn’t find his conscience when he was selling toxic garbage investments to clients. He didn’t find that conscience any time in the past 12 years.

But He Found His Conscience Now, and He Expressed His Feelings as He was Leaving Goldman Sachs – AFTER 12 YEARS of making money at Goldman Sachs!

Perhaps He Found His Conscience for a Different Reason – Perhaps a Greedy Reason
Let’s think about what just happened. Is it possible that Mr. Smith was trying to break his own clients’ loyalty with Goldman Sachs by painting the firm in such a terrible light? I don’t doubt that Goldman does exactly what Mr. Smith says it does.

But is the real motive for such a #scandalous resignation document the callous attempt by Mr. Smith to join another firm – perhaps for a massive signing bonus – if Mr. Smith is able to bring a large book of business with him?

If somehow Mr. Smith’s clients could be convinced of how much Mr. Smith cares for them, and how uncaring Goldman Sachs is, then wouldn’t those clients consider leaving Goldman to join with Mr. Smith at his new firm?

That perhaps makes some sense, and it certainly fits in with the profile of someone who could climb to middle management in a firm that was greedy, callous and uncaring. Screw everyone would be a great motto, if we believed what is being said.

It most assuredly fits the facts here. It fits the facts a lot more that Mr. Smith finding a conscience after 12 years of learning how to screw clients courtesy Goldman Sachs.

Financial Suicide
Perhaps there is another reason for all of this. Perhaps Greg Smith did find the atmosphere so toxic at Goldman Sachs that he couldn’t take it any more. Perhaps he was feeling more and more uncomfortable as the days passed, especially after the financial meltdown of 2007-8-9, when it become well know that his firm was acting in such a #despicable manner.

If Mr. Smith actually found his conscience and intends to leave the industry, I compliment him. He would have had an unusual large amount of courage to write such a piece as his parting farewell.

If he actually is looking for a career in a different industry, I wish him well. After all, he has just made himself an undesirable in this industry.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment fund.

Why I Am Leaving Goldman Sachs
By GREG SMITH
Published: March 14, 2012
Today is my last day at Goldman Sachs. After almost 12 years at the firm — first as a summer intern while at Stanford, then in New York for 10 years, and now in London — I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.

Source: The New York Times

A Hindsight View of Opinions Expressed in this Blog

Weakness in China
Someone sent a note to me about China, in which they pointed out current weakness in China, fear of housing deflation, and some other weaknesses. They then complimented me on publishing Blogs long ago on the coming troubles in China, on the massive undisclosed debts of state-owned enterprises, and the inefficiencies in China.

Thank you for recognizing my comments.

Who is Correct?
I wish that I were always correct, but no-one is. The best we can do is think about the broader issues and make our observations based upon thinking about the issues, and examining such data as is available.

Over the past two years, I have made a number of suggestions to readers, and thankfully on a number of occasions the commentary has been quite on the mark.

Gold
When the gold bugs were touting that gold would rise from $1,900 to $2,500 or higher, I urged caution. I did the same with gold at $1,800, and at $1,700. This was particularly difficult as the Cymor Strategic Growth Funds have many junior gold stocks in their portfolios.

I advised readers of the risks and outlined the criteria that we use to make our picks.

It turns out that my cautions were very accurate. Those that paid attention avoided the drop in values.

As to the future pricing, that issue was discussed separately and the future remains to be told.

The US Economy
Many times, I have pointed out how the USA has inherent strengths that will allow the USA to lead the world out of the malaise brought on in 2008 and 2009. This is in spite of the fact that the shudder the financial world felt was created in the USA.

Those that followed the new financial instruments often were bitten hard and painfully by those in the USA that created these monsters that tried to tear down our world.

But if you look at the statistics today, the USA is recovering faster and stronger than anywhere else in the world. Those that felt the US dollar would collapse were wrong.

Those that followed their Investment Advisors’ advices that diversification into foreign markets and foreign ETFs was absolutely necessary, lost money. That diversification, which I recommended against, turned out to be a faulty decision.

Comparing Capitalism to Government Intervention
On this topic, the jury is still out. I have written a number of times on simple steps that should be taken to protect society, and instead Governments have chosen to bring in complicated and self defeating myriads of new rules and regulations. This was and is a wrong way to correct the situation.

However, the issue of which economic system is best is now clearer and I think you would agree that Capitalism – with all of its faults – is the most robust system.

Iron Ore
I advised readers that iron ore was a place to invest, as China and others would increase their demand and the rich ore deposits in Canada and elsewhere would come into greater demand.

If you look at the import numbers of iron ore coming out of China, this prophecy has been proven correct. Demand is strong and rising.

Investing in Large Caps
I recommended against investing in large caps, and with the exception of Apple, I was essentially correct. Large caps have not fared well in the past year.

Investing in ETFs as Compared to Mutual Funds
I cautioned that ETFs were by far the better choice. You need only look at your portfolio to determine the validity of this comment.

Expect the Unexpected
This is so basic that I need not repeat the comments here. Essentially the market reacts ALWAYS in Unexpected ways and to Unexpected events.

What amuses me is the classification of something called a “Black Swan” event. People repeatedly are predicting Black Swan events as if they are predictable. The news is always interviewing someone who thinks they know what the next Black Swan will be.

What is ironic is that by definition, a Black Swan event is something that is unanticipated and unexpected. If we all had sufficient foresight to predict a specific Black Swan event, the world would be a far different place.

A Hindsight Look at Our Blogs
We have been right a number of times. We will try to continue being right more than wrong.

Thank you for reading.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds

The European Debt Crisis – An Understanding of Common Currencies & Common Control

The European Debt Crisis
We have an interesting scenario unfolding in Europe. In order to understand the situation there, one must understand political speak. Political speak is bowing to the demands of vocal parts of the voting population, while at the same time pursuing economic goals and controls that are consistent with the needs of a society.

What politicians say, is usually different than what they intend. So it is in Europe currently. There are great shows of solidarity, and movements for the benefit of all countries in Europe. Yet behind the scenes there is a real power struggle on the part of the richer nations to make the lesser nations govern themselves in accordance with the common aims, and to move towards a common control of the economies of Europe. Whether this is possible still remains an open question.

Consider Other Examples of Common Currency and Common Control
One of the best examples in recent times to use as an example is the reunification of East and West Germany. When Ronald Reagan said in his speech “…Tear Down This Wall”, it was the start of an economic revolution in Europe. In due course the wall separating the two Germanys came down, and the depressed East was rejoined to the prosperous West. The Airlift was ended. The military standoff was ended.

But the reunification was done by having one government over the entire area. What that meant was that economic policies were universal. The territories formerly comprising the East remain economically depressed, but over time more and more equalization is happening.

Today, in spite of this tremendous burden of half of the country being backward and out of touch with the world just a few years ago, Germany has become the economic powerhouse of Europe and the rest of the Common Market is pulled forward on the strength of Germany. No longer does anyone even mention East Germany or West Germany. Now it is Germany.

Greece
Greece, Italy, Portugal, France and all of the other countries were reluctant to surrender sovereignty and political power, but they wanted economic advancement. Hence THE GREAT COMPROMISE. We will all agree to a common currency, and to ending of border tariffs and restrictions, and we will all agree to a standard set of ideals that we should all adhere to.

But no one surrendered their power to spend money, or to keep their internal politics internal. Now we see the effect. Each country, while extolling the ideals, spends whatever it wants to spend. Politicians get elected by spending money they don’t have, and the general prosperity of the region masked everything.

The Effect
Tremendously different standards of living in different regions, and enormous economic strains on each country.

The Solution
The hope by European leaders that economic circumstances will force some sort of unanimity of the members of the EU, may yet still be realized. These matters have to play themselves out.

But rest assured. Even if the individual countries rise or fall in their own prosperity, this is a very advanced part of the world, and will not fall to the roadside. The members of the EU represent a large and powerful economic community. Even if the EU falls apart, which I doubt, Europe remains and will remain a very significant economic force.

England
While the UK has its own problems, at this point in time, the English are pleased that they didn’t adopt the common currency. It was more good fortune than an ability to foresee the future, yet the UK is not subject to the problems of having the Euro as the common currency.

The Future is Unknown
A few blogs ago, I wrote about how a ‘buy and hold’ strategy for investing was outdated and to be avoided. The reason was that in this world of instant communications and fast paced change, no-one knows what is around the corner.

So it is with the EU. There will be changes, that is for sure. What we cannot know is what the various dynamics at the table will bring as the final result.

But thing is sure. The EU will continue and the economic powerhouse that is Western Europe will remain a powerhouse economically, and the demand for goods and services among its people will only grow. The weak sisters will remain weak until they adopt some of the policies of the stronger nations and of Iceland, but they will all be there for decades to come.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds

Silver – The Versatile Metal – As its uses grow, so does demand for silver

I have previously advised that silver is a versatile metal and as its uses grow, so does demand for silver.

Therefore the price of silver, because its demand is growing, will be sustainable.

Below are some of the many uses of silver.

Silver’s Use in the Transmission of Energy – Hydro
There is an energy crisis. Whether it be the cost of imported oil and the need to conserve, or greater demands from consumers and industry, the use and transmission of hydro power is growing and will continue to grow.

Energy infrastructure – which uses silver extensively – has been deteriorating and demand for new infrastructure is growing. It is growing rapidly in China and Asia, but as America’s infrastructure needs updating, it will also be growing in North America. We will have to rebuild our entire energy infrastructure in the next generation or two and silver will be a big part of it. (Huge Applications: from energy generation to storage to consumption.)

Silver’s Use in Technology
It will be technology that will determine how fast we’re going to tackle the monumental problems we face in the coming years and silver is important for technological advancement in both the low and especially high tech in commercial and industrial applications.

Think about how many electronic gadgets you have. Think about the frequency at which you replace your cell phone, your iPad, and your TV.

Every one of these modern electronic devices uses some component of silver.

Silver’s Use for Jewelry and Kitchenware – Becoming More Widespread for Health Reasons
Everyone knows that silver is commonly used in jewelry and in household items. Think about the billion new middle class consumers created over the last decade in what were formerly third world countries.

Think about the countless additional numbers being created as the world shrinks.

Demand for silver jewelry and kitchen and serving utensils, is not shrinking. It is growing at a dynamic rate.

Silver’s Use in Providing Fresh Drinking Water
There is a serious shortage of fresh drinkable water in many parts of the world and the situation is getting worse. Silver will be an integral part of whatever solutions will come forth to solve this problem. Do a Google search on the issue. Silver is an integral part of the solution.

Silver’s Use as a Healthcare Metal
You have probably heard that silver’s use as anti-bacterial and anti-infection agent is spreading quickly. Today many doctors prescribe bandages with a silver component. Yes, because of the spread of superbugs, that are becoming impervious to penicillin and other infection fighting tools, practitioners and consumers alike are turning to more natural means of combating infection – that means more and more use of silver.

Silver is unique in having these anti-bacterial properties. Silver is credited with saving much of the elite when plague hit Europe because they used silverware, while the poor people used other metal and wooden cutlery. Silver kills single cell organisms, i.e. bacteria. Samsung has been selling silver coated appliances for about 5 years now.

In chronic cardiac care wards, it is now common to use beds that are silver lined to prevent weakened body defenses from being overwhelmed by infections. Very expensive beds, but they are now quite common.

The use of silver in healthcare is growing rapidly.

Silver’s Use as a War Metal
The recent demand for rare earth metals is a prelude of what is to come for all of the so-called strategic metals. Silver is a strategic metal due to its role in high tech devices used in weapons and weapons systems.

Silver is one of essential metals for these purposes due to its physical characteristics.

Silver’s Use as an Alternative to Gold for Investors
Aside from all of the reasons mentioned above, silver has always been, and always will be, an alternative to investing in gold. Silver has always had the moniker “The Poor Man’s Gold”’

Silver has always traded in a range that is comparable to gold. The old standard was 7:1. In recent years the ratio has been as high as 90:1. Currently it is closer to 50:1.

Whatever the ratio, silver is a hedge against currency fluctuations, it is a hedge against inflation, and it is an investment that holds its value. Silver is sought the world over for these reasons.

If you think silver is a passé metal used primarily for currency coinage and camera film – think again.

The Demand for Silver will continue to grow.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds

U.S. report: Oil imports down, domestic production highest since 2003

In recent blogs, I talked about whether the common belief that oil prices have to increase could be a fallacy.

The following is today’s reprint of an article in the Los Angeles Times. It seems that the world of imported oil and high prices may be about to change.

U.S. report: Oil imports down, domestic production highest since 2003
By Neela Banerjee
March 12, 2012, 3:00 a.m.
Reporting from Washington— Against the backdrop of gasoline prices rising in an election year, a new Obama administration report cites “significant progress” in reducing foreign oil imports and increasing domestic oil and gas production.

The report by six federal agencies was released early Monday on the first anniversary of a speech by President Obama in which he pledged to reduce American dependence on foreign oil imports by one-third in about a decade.

According to the study, the United States reduced net imports of crude oil last year by 10%, or 1 million barrels a day. The U.S. now imports 45% of its petroleum, down from 57% in 2008, and is on track to meet Obama’s long-term goal, the administration maintains.

Imports have fallen, in part, because the United States has increased domestic oil and gas production in recent years.

U.S. crude oil production increased by an estimated 120,000 barrels a day last year over 2010, the report says. Current production, about 5.6 million barrels a day, is the highest since 2003.

The U.S. has been the world’s largest producer of natural gas since 2009, the report says. Use of renewable sources of energy, such as wind and solar, is still relatively small but has doubled since 2008.

Just to confuse you further, I reprint here another article which takes the opposite view and essentially says that the price of oil has to rise.

Lazlo Birinyi – Über Bull Calls for S&P 1700 this Year ~|~ “Street Smarts” (Saut) »
March 6th, 2012 by ZeroHedge.com
The lat­est in a series of re­ports eval­u­at­ing the fu­ture of the en­ergy mar­kets, es­pe­cially in the con­text of the in­creas­ingly in­ev­it­able Ir­a­ni­an con­flict, may just be the best and most com­pre­hens­ive one (not just be­cause it looks at the com­mod­ity from an “Aus­tri­an” angle). In 82 pages, Aus­tri­an Er­ste Group has ex­trac­ted the key as­pects and vari­ables for the world oil mar­ket and come up with a sim­ple con­clu­sion: “noth­ing to spare.”

To wit: “We see the risks for the oil price heav­ily skewed to the up­side. At the mo­ment, the mar­ket is well sup­plied, but the smoul­der­ing cri­sis in the Per­sian Gulf could eas­ily push oil prices to new all-time-highs should it es­cal­ate.

We be­lieve that new all-time-highs can be reached in H1, at which point we could see de­mand de­struc­tion set­ting in. We fore­cast an av­er­age oil price (Brent) of USD 123 per bar­rel between now and March 2013…

The lat­ently smoul­der­ing Ir­an cri­sis seems to be close to es­cal­a­tion. The most re­cent man­oeuvres, os­ten­ta­tious threats, sanc­tions, em­bar­goes and the shad­ow war cur­rently on­go­ing, have heated up the situ­ation fur­ther. It seems we may soon see the last straw that breaks the camel’s back. Even though Ir­an could prob­ably only main­tain a block­ade of the Straits of Hor­muz only for a very lim­ited peri­od of time, the con­sequences would still be dra­mat­ic. The oil price would def­in­itely set new all-time-highs and could reach lev­els of up to USD 200.” En­joy those price dips while you can.

Read more: http://advisoranalyst.com/glablog/2012/03/06/nothing-to-spare-crude-could-reach-200-erste-groups-complete-2012-oil-price-outlook/#ixzz1ol661634

You can believe either article, but I believe the world is changing and as a result the USA will have cheap energy and a dramatic increase in productivity.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.

Is Oil Overvalued? Could the USA become Energy Sufficient?

The Amount of Oil Used by North America
In a recent blog, I talked about how shale gas is changing North America’s energy needs, and how that could change the way that the world works. The effect is starting to be felt.

A quote from “MISH’S Global Economic Trend Analysis”
Another Plunge in 3-Month Rolling Average of Petroleum and Gasoline Usage. …….U.S. petroleum and gasoline usage for (the 3 months) December-February 2012 compared with the same three months in prior years. ….courtesy of reader Tim Wallace.

Note that petroleum usage is back to December 1995 thru February 1996 levels. Gasoline usage is back to December 2001 thru February 2002 levels.

While we argue about the high cost of gas, and the high cost of oil, consumption in the USA is actually falling.

The Long Term Effect on Productivity
Let’s talk about the effect of this on productivity and economic expansion in the USA. Prosperity in the Middle East and in third world oil producing countries, which is so dependent of oil exports to the USA, Europe, and China, will fall, as oil exports to North America fall.

China and Europe do not yet seem to have similar shale gas supplies, but as the technology matures, a similar change could occur there.

In the meantime, the USA will be importing less from the middle east, reducing pressure on the price of oil, and very importantly – reducing the outward flow of US dollars to the Middle East. As the export of US dollars shrinks, the efficiently and productivity in North America will grow. Prosperity will grow in the USA. It is inevitable.

The Advantage of Cheap Energy
Firstly, the masses of environmental laws and regulations will become less relevant because the environmental issues will be significantly less. The ability to create new business and economic prosperity in the USA will grow. The hoards of litigation, consultants, environmentalists and hangers-on will find less prosperity and business will be less harassed. There will be more jobs and more money for all.

Productivity Advantage
The greatest supply of shale gas currently appears to be in North America. China and other countries do not seem to have similar supplies, although I suspect they also will find adequate reserves in due course.

In the meantime, energy costs in the USA will drop significantly, to the point that the USA will have a significant cost advantage over manufacturing and transportation in other parts of the world.

In addition to the current economic advantages that the USA has, such as rights and freedoms, property rights, and all the rest, the USA will have a energy cost advantage. An advantage that will promote prosperity in the USA.

Now consider where you want to invest – in US multinationals and US based companies? Or elsewhere?

Homeland Security
One of the largest effects of the 9/11 attacks, was the creation worldwide of this massive new employer, called Homeland Security in the USA, and different names elsewhere. The growth of this industry has been stupendous. Some say that without this industry soaking up so many unemployed during the recent downturn, the recession would have been much deeper. How ironic!

Consider where the funding for terrorism worldwide comes from. Indirectly it comes from oil money flowing into the Middle East. When this flow of money slows, those regimes will have to start worrying about how they care for their own people, rather than contributing vast sums to terrorism.

So indirectly, shale gas will put a large damper on terrorism. Travel will become easier. Crossing borders will become easier. Bureaucracy will diminish (although somehow that never seems to happen). Life will become freer.

Guess what else will happen? Deficits will reduce, and the growth in economies will start escalating much faster than existing debt. The debt problem will reduce in significance.

How strange Capitalism is. It works in very funny ways, but it works.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.

Some Education in the Way the Stock Market Works – Argentum & Soltoro

In the last blog, I suggested that the next topic would be the effect of shale gas on productivity and economic expansion in the USA, and prosperity in the Middle East and in third world oil producing countries. However, that blog is slightly delayed in order to discuss some current market issues.

Why Stocks Sometimes Fall When Good News is Announced
The examples of this of everywhere, but let me mention two stocks where this effect is currently quite evident. I am a director of one of these companies.

Both Argentum Silver Corporation and Soltoro Ltd recently announced good news, and both stocks fell in value after the news. Shareholders and management of both companies are likely surprised by this effect which is counter intuitive, yet the reasons are obvious to market traders.

For those investors who seek value, and who are looking for a good investment, either stock may be a prime candidate, in spite of the fall in value.

Buy on Dips
One interesting way to cope with this phenomenon, is to be aware that this happens, and look to buy stocks that fall with good news announcements. A stock that has been driven down for artificial reasons, is sometimes a very good buy.

There is a market adage that says – “Buy on Dips”. The idea is that the buyer gets very good value at a discounted price.

How The Stock Market is Supposed to Work
There is a belief that value is recognized in a stock when the underlying company creates some value or furthers some objective.

The common belief is that if a positive event occurs, the stock will rise in value, and all stockholders will benefit.

The Reality of the Stock Market
I often repeat that value investing means accepting short term volatility in the price of the investment. Buying real value means that you are in a minority group of stock market investors.

By far, the greatest number of trades in almost any security, is done by traders and professionals with other motives in mind.

A trader in the market, is a person (or computer) that buys a stock or pre-sells a stock (selling short) in the belief that the short term trend of that stock will be in a direction that makes the trader a profit. Long term value investing is irrelevant to Traders. All that is important is making enough trades that are profitable. A trader accepts that a number of trades will be losses. The objective is to have more trades that make money, than trades that lose money.

Program Trading
The majority of trades today, are programmed trades. That means that a computer has been programmed to buy or sell a security based on a number of indicators that are preprogrammed. The rapidity of these trades can be beyond your conception, with literally millions of trades occurring daily.

So long as at the end of the day, there have been more wins than losses, the mission has been accomplished.

Selling on Positive News
One would think instinctively that when a company announces positive news, that the price of the stock would be bid higher. But this is often not the case.

Consider Soltoro. On March 5, the stock was $0.91 when good news was announced. It fell after the announcement to $0.86. More positive news was announced on March 6 and the stock fell to $0.83. It today closed at $0.84. Sounds weird doesn’t it?

Consider Argentum. Positive news on Feb 29, made the stock fall from $0.255 to $0.24. The stock then showed strength rising to over $0.30 on March 5 at which time another very positive announcement sent the stock plummeting to $0.21. It closed today at $0.23.

Given the positive news announcements, conventional wisdom would assume a significant rise in value, rather than a fall.

Why This Happens
This explanation is short due to space limitations and I will try to expand the topic in a future blog.

Often when a company is raising money, especially in the junior mining sector, a warrant is offered as a part of the offering in order to make the offering more attractive. Most professional traders will sell the stock at any price they may realize that is above the cost, in order to be in a position to exercise the warrant. The original purchase of the private placement, the sale subsequently of the stock, and the exercising or sale of the warrant is all considered part of the same trade. If the net of all three transactions is positive, the trader has made his profit for the day.

If enough traders follow this strategy, there are more sellers than buyers on that day, and the price of the stock falls.

There are many other similar reasons for this occurrence. Traders need to move capital in and out of stocks, and rapidly. When good news comes, a stock generally gets some attention and more buyers appear. The easiest place to sell a stock, is when there are lots of buyers for a stock.

Traders watch for good news, and sell the stock into the good news market in order to raise capital for their next trade. The amount of profit to be made by holding a stock until the next news release is irrelevant to them. A profit is a profit is a profit. They take a profit of any amount when the profit is available to them. And then “on to the next trade”. All day, every day, on to the next trade.

Smart Value Investors
Smart value investors know that this phenomenon occurs with regularity and watch for the dips when they buy the stock.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds

The Rapid Changing World of Investments – the Flow of Oil Money to the Middle East

The Changing World of Investment

In my last blog, I talked about how rapidly investments can change in scope and importance. I talked about the bountiful supply of shale gas coming on stream, and the profits of large equipment manufacturers.

The essential point was that investors could never simply “Buy and Hold”, but had to be watchful about what is happening in the world around us.

The Price of Shale Gas & the Relationship of Gas Price to Oil Price
If you start to understand the bountiful and cheap supplies of shale gas becoming available, you have to start to wonder about the price of this shale gas. For some years now, the price of natural gas has drifted lower.

There are a large body of technical market analysts who spend their careers measuring historical relationships and comparison pricing and how relationships affect future pricing. A prime example is the historical relationship between the price of gold and the price of silver. Another equally prevalent theory governs the relationship between the price of oil and the price of gas.

Investment Advisors rely on these theories to calm their customers and to urge investing based upon these theories.

Both theories are very outdated and are quite irrelevant to today’s world.

As I pointed out in a recent blog, the price of silver is likely to increase because of demand and the price of gold is more suspect.

It is my view that historical relationships are quite irrelevant in today’s world. We live in a rapidly changing world. The price of any commodity, service or product will always vary directly with the demand for that commodity, service or product. Therefore the historical relationship between the price of gas and the price of oil is quite irrelevant.

In the example of gas and oil, there is a long historical relationship and there remains an expectation on the part of these analysts that the price of gas will – sooner or later – increase to be in an historical price range relative to the price of oil.

Unfortunately, this will not happen. Investors must be attuned to the world around us to understand why.

The Price of Oil
As alternative energy sources become more available, the demand for oil will drop. When demand drops, the price drops.

The Price of Gas
As supplies expand, as they most certainly are, the price drops.

There may indeed again be a historical price relationship between the two, but at much lower prices.

Think about your investments in the energy sector and bear in mind what is happening in the world today. Sometimes dividend stocks are not an indication of value, especially when those dividends are based on $100/brl pricing of oil.

Some Say The US Will Never Recover
Here again, the doomsayers are blinded by the current economic malaise, and can’t see what is happening around us.

I talked previously and extensively about the USA and how it remains an economic powerhouse. I talked about how the current economic reports out of the USA are quite positive and the beginnings of the next cycle are becoming evident.

The Flow of Oil Money to the Arab Gulf States
Now imagine what the long term effects of shale gas will be. There will be no construction of liquefied natural gas plants as they will cost too much and if gas is freely and cheaply available in North America, why would anyone build these plants. Therefore there will be no imports of natural gas to North America in the future.

If energy needs are met locally, why import $100 barrels of oil at enormous cost and enormous environmental hazards. Oil imports will shrink and shrink more, and more again. Imagine what this will do to prices.

Now imagine those enormous cities and monuments built throughout the Middle East – all built with oil money.

Terrorism
Now imagine the insecurity felt around the world because of terrorism. Terrorism comes because there is an unlimited flow of oil money from ‘have’ nations to oil rich nations. Some of this money goes quickly to Islamic terrorist groups around the world. The irony of high oil prices, is that this oil money gives rise to those that wish to conquer the world and are using terrorism to accomplish their goals.

What a tangled web of cause and effect
> We pay high oil prices because our multinational companies make lots of money if we willingly pay high oil prices
> These high prices enrich formerly poor nations
> The money received – in part – goes to fund terrorism
> The terrorists attacks the payers of the high oil prices (the rich nations)
> We spend enormous money and incur enormous inconvenience to protect ourselves against terrorism
> In effect, we fund the terrorists who wage war against us.
How insane this modern world is.

Now imagine a severely reduced flow of money to the Arab states – goodbye terrorism.

Next: Let’s talk about the effect of this on productivity and economic expansion in the USA. Prosperity in the Middle East and in third world oil producing countries will fall, as oil exports to North America fall

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds

Investing Reliance on Outdated Theories Including the Peak Oil Theory

Last blog talked about the speed of change in today’s world, and being aware of theories that no longer apply. As an example, the Peak Oil Theory was discussed from a different vantage point.

The US reliance on oil imports may be about to change, and about to change quite dramatically. Oil imports in the latest fiscal year were significantly LOWER than the previous year. If you are betting on the price of oil, use caution.

The Effects of this changing Reality

Coal – and Environmentalists
Environmentalists and Greens the world over are on a campaign against mining and burning coal as a fuel or energy. Guess what? Shale Gas is far cheaper and far cleaner than coal.

In the latest fiscal year, coal power plants were being built around the world, and especially in China. New inventions to clean the burning of coal were in high demand and were market darlings.

The new reality is that because shale gas is so much cleaner, so much easier to obtain, and so plentiful, that the market will reduce dramatically the use of coal in favor of natural gas. Environmentalists need fear not. The Market will succeed faster and more efficiently that they can.

Currently, some gas fields and wells have to been capped because the natural gas cannot be sold at a price high enough to repay the expense of extracting it. This is just too much of the stuff.

The Price of Oil and and the Price of Gas
Remember when oil was priced at $8/and $10 a barrel, and no-one cared. Why should anyone care? There was so much oil under the sand in Saudi Arabia that mankind would never use it up.

Oil companies traded at low multiples of earnings, Detroit built gas-guzzlers, and energy was plentiful.

What do you think will happen to the price of oil when the world realizes that there is more gas being produced than we could possibly use? Estimates say that there is least an 800 year supply of shale gas available in North America – 800 YEARS!

What do you think will happen to the price of natural gas?

Large Equipment Manufacturers – Another Example
It is the season for companies to report earnings. Earnings of stocks such as Caterpillar and Finning are stellar. Dividends are being maintained or increased.

Analysts are falling all over each other to recommend the purchase of these types of stocks, and now that the world is stabilizing economically, they feel that demand will increase for this type of equipment.

Maybe. Or maybe not.

When the world fell apart, governments rushed to inject money into the system. They did so by bailing out the banks (an unconscionable act of stupidity, that bankers used to bonus themselves enormous amounts of money) and secondly, governments poured money into capital projects – roads, bridges and so on. That is infrastructure.

Infrastructure construction requires heavy equipment, so heavy equipment manufacturers did well – last year. Not next year – last year.

Remember that piece of boilerplate cautionary statements set on every piece of paper that you receive from your broker? – “Past results are not an indication of future results.” The point is, that this statement is absolutely true.

Next blog – What will happen to the dynamics of oil money flowing to the Arab Gulf? Or of oil money funding both the large energy companies and the Islamist terrorists?

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.

The Life Cycle of Securities & The Peak Oil Theory

President Obama Says in a Speech this Week That the US Recovery is Being Throttled by the Rising Cost of Gas at the Pumps.
Apparently the cost of a gallon of gas has risen from $3.17 to $3.40 from the start to end of 2011.

Some say that he is setting the stage for bashing big, bad oil companies in the upcoming Presidential election. Some say he is setting the stage for excusing bad decisions. Sounds like politics as normal. But the good old reliable knowledge that the price of oil will invariably rise, is flawed – seriously flawed.

The price of gas has not collapsed as some say it would, but it also has not risen dramatically – yet. Today Crude spiked to $110/barrel on fears of Iranian issues and supply disruptions. Seems like buy and hold is a reasonable policy for oil stocks – but I am not so sure about that.

The Peak Oil Theory
The peak oil theory says that the world is running out of oil, and the price of oil will escalate dramatically as a result, thereby throttling economic activity everywhere and bringing on the next big economic downturn.

This may be true, but more likely, it is false alarmist.

The point that I am making is that there is no surety in investing. In this age of instant communication, everything moves quickly. If you buy something and then forget about it, you are likely to get nasty surprises.

Investment Advisors Recommend Long Term Holdings
I have, in a number of blogs, cautioned investors about the folly of buying either a mutual fund or a managed account of some sort, with the notion that over a long period of time, true value will make the investment rise in value.

There are a number of reasons why this is a poor investing policy, including the Investment Advisor’s incentive of forever getting a monthly check (fee) from your investments, just because the investment was recommended whenever it was first made.

But aside from this personal pique of mine, let’s examine the life cycle of securities. There are numerous examples of the folly of this policy, and I will mention but a few here.

The Speed of Change
The point is, that investments must be reviewed on a regular basis, especially in light of a world that changes around us with frightening speed. In most cases, the macro indicators that any investor can see, are all around us. In this age of instant communication around the globe, and of everyone’s ability to research any subject or word at the click of a mouse, it is the obligation of every investor to keep in mind what sectors they are investing in, and review whether current changes in the world would mandate changes in investment policy.

Some Examples

The Belief That Oil is Running Out (Peak Oil Theory) & and that the Price of Oil Will Forever Rise
A common bit of ‘knowing’ advice heard frequently is that the price of oil will continue to rise. As a result, you should always have oil stocks in your portfolio.

Have you noticed that as the economy improves, as it is doing now, the price of oil is wavering? Middle East crises affect the price, but not dramatically.

As with all things in our modern world of rapid changes, nothing is forever. More natural gas is being found today in ‘unconventional sources’ (read ‘shale gas’) than can possibly be used in our lifetime. Estimates range upward from supplies adequate for 800 years and more.

The US reliance on oil imports is about to change, and about to change quite dramatically. Oil imports in the latest fiscal year were significantly LOWER than the previous year. If you are betting on the price of oil, use caution.

Future Blog – The world is changing around us and you need to be alert. Consider Shale Gas and its effect on Coal and on Environmentalists. Consider large equipment manufacturers.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.

A Pause in Blogging – Next Blog March 2012

How To Take Advantage of the Next Economic Cycle – Gold

Commodities and Precious Metals
In recent blogs, I discussed how a feature of the new economic cycle now starting, is the remarkable need in the world for base metal and for precious metals.

I discussed how the ‘doom and gloom’ crowd was urging people to buy precious metals to save themselves from the impending collapse. As I said, ironically they are correct, but for the wrong reason. Gold and silver are in demand and this demand will grow for the foreseeable future, meaning the value of silver will grow, and will not fall.

Gold – The Supply and Demand Equation
Gold is different than base metals and is different than silver. As we know, the price of gold has dramatically risen from the $250 range to the current range of $1,700 to $1,900.

Will the Price of Gold Continue to Rise?
I think, as I have written this month and last, that betting on another dramatic rise in the price of gold, is about as sure a bet as going to your local casino and making a wager. For reasons detailed in those blogs, there is a significant chance of the price of gold diminishing (yes – even falling) and also a significant chance of the price of gold rising.

If you wish to gamble on gold in the belief that it is a hedge against inflation and instability, these may still be valid rationale, but caution is warranted.

The Market Foretells the Future
Currently the market for gold seems to be saying that some sort of equilibrium is in place with neither significant upward nor significant downward pressure on the price of gold. One inescapable fact is that the current price of $1,700 seems stable and realistic.

Supply of Gold
The large gold producers of the world have a continuing problem. As they produce gold from their reserves in the ground, their reserves dwindle and they must acquire – either by exploration or by acquisition – more supplies of gold to mine.

The amount of gold supplied to the world by the majors is shrinking. Less gold is being produced. The same problem exists for new supply, as exists with all other mining. The large and obvious deposits have been found. New exploration is in more and more remote areas.

The same issue as with copper and with silver mining exists for gold also – with environmental issues and massive new regulations, including the opposition by Greens to any mining development – new sources of supply are very difficult to find, and even more difficult and expensive to bring into production. The time frame for a new mine just keeps getting longer and longer.

So the supply issue will not be resolved any time soon. The only answer to the supply issue, is to adjust the demand issue. In simple terms, the price of gold has to stay high. Otherwise, there is no way that new gold sources will be discovered and brought on the market.

Demand for Gold
Demand for gold remains different than for other precious metals. Silver and other metals, including rare earths, have increasing demand from industry.

While some gold is used for industrial purposes, such as electronic purity, most gold continues to be in demand as a historical consumer demand for jewelry, safekeeping, and economic stability, as well as an historically approved reserve for financial institutions.

As there are more and more people worldwide able to afford the purchase of gold, the demand for gold remains high.

As there are more and more banks and financial institutions growing to world class size, the demand for gold to keep in their reserves grows.

The demand for gold will not abate. The only question is whether the price will move a little or a lot from current values.

How to Invest in Gold
I discussed this previously, but suffice to say that investing in the major gold producers is generally not profitable over the long term. If the price of gold rises, their shares also rise, but not proportionately. If the price of gold falls, those shares fall dramatically.

I suggest that you look for junior gold explorers and producers. They are very profitable at these levels, their share prices are quite distressed, and the majors have to keep taking them over to sustain their ever increasing need for new supply of gold in the ground.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds

How To Take Advantage of the Next Economic Cycle – Copper & Silver

Commodities and Precious Metals
Recently, I discussed how the next economic cycle is now starting. A feature of this new cycle is the remarkable need in the world for base metal and for precious metals.

I discussed how the ‘doom and gloom’ crowd was urging people to buy precious metals to save themselves from the impending collapse. Ironically they are correct in their assertion to buy precious metals, but for the wrong reason.

Demand for Base Metals
Examine the current price of copper. Down a bit from its dizzying heights, but still many times greater than its value before 2008. This much higher price is because the world is demanding much more copper and existing stockpiles are clearly not sufficient. This is in spite of the economic meltdown that started in 2007 and which is still in evidence.

The economic meltdown should also have melted away the demand, but it didn’t because new demand for supply is coming from new areas – namely China. The balance of demand and supply is showing a greater demand for copper, than the supply appears to be capable of supplying.

Copper Supply
Existing mines are not producing sufficient supply to meet demand and supply is actually dropping as mines become played out. New discoveries take decades to come into production, so the supply side of the equation is a large factor.

The Green Movement
Ironically, it is the worldwide green movement – the transition to a friendlier natural environment – that is a major factor in all of this. Bringing new deposits of any metal, into production now, is a daunting effort. Because of so many new regulations, and safeguards, and objections from environmentalists, bringing any mine into production, faces a long time frame and many obstacles. These difficulties make the financing aspect of it much more difficult, and costs escalate continually. The effect is a serious pinching of future supply.

The other effect is that as costs rise, the price to buy copper also rises. No-one will produce copper in order to lose money.

Copper Demand
As China continues its relentless march towards modernization, the demand for copper continues to grow. So it also is in India. As the US continues its climb out of the doldrums, all of its aging infrastructure needs updating and replacing, as does so many parts of the world that industrialized in the early years of the last century. Demand looks to continue to grow.

So if DEMAND is growing, and SUPPLY is shrinking, it seems obvious that investors should look for the currently depressed shares of junior mining companies. The deposits discovered by these companies over the last decade will suddenly become of interest and the investment should prove valuable.

The Prediction of the Stock Market
People say that the market is always correct. While I disagree with the generality of that statement, the market is certainly saying that demand for copper will remain high, as the price of the commodity remains at dizzying highs.

The market is similarly indicating that demand for silver and demand for gold will remain high and will grow, with the price of these commodities growing accordingly.

Demand for Silver
An identical scenario is in evidence for silver. A few years ago, when camera film was being replaced by digital film, the common view was that demand for silver would drop, as would the price.

Demand for Silver is Growing – Dramatically Growing
In fact, the opposite happened. Silver has proven to be invaluable and we can’t get enough of it. Silver is now in high demand:
- for the technology industry where it is almost universally used;
- for medical purposes where its properties and antibacterial values have become widely recognized;
- for the electrical industry where new grids to carry power are springing up everywhere; and
- in many other places where uses for silver are increasing..

The Supply and Demand Equation for Silver
Similar to my comments about copper, mines producing silver are shrinking in supplying the metal, and new sources are tough to bring on stream.

In a similar situation to copper, one of the ironies of the ecological movement and the Green Movement, is that it is now very difficult to bring a new silver mine on stream. The hurtle of regulatory issues and local population issues, makes bringing new sources to the supply side of the equation, a very difficult and long term proposition. It is also now VERY EXPENSIVE. The cost of new mines dwarfs the cost of bring a mine on stream 20 years ago.

Projection on the Price of Silver
The price of silver in the days of Bunker Hunt in the 1980’s was $4.00, rising to the very low teens when ‘Bunky” tried to corner the market.

In the madness of the 2000’s, it reached a high of almost $50, then fell. But it didn’t fall that far. It is now a bit over $30, and showing strength.

Here again, demand is outweighing supply, and shortage gap is growing.

The price of silver inevitably will rise.

Readers will note that I am a director of a silver explorer in Mexico, Argentum Silver Corp (ASL).

Our funds have a number of investments in silver explorers/producers in the junior sector.

Next: Commentary on Supply and Demand for Gold

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.

Debt Slavery: 30 Astonishing Facts About Debt In America

The following article is a reprint. We have not authenticated and have not verified the information contained within this article.

By The Economic Collapse Blog Published “Before Its News” Feb 10, 2012

Credit Card Debt
#1 Today, 46% of all Americans carry a credit card balance from month to month.

#2 Overall, Americans are carrying a grand total of $798 billion in credit card debt.

#3 If you were alive when Jesus was born and you spent a million dollars every single day since then, you still would not have spent $798 billion by now.

#4 Right now, there are more than 600 million active credit cards in the United States.

#5 For households that have credit card debt, the average amount of credit card debt is an astounding $15,799.

#6 If you can believe it, one out of every seven Americans has at least 10 credit cards.

#7 The average interest rate on a credit card that is carrying a balance is now up to 13.10 percent.

#8 According to the credit card calculator on the Federal Reserve website, if you have a $10,000 credit card balance and you are being charged a rate of 13.10 percent and you only make the minimum payment each time, it will take you 27 years to pay it off and you will end up paying back a total of $21,271.

#9 There is one credit card company out there, First Premier, that charges interest rates of up to 49.9 percent. Amazingly, First Premier has 2.6 million customers.

Auto Loan Debt
#10 The length of auto loans in America just keeps getting longer and longer. If you can believe it, 45 percent of all new car loans being made today are for more than 6 years.

#11 Approximately 70 percent of all car purchases in the United States involve an auto loan.

#12 A subprime auto loan bubble is steadily building. Today, 45 percent of all auto loans are made to subprime borrowers. At some point that is going to be a massive problem.

Mortgage Debt
#13 Total home mortgage debt in the United States is now about 5 times larger than it was just 20 years ago.

#14 Mortgage debt as a percentage of GDP has more than tripled since 1955.

#15 According to the Mortgage Bankers Association, approximately 8 million Americans are at least one month behind on their mortgage payments.

#16 Historically, the percentage of residential mortgages in foreclosure in the United States has tended to hover between 1 and 1.5 percent. Today, it is up around 4.5 percent.

#17 According to Dylan Ratigan, 46 percent of all mortgaged properties in Florida are underwater, 50 percent of all mortgaged properties in Arizona are underwater and 63 percent of all mortgaged properties in Nevada are underwater.

#18 Overall, nearly 29 percent of all homes with a mortgage in the United States are underwater.

#19 If you can believe it, the mortgage lenders now have more equity in U.S. homes than the American people do.

Medical Debt
#20 Medical debt is a major problem for a growing number of Americans. One study discovered that approximately 41 percent of all working age Americans either have medical bill problems or are currently paying off medical debt.

#21 Sadly, the number of Americans that are protected by health insurance continues to decline. An all-time record 49.9 million Americans do not have any health insurance at all right now, and the percentage of Americans covered by employer-based health plans has fallen for 11 years in a row.

#22 But even if you do have health insurance, there is still a good chance that you could end up with huge medical debt problems. According to a report published in The American Journal of Medicine, medical bills are a major factor in more than 60 percent of the personal bankruptcies in the United States. Of those bankruptcies that were caused by medical bills, approximately 75 percent of them involved individuals that actually did have health insurance.

The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.

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