Thursday, February 21, 2013
Back at it
I haven't done a post in a long time. Feel free to post your investment questions and I'd be happy to try to answer them.
Holmes
Friday, March 19, 2010
New Marc Faber
Marc Faber: We Have a New Gold Standard
Published: Thursday, 18 Mar 2010 | 5:53 AM ET
Text Size
By: Antonia Oprita
Web Producer, CNBC.com
The markets have created their own gold standard because of uncertainties regarding other asset classes, Marc Faber, author of "The Gloom, Boom and Doom Report," told CNBC Thursday.
Gold Bars
AP
"I think we already have now a gold standard … created by the market place," Faber told "Squawk Box Europe."
"We have the (exchange traded funds) that have proliferated and we have more and more physical buying of gold," he said.
Between 2001 and 2008, gold outperformed bonds and stocks, but starting with 2009 stocks outperformed, which means investors must own gold because generally retail investors cannot move in and out of different assets like institutional investors, Faber said.
For the next six months, the global economy will look better, particularly compared with March 2009 when the downturn was at its worst, he said, adding that he would buy oil and mining companies, especially Exxon [XOM 66.77 -0.62 (-0.92%) ], Chevron [CVX 74.28 -0.48 (-0.64%) ] and Schlumberger [SLB 64.18 -1.07 (-1.64%) ].
"I think that the oil price would rather go up than down. I think oil stocks would perform rather well, by the way also mining companies," Faber said.
Investors should have a minimum of 50 percent of their money in emerging economies because these are growing much faster than the developed world, he recommended.
Treasurys to Yield 10-20%
An extreme bubble in US Treasurys has been deflated for the moment and yields are likely to rise sharply over the next years, Faber told CNBC.com separately.
"I still think that Treasurys are overpriced," Faber said.
Yields on 10-year US Treasurys are likely to rise to between 10 and 20 percent over the next 5 to 10 years because of inflation and oversupply, he said.
Money-printing is just another way for governments to silently default on their debt Faber wrote in the latest "Gloom, Boom & Doom Report."
When a company or a government actually default on their payment obligations, the process is relatively fair because lenders get just 30, 60 or 80 cents a dollar for the money they lent, Faber wrote.
"But if a government decides to default through money printing, the burden of the default isn't shared equally," he wrote.
"Defaulting through money printing means the repayment of the creditors occurs in a currency whose purchasing power was severely curtailed through the money-printing process," Faber explained.
He said rising cost of living, a depreciating currency against other currencies or against precious metals and commodities are common symptoms of a loss in the purchasing power of a currency.
In an environment of inflation, cash and government bonds are "poison" although the current rally in stocks is partially caused by low interest rates, Faber told "Squawk Box Europe."
Investors should avoid bonds and cash over the next 10 years and choose stocks instead, he said, but warned that printing money will lead to an economic collapse in the end.
"Before we have the final collapse that will be a deflationary collapse, we will have more and more money printing."
"I think interest rates forever in the US will be at zero, by zero I mean below the rate of inflation," Faber predicted.
"It will result in a lot of inflation but inflation has a lot of different symptoms."
The financial sector, especially firms that know how to move money quickly between various asset classes, stand to gain from the increasing volatility, Faber said.
"In periods of money printing and debasing of currencies, wealth becomes concentrated in the Goldman Sachses [GS 177.00 -0.45 (-0.25%) ] of the world because they can move money quickly," he said.
There is a danger that US public debt will grow so much that "the government will need to print money just to pay the interest on the government debt," Faber wrote.
Interest payments on the US government debt could rise to between 35 percent and 50 percent of tax revenues within 10 years, from the current 13 percent of tax revenues, he also wrote.
Greece Must Be Bailed Out
In Europe, the situation is different, he told CNBC.com.
"Greece cannot print money, the US can," Faber noted. "If Greece wished to default through nonpayment of their internal debt they could devalue and exit the EU," he said.
Under EU legislation, European Union members with the exception of Britain and Denmark must all adopt the euro as their currency and those already in the euro zone cannot leave the monetary union.
But German chancellor Angela Merkel called for a change of the EU legislation to allow the expulsion of a country from the euro zone if it breaches fiscal rules repeatedly, signaling a willingness of European politicians to change the rules of the game.
"If Greece stays in, it has to be bailed out," Faber said.
"I don't regard the euro as a specifically better currency than the dollar," he also said.
Published: Thursday, 18 Mar 2010 | 5:53 AM ET
Text Size
By: Antonia Oprita
Web Producer, CNBC.com
The markets have created their own gold standard because of uncertainties regarding other asset classes, Marc Faber, author of "The Gloom, Boom and Doom Report," told CNBC Thursday.
Gold Bars
AP
"I think we already have now a gold standard … created by the market place," Faber told "Squawk Box Europe."
"We have the (exchange traded funds) that have proliferated and we have more and more physical buying of gold," he said.
Between 2001 and 2008, gold outperformed bonds and stocks, but starting with 2009 stocks outperformed, which means investors must own gold because generally retail investors cannot move in and out of different assets like institutional investors, Faber said.
For the next six months, the global economy will look better, particularly compared with March 2009 when the downturn was at its worst, he said, adding that he would buy oil and mining companies, especially Exxon [XOM 66.77 -0.62 (-0.92%) ], Chevron [CVX 74.28 -0.48 (-0.64%) ] and Schlumberger [SLB 64.18 -1.07 (-1.64%) ].
"I think that the oil price would rather go up than down. I think oil stocks would perform rather well, by the way also mining companies," Faber said.
Investors should have a minimum of 50 percent of their money in emerging economies because these are growing much faster than the developed world, he recommended.
Treasurys to Yield 10-20%
An extreme bubble in US Treasurys has been deflated for the moment and yields are likely to rise sharply over the next years, Faber told CNBC.com separately.
"I still think that Treasurys are overpriced," Faber said.
Yields on 10-year US Treasurys are likely to rise to between 10 and 20 percent over the next 5 to 10 years because of inflation and oversupply, he said.
Money-printing is just another way for governments to silently default on their debt Faber wrote in the latest "Gloom, Boom & Doom Report."
When a company or a government actually default on their payment obligations, the process is relatively fair because lenders get just 30, 60 or 80 cents a dollar for the money they lent, Faber wrote.
"But if a government decides to default through money printing, the burden of the default isn't shared equally," he wrote.
"Defaulting through money printing means the repayment of the creditors occurs in a currency whose purchasing power was severely curtailed through the money-printing process," Faber explained.
He said rising cost of living, a depreciating currency against other currencies or against precious metals and commodities are common symptoms of a loss in the purchasing power of a currency.
In an environment of inflation, cash and government bonds are "poison" although the current rally in stocks is partially caused by low interest rates, Faber told "Squawk Box Europe."
Investors should avoid bonds and cash over the next 10 years and choose stocks instead, he said, but warned that printing money will lead to an economic collapse in the end.
"Before we have the final collapse that will be a deflationary collapse, we will have more and more money printing."
"I think interest rates forever in the US will be at zero, by zero I mean below the rate of inflation," Faber predicted.
"It will result in a lot of inflation but inflation has a lot of different symptoms."
The financial sector, especially firms that know how to move money quickly between various asset classes, stand to gain from the increasing volatility, Faber said.
"In periods of money printing and debasing of currencies, wealth becomes concentrated in the Goldman Sachses [GS 177.00 -0.45 (-0.25%) ] of the world because they can move money quickly," he said.
There is a danger that US public debt will grow so much that "the government will need to print money just to pay the interest on the government debt," Faber wrote.
Interest payments on the US government debt could rise to between 35 percent and 50 percent of tax revenues within 10 years, from the current 13 percent of tax revenues, he also wrote.
Greece Must Be Bailed Out
In Europe, the situation is different, he told CNBC.com.
"Greece cannot print money, the US can," Faber noted. "If Greece wished to default through nonpayment of their internal debt they could devalue and exit the EU," he said.
Under EU legislation, European Union members with the exception of Britain and Denmark must all adopt the euro as their currency and those already in the euro zone cannot leave the monetary union.
But German chancellor Angela Merkel called for a change of the EU legislation to allow the expulsion of a country from the euro zone if it breaches fiscal rules repeatedly, signaling a willingness of European politicians to change the rules of the game.
"If Greece stays in, it has to be bailed out," Faber said.
"I don't regard the euro as a specifically better currency than the dollar," he also said.
Thursday, February 25, 2010
Aricle from Charlie Munger
Basically, It's OverA parable about how one nation came to financial ruin.
By Charles MungerUpdated Sunday, Feb. 21, 2010, at 3:30 PM ET
Wall Street.In the early 1700s, Europeans discovered in the Pacific Ocean a large, unpopulated island with a temperate climate, rich in all nature's bounty except coal, oil, and natural gas. Reflecting its lack of civilization, they named this island "Basicland."
The Europeans rapidly repopulated Basicland, creating a new nation. They installed a system of government like that of the early United States. There was much encouragement of trade, and no internal tariff or other impediment to such trade. Property rights were greatly respected and strongly enforced. The banking system was simple. It adapted to a national ethos that sought to provide a sound currency, efficient trade, and ample loans for credit-worthy businesses while strongly discouraging loans to the incompetent or for ordinary daily purchases.
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Moreover, almost no debt was used to purchase or carry securities or other investments, including real estate and tangible personal property. The one exception was the widespread presence of secured, high-down-payment, fully amortizing, fixed-rate loans on sound houses, other real estate, vehicles, and appliances, to be used by industrious persons who lived within their means. Speculation in Basicland's security and commodity markets was always rigorously discouraged and remained small. There was no trading in options on securities or in derivatives other than "plain vanilla" commodity contracts cleared through responsible exchanges under laws that greatly limited use of financial leverage.
In its first 150 years, the government of Basicland spent no more than 7 percent of its gross domestic product in providing its citizens with essential services such as fire protection, water, sewage and garbage removal, some education, defense forces, courts, and immigration control. A strong family-oriented culture emphasizing duty to relatives, plus considerable private charity, provided the only social safety net.
The tax system was also simple. In the early years, governmental revenues came almost entirely from import duties, and taxes received matched government expenditures. There was never much debt outstanding in the form of government bonds.
As Adam Smith would have expected, GDP per person grew steadily. Indeed, in the modern area it grew in real terms at 3 percent per year, decade after decade, until Basicland led the world in GDP per person. As this happened, taxes on sales, income, property, and payrolls were introduced. Eventually total taxes, matched by total government expenditures, amounted to 35 percent of GDP. The revenue from increased taxes was spent on more government-run education and a substantial government-run social safety net, including medical care and pensions.
A regular increase in such tax-financed government spending, under systems hard to "game" by the unworthy, was considered a moral imperative—a sort of egality-promoting national dividend—so long as growth of such spending was kept well below the growth rate of the country's GDP per person.
Basicland also sought to avoid trouble through a policy that kept imports and exports in near balance, with each amounting to about 25 percent of GDP. Some citizens were initially nervous because 60 percent of imports consisted of absolutely essential coal and oil. But, as the years rolled by with no terrible consequences from this dependency, such worry melted away.
Basicland was exceptionally creditworthy, with no significant deficit ever allowed. And the present value of large "off-book" promises to provide future medical care and pensions appeared unlikely to cause problems, given Basicland's steady 3 percent growth in GDP per person and restraint in making unfunded promises. Basicland seemed to have a system that would long assure its felicity and long induce other nations to follow its example—thus improving the welfare of all humanity.
But even a country as cautious, sound, and generous as Basicland could come to ruin if it failed to address the dangers that can be caused by the ordinary accidents of life. These dangers were significant by 2012, when the extreme prosperity of Basicland had created a peculiar outcome: As their affluence and leisure time grew, Basicland's citizens more and more whiled away their time in the excitement of casino gambling. Most casino revenue now came from bets on security prices under a system used in the 1920s in the United States and called "the bucket shop system."
The winnings of the casinos eventually amounted to 25 percent of Basicland's GDP, while 22 percent of all employee earnings in Basicland were paid to persons employed by the casinos (many of whom were engineers needed elsewhere). So much time was spent at casinos that it amounted to an average of five hours per day for every citizen of Basicland, including newborn babies and the comatose elderly. Many of the gamblers were highly talented engineers attracted partly by casino poker but mostly by bets available in the bucket shop systems, with the bets now called "financial derivatives."
Many people, particularly foreigners with savings to invest, regarded this situation as disgraceful. After all, they reasoned, it was just common sense for lenders to avoid gambling addicts. As a result, almost all foreigners avoided holding Basicland's currency or owning its bonds. They feared big trouble if the gambling-addicted citizens of Basicland were suddenly faced with hardship.
And then came the twin shocks. Hydrocarbon prices rose to new highs. And in Basicland's export markets there was a dramatic increase in low-cost competition from developing countries. It was soon obvious that the same exports that had formerly amounted to 25 percent of Basicland's GDP would now only amount to 10 percent. Meanwhile, hydrocarbon imports would amount to 30 percent of GDP, instead of 15 percent. Suddenly Basicland had to come up with 30 percent of its GDP every year, in foreign currency, to pay its creditors.
How was Basicland to adjust to this brutal new reality? This problem so stumped Basicland's politicians that they asked for advice from Benfranklin Leekwanyou Vokker, an old man who was considered so virtuous and wise that he was often called the "Good Father." Such consultations were rare. Politicians usually ignored the Good Father because he made no campaign contributions.
Among the suggestions of the Good Father were the following. First, he suggested that Basicland change its laws. It should strongly discourage casino gambling, partly through a complete ban on the trading in financial derivatives, and it should encourage former casino employees—and former casino patrons—to produce and sell items that foreigners were willing to buy. Second, as this change was sure to be painful, he suggested that Basicland's citizens cheerfully embrace their fate. After all, he observed, a man diagnosed with lung cancer is willing to quit smoking and undergo surgery because it is likely to prolong his life.
The views of the Good Father drew some approval, mostly from people who admired the fiscal virtue of the Romans during the Punic Wars. But others, including many of Basicland's prominent economists, had strong objections. These economists had intense faith that any outcome at all in a free market—even wild growth in casino gambling—is constructive. Indeed, these economists were so committed to their basic faith that they looked forward to the day when Basicland would expand real securities trading, as a percentage of securities outstanding, by a factor of 100, so that it could match the speculation level present in the United States just before onslaught of the Great Recession that began in 2008.
The strong faith of these Basicland economists in the beneficence of hypergambling in both securities and financial derivatives stemmed from their utter rejection of the ideas of the great and long-dead economist who had known the most about hyperspeculation, John Maynard Keynes. Keynes had famously said, "When the capital development of a country is the byproduct of the operations of a casino, the job is likely to be ill done." It was easy for these economists to dismiss such a sentence because securities had been so long associated with respectable wealth, and financial derivatives seemed so similar to securities.
Basicland's investment and commercial bankers were hostile to change. Like the objecting economists, the bankers wanted change exactly opposite to change wanted by the Good Father. Such bankers provided constructive services to Basicland. But they had only moderate earnings, which they deeply resented because Basicland's casinos—which provided no such constructive services—reported immoderate earnings from their bucket-shop systems. Moreover, foreign investment bankers had also reported immoderate earnings after building their own bucket-shop systems—and carefully obscuring this fact with ingenious twaddle, including claims that rational risk-management systems were in place, supervised by perfect regulators. Naturally, the ambitious Basicland bankers desired to prosper like the foreign bankers. And so they came to believe that the Good Father lacked any understanding of important and eternal causes of human progress that the bankers were trying to serve by creating more bucket shops in Basicland.
Of course, the most effective political opposition to change came from the gambling casinos themselves. This was not surprising, as at least one casino was located in each legislative district. The casinos resented being compared with cancer when they saw themselves as part of a long-established industry that provided harmless pleasure while improving the thinking skills of its customers.
As it worked out, the politicians ignored the Good Father one more time, and the Basicland banks were allowed to open bucket shops and to finance the purchase and carry of real securities with extreme financial leverage. A couple of economic messes followed, during which every constituency tried to avoid hardship by deflecting it to others. Much counterproductive governmental action was taken, and the country's credit was reduced to tatters. Basicland is now under new management, using a new governmental system. It also has a new nickname: Sorrowland.
By Charles MungerUpdated Sunday, Feb. 21, 2010, at 3:30 PM ET
Wall Street.In the early 1700s, Europeans discovered in the Pacific Ocean a large, unpopulated island with a temperate climate, rich in all nature's bounty except coal, oil, and natural gas. Reflecting its lack of civilization, they named this island "Basicland."
The Europeans rapidly repopulated Basicland, creating a new nation. They installed a system of government like that of the early United States. There was much encouragement of trade, and no internal tariff or other impediment to such trade. Property rights were greatly respected and strongly enforced. The banking system was simple. It adapted to a national ethos that sought to provide a sound currency, efficient trade, and ample loans for credit-worthy businesses while strongly discouraging loans to the incompetent or for ordinary daily purchases.
Print This ArticlePRINTDiscuss in the FrayDISCUSSEmail to a FriendE-MAILGet Slate RSS FeedsRSSShare This ArticleRECOMMEND...Single PageSINGLE PAGE
Yahoo! Buzz
Facebook FacebookPost to MySpace!MySpaceMixx MixxDigg DiggReddit RedditDel.icio.us del.icio.usFurl FurlMa.gnolia.com Ma.gnoliaSphere SphereStumble UponStumbleUponCLOSE
Moreover, almost no debt was used to purchase or carry securities or other investments, including real estate and tangible personal property. The one exception was the widespread presence of secured, high-down-payment, fully amortizing, fixed-rate loans on sound houses, other real estate, vehicles, and appliances, to be used by industrious persons who lived within their means. Speculation in Basicland's security and commodity markets was always rigorously discouraged and remained small. There was no trading in options on securities or in derivatives other than "plain vanilla" commodity contracts cleared through responsible exchanges under laws that greatly limited use of financial leverage.
In its first 150 years, the government of Basicland spent no more than 7 percent of its gross domestic product in providing its citizens with essential services such as fire protection, water, sewage and garbage removal, some education, defense forces, courts, and immigration control. A strong family-oriented culture emphasizing duty to relatives, plus considerable private charity, provided the only social safety net.
The tax system was also simple. In the early years, governmental revenues came almost entirely from import duties, and taxes received matched government expenditures. There was never much debt outstanding in the form of government bonds.
As Adam Smith would have expected, GDP per person grew steadily. Indeed, in the modern area it grew in real terms at 3 percent per year, decade after decade, until Basicland led the world in GDP per person. As this happened, taxes on sales, income, property, and payrolls were introduced. Eventually total taxes, matched by total government expenditures, amounted to 35 percent of GDP. The revenue from increased taxes was spent on more government-run education and a substantial government-run social safety net, including medical care and pensions.
A regular increase in such tax-financed government spending, under systems hard to "game" by the unworthy, was considered a moral imperative—a sort of egality-promoting national dividend—so long as growth of such spending was kept well below the growth rate of the country's GDP per person.
Basicland also sought to avoid trouble through a policy that kept imports and exports in near balance, with each amounting to about 25 percent of GDP. Some citizens were initially nervous because 60 percent of imports consisted of absolutely essential coal and oil. But, as the years rolled by with no terrible consequences from this dependency, such worry melted away.
Basicland was exceptionally creditworthy, with no significant deficit ever allowed. And the present value of large "off-book" promises to provide future medical care and pensions appeared unlikely to cause problems, given Basicland's steady 3 percent growth in GDP per person and restraint in making unfunded promises. Basicland seemed to have a system that would long assure its felicity and long induce other nations to follow its example—thus improving the welfare of all humanity.
But even a country as cautious, sound, and generous as Basicland could come to ruin if it failed to address the dangers that can be caused by the ordinary accidents of life. These dangers were significant by 2012, when the extreme prosperity of Basicland had created a peculiar outcome: As their affluence and leisure time grew, Basicland's citizens more and more whiled away their time in the excitement of casino gambling. Most casino revenue now came from bets on security prices under a system used in the 1920s in the United States and called "the bucket shop system."
The winnings of the casinos eventually amounted to 25 percent of Basicland's GDP, while 22 percent of all employee earnings in Basicland were paid to persons employed by the casinos (many of whom were engineers needed elsewhere). So much time was spent at casinos that it amounted to an average of five hours per day for every citizen of Basicland, including newborn babies and the comatose elderly. Many of the gamblers were highly talented engineers attracted partly by casino poker but mostly by bets available in the bucket shop systems, with the bets now called "financial derivatives."
Many people, particularly foreigners with savings to invest, regarded this situation as disgraceful. After all, they reasoned, it was just common sense for lenders to avoid gambling addicts. As a result, almost all foreigners avoided holding Basicland's currency or owning its bonds. They feared big trouble if the gambling-addicted citizens of Basicland were suddenly faced with hardship.
And then came the twin shocks. Hydrocarbon prices rose to new highs. And in Basicland's export markets there was a dramatic increase in low-cost competition from developing countries. It was soon obvious that the same exports that had formerly amounted to 25 percent of Basicland's GDP would now only amount to 10 percent. Meanwhile, hydrocarbon imports would amount to 30 percent of GDP, instead of 15 percent. Suddenly Basicland had to come up with 30 percent of its GDP every year, in foreign currency, to pay its creditors.
How was Basicland to adjust to this brutal new reality? This problem so stumped Basicland's politicians that they asked for advice from Benfranklin Leekwanyou Vokker, an old man who was considered so virtuous and wise that he was often called the "Good Father." Such consultations were rare. Politicians usually ignored the Good Father because he made no campaign contributions.
Among the suggestions of the Good Father were the following. First, he suggested that Basicland change its laws. It should strongly discourage casino gambling, partly through a complete ban on the trading in financial derivatives, and it should encourage former casino employees—and former casino patrons—to produce and sell items that foreigners were willing to buy. Second, as this change was sure to be painful, he suggested that Basicland's citizens cheerfully embrace their fate. After all, he observed, a man diagnosed with lung cancer is willing to quit smoking and undergo surgery because it is likely to prolong his life.
The views of the Good Father drew some approval, mostly from people who admired the fiscal virtue of the Romans during the Punic Wars. But others, including many of Basicland's prominent economists, had strong objections. These economists had intense faith that any outcome at all in a free market—even wild growth in casino gambling—is constructive. Indeed, these economists were so committed to their basic faith that they looked forward to the day when Basicland would expand real securities trading, as a percentage of securities outstanding, by a factor of 100, so that it could match the speculation level present in the United States just before onslaught of the Great Recession that began in 2008.
The strong faith of these Basicland economists in the beneficence of hypergambling in both securities and financial derivatives stemmed from their utter rejection of the ideas of the great and long-dead economist who had known the most about hyperspeculation, John Maynard Keynes. Keynes had famously said, "When the capital development of a country is the byproduct of the operations of a casino, the job is likely to be ill done." It was easy for these economists to dismiss such a sentence because securities had been so long associated with respectable wealth, and financial derivatives seemed so similar to securities.
Basicland's investment and commercial bankers were hostile to change. Like the objecting economists, the bankers wanted change exactly opposite to change wanted by the Good Father. Such bankers provided constructive services to Basicland. But they had only moderate earnings, which they deeply resented because Basicland's casinos—which provided no such constructive services—reported immoderate earnings from their bucket-shop systems. Moreover, foreign investment bankers had also reported immoderate earnings after building their own bucket-shop systems—and carefully obscuring this fact with ingenious twaddle, including claims that rational risk-management systems were in place, supervised by perfect regulators. Naturally, the ambitious Basicland bankers desired to prosper like the foreign bankers. And so they came to believe that the Good Father lacked any understanding of important and eternal causes of human progress that the bankers were trying to serve by creating more bucket shops in Basicland.
Of course, the most effective political opposition to change came from the gambling casinos themselves. This was not surprising, as at least one casino was located in each legislative district. The casinos resented being compared with cancer when they saw themselves as part of a long-established industry that provided harmless pleasure while improving the thinking skills of its customers.
As it worked out, the politicians ignored the Good Father one more time, and the Basicland banks were allowed to open bucket shops and to finance the purchase and carry of real securities with extreme financial leverage. A couple of economic messes followed, during which every constituency tried to avoid hardship by deflecting it to others. Much counterproductive governmental action was taken, and the country's credit was reduced to tatters. Basicland is now under new management, using a new governmental system. It also has a new nickname: Sorrowland.
Friday, January 29, 2010
Why I Hope Gold Falls to $1,000
Why I Hope Gold Falls to $1,000
by Jeff Clark
As a self-professed gold bug, why would I possibly want my favorite investment to fall in value? Have the long hours finally caught up with me?
Au contraire; my near-constant devotion to all things gold has only served to crystallize one of the things I really want out of this. Here's a hint.
I had lunch with a reader at a recent conference, and while talking about one of my favorite subjects - gold stocks - I asked why he was invested so heavily in them. "Greed," he said bluntly and with little hesitation. I appreciated the honesty.
Let's be frank: I'm here to make money, and so are you. And that's why I hope gold falls to $1,000 again.
Let's say Bob has taken our advice and has been storing cash. I'll use $1,000 as an example. If Bob buys Yamana Gold now, he'd get about 93 shares as I write (at $10.73 per share).
Now, let's say gold drops to $1,000, about a 10% fall from here, and due to its leverage, AUY sells off by a 2-to-1 margin, meaning 20%. So with that same $1,000, Frank, who's waited for the downturn, buys 116 shares at around $8.58. Thus, instead of owning 93 shares at $10.73, he owns 116 shares at $8.58.
When Frank sells, he doesn't just make the difference between $8.58 and $10.73 (an extra 25%), he also makes 125% on the extra 23 shares he owns if Yamana doubles in a couple years, which I expect it to. So two years from now, Bob would have $2,000, but Frank would have $2,500 because he bought more shares and at a lower price. Frank makes 25% more than Bob on the same dollar investment simply by buying when gold and gold stocks fall in price.
Got $5,000 saved up? Multiply the profit by 5. And with larger amounts, you can see we're talking serious money.
I don't know if we'll see $1,000 again or not, or if Yamana will fall that low, but I would point out that corrections in the gold price can range as high as 20% (2008 notwithstanding), so a further sell-off in price would not be out of the ordinary. A 20% correction from gold's peak at $1,212.50 on December 2 would equal $970. That's not necessarily a prediction, but it shows you that price is certainly possible.
Don't like my wish? Remember, it's called a bull market for a reason; it's not a cow market or a puppy market. It's going to try and buck you off. But a correction to $1,000 or even lower can give you the chance to buy more, cheaper. Don't view sell-offs as a bad thing but rather as an opportunity.
Bring on $1,000!
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Editor of BIG GOLD
Casey Research
by Jeff Clark
As a self-professed gold bug, why would I possibly want my favorite investment to fall in value? Have the long hours finally caught up with me?
Au contraire; my near-constant devotion to all things gold has only served to crystallize one of the things I really want out of this. Here's a hint.
I had lunch with a reader at a recent conference, and while talking about one of my favorite subjects - gold stocks - I asked why he was invested so heavily in them. "Greed," he said bluntly and with little hesitation. I appreciated the honesty.
Let's be frank: I'm here to make money, and so are you. And that's why I hope gold falls to $1,000 again.
Let's say Bob has taken our advice and has been storing cash. I'll use $1,000 as an example. If Bob buys Yamana Gold now, he'd get about 93 shares as I write (at $10.73 per share).
Now, let's say gold drops to $1,000, about a 10% fall from here, and due to its leverage, AUY sells off by a 2-to-1 margin, meaning 20%. So with that same $1,000, Frank, who's waited for the downturn, buys 116 shares at around $8.58. Thus, instead of owning 93 shares at $10.73, he owns 116 shares at $8.58.
When Frank sells, he doesn't just make the difference between $8.58 and $10.73 (an extra 25%), he also makes 125% on the extra 23 shares he owns if Yamana doubles in a couple years, which I expect it to. So two years from now, Bob would have $2,000, but Frank would have $2,500 because he bought more shares and at a lower price. Frank makes 25% more than Bob on the same dollar investment simply by buying when gold and gold stocks fall in price.
Got $5,000 saved up? Multiply the profit by 5. And with larger amounts, you can see we're talking serious money.
I don't know if we'll see $1,000 again or not, or if Yamana will fall that low, but I would point out that corrections in the gold price can range as high as 20% (2008 notwithstanding), so a further sell-off in price would not be out of the ordinary. A 20% correction from gold's peak at $1,212.50 on December 2 would equal $970. That's not necessarily a prediction, but it shows you that price is certainly possible.
Don't like my wish? Remember, it's called a bull market for a reason; it's not a cow market or a puppy market. It's going to try and buck you off. But a correction to $1,000 or even lower can give you the chance to buy more, cheaper. Don't view sell-offs as a bad thing but rather as an opportunity.
Bring on $1,000!
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Jeff Clark
Editor of BIG GOLD
Casey Research
Wednesday, January 27, 2010
Grantham remarks on Supreme Court
… and the Bad News
Supremely Extreme: Another “Day That Will Live in
Infamy”
Five Supreme Court justices today announced that not only
are corporations people and that their money is free speech
– this is old hat and a very ugly hat at that – but now, there
should be no limit to the money they spend to infl uence
political outcomes. This would be one thing if corporations
really were “democratic associations” of humans that the
Founding Fathers may have wanted to protect. They are,
instead, small oligarchies of top management. Thus, the
top management of major oil and coal companies can
decide what political outcomes they want to promote,
say, unlimited production of carbon dioxide (none of their
CEOs apparently has grandchildren!), utterly without
any approval of their decisions by the millions of actual
owners. The fi nancial power of corporations was already
in danger of overwhelming the democratic process in
Congress and this makes the damage potentially unlimited
and puts the Court’s seal of approval on it. So let’s do it in
style and have a name change. The U.C.A. has a familiar
look: The United Corporations of America!
Supremely Extreme: Another “Day That Will Live in
Infamy”
Five Supreme Court justices today announced that not only
are corporations people and that their money is free speech
– this is old hat and a very ugly hat at that – but now, there
should be no limit to the money they spend to infl uence
political outcomes. This would be one thing if corporations
really were “democratic associations” of humans that the
Founding Fathers may have wanted to protect. They are,
instead, small oligarchies of top management. Thus, the
top management of major oil and coal companies can
decide what political outcomes they want to promote,
say, unlimited production of carbon dioxide (none of their
CEOs apparently has grandchildren!), utterly without
any approval of their decisions by the millions of actual
owners. The fi nancial power of corporations was already
in danger of overwhelming the democratic process in
Congress and this makes the damage potentially unlimited
and puts the Court’s seal of approval on it. So let’s do it in
style and have a name change. The U.C.A. has a familiar
look: The United Corporations of America!
Wednesday, January 13, 2010
Thursday, January 7, 2010
Average Investor Too Bullish
By MarketWatch
ANNANDALE, Va. (MarketWatch) -- Finally, after a nearly 70% rally, a large number of bears are throwing in the towel.
And that's bad news, since it means the wall of worry that the bull market has been climbing is crumbling.
Consider the average recommended equity exposure among the shortest-term stock market timers tracked by the Hulbert Financial Digest. Over the last 24 hours it jumped another 6.5 percentage points to 65.2%.
That's the highest level since late December 2006, more than three years. As recently as early November, the average stood at just 3.2%.
A similar story is being told by the sentiment survey conducted weekly by the American Association of Individual Investors. In that survey, organization members visiting the AAII website are asked to report whether they think the stock market's trend is bullish, bearish, or neutral.
To consolidate those three percentages into a single barometer, researchers often calculate the ratio of the bullish percentage to the total percentage of those that are either bullish or bearish. That ratio currently stands at 68.2%, which is the highest level since February 2007.
Finally, consider the sentiment survey conducted weekly by Investors Intelligence, the latest of which was released this morning. That survey is based on the percentage of monitored newsletters that are bullish, bearish, or neutral.
The ratio of bulls to those either bullish or bearish now stands at 74.1%, which but for slightly higher readings in the last couple of weeks, is the highest since October 2007, the month of the stock market's all-time high.
The bottom line? Market appreciation over the coming weeks therefore will have to come without the sentiment winds blowing in stocks' sails.
ANNANDALE, Va. (MarketWatch) -- Finally, after a nearly 70% rally, a large number of bears are throwing in the towel.
And that's bad news, since it means the wall of worry that the bull market has been climbing is crumbling.
Consider the average recommended equity exposure among the shortest-term stock market timers tracked by the Hulbert Financial Digest. Over the last 24 hours it jumped another 6.5 percentage points to 65.2%.
That's the highest level since late December 2006, more than three years. As recently as early November, the average stood at just 3.2%.
A similar story is being told by the sentiment survey conducted weekly by the American Association of Individual Investors. In that survey, organization members visiting the AAII website are asked to report whether they think the stock market's trend is bullish, bearish, or neutral.
To consolidate those three percentages into a single barometer, researchers often calculate the ratio of the bullish percentage to the total percentage of those that are either bullish or bearish. That ratio currently stands at 68.2%, which is the highest level since February 2007.
Finally, consider the sentiment survey conducted weekly by Investors Intelligence, the latest of which was released this morning. That survey is based on the percentage of monitored newsletters that are bullish, bearish, or neutral.
The ratio of bulls to those either bullish or bearish now stands at 74.1%, which but for slightly higher readings in the last couple of weeks, is the highest since October 2007, the month of the stock market's all-time high.
The bottom line? Market appreciation over the coming weeks therefore will have to come without the sentiment winds blowing in stocks' sails.
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