Sunday, October 10, 2010

The End of Money: Why and How to invest in Lithium and what Gold at 5000 USD/oz will tell us? - Inflation, Inflation, Inflation. TNR.v, CZX.v,,, RM.v, LMR.v, SGC.v,, CUU.v,, KTN.v, GBN.v, BVA.v, BVG.v, BTT.v, ASM.v, MGN,

CS. Nobody told us, when we will be there - but we are all going in that direction.

Expect the unexpected and new corrections will provide new Entry Points in these Bulls. All you have to do is to find them and ride the course with the discipline - it is the part which separates boys from the men and investors from their money.

As you have noticed, we have almost stopped  our preaching about Gold - now Jim Cramer is doing this job for us. We can concentrate on our investment themes and particular instruments to be in the right boat, when the tide will come.

Recent run in Gold reflects the public distrust for all Fiat currencies. US dollar will always have a particular focus here.

We have the very strong complications with FED engaged in QE in a situation, when Federal Reserve is as federal as Federal Express. In absence of Gold - as the base for the monetary system - with it's external disciple, we have a traders paradise, when Enron is auditing itself. Arthur Anderson has not saved the shareholders of Enron and collapsed with it's client - today in our monetary system nobody even pretends to be sane any more.

Last few weeks we are hearing a lot of voices about the currency war, when all governments are trying to debase their currencies again each other. So far they are all successful in driving Gold up against all Fiat currencies.

US Dollar will have it's own destiny here: General Bernanke is winning his war against deflation. US corp. With it's total obligations above 100 Trillion dollars will have to debase it currency not only against Gold on par with other Fiat currencies, but also against other fiat currencies. We will remind you the basic math about inflation economics and the value of Debt.

"7. China holding record amount of treasuries and US Dollar denominated assets is the interesting combination with idea of national security, but we do not bank on Crash - gradual collapse in US Dollar will do the trick: 7% inflation in the real terms will slash the debt by almost 50% within next eleven years."

Buyers of US Treasuries are at least suicidal now. This Bubble is popping in front of our eyes.

Deflationists just do not get it: inflation is the monetary process of expanding the monetary base. In absence of external discipline - like gold in a gold based monetary system - nothing and nobody prevents the FED to create money out of thin air and distribute it into the system. In the most extreme circumstances General Bernanke promised to use Choppers to bring it - if tomorrow every household in U.S. will receive a cheque for 1 million - what kind of deflation will we be talking about? Is it insane? Not in our place.

Actually, deflation camp already has their deflation unfolding: just divide prices of  every asset class for the last few years by gold price to nominate prices in gold terms - they are all in a steep decline.

It is not only our theory any more - FED chairman Mr Bernanke has openly demanded more inflation and other members of FED were talking about it extensively last few weeks.

Update Oct. 12, 2010

  In order to know where we are going, always keep your eyes on our friends across the pond - UK was ahead of U.S.  in banks bail out and announced QE - now it is ahead with looming inflation and stagnating growth:

Bloomberg: U.K. Inflation Topped 3% Limit for Seventh Month in September

Gold will be go much higher from here, it will not be the straight line, but every set back will provide an investment opportunity in Gold and Silver space. We will share with our thoughts and companies we like and you will be cautioned to make your own DD as usual.

Next stage will be fight for the resources and M&A activity at all stages of investing in Gold mining cycle. With rising Gold price and inflated paper Majors will shop for juniors to buy time and gold in the ground. Jim Puplava will be a very good narrator to all our travel maps and reports about our journey. With rising gold, price price of physical gold will become even more prohibitive, we do agree with Jim that people will start to buy gold mining shares again with their easy to run discount brokerage accounts.

With all this inflation unfolding we have another ground breaking, tectonic shift: Peak Oil multiplied by inflationary pressure on prices of all commodities. If gold at 5000 USD/oz will affect only very small part of our society - oil prices above 100 USD/barrel will affect everyone and can tear apart the canvas of our society. Here where Electric Cars and new oil - Lithium and REE are coming into the picture with it's new generational bull mega trend - Next Big Thing in action.

We did pretty good with "old and barbaric" in the Google age asset - Gold - we dare to put our money in the age of Twitter and Facebook on the future again and start to think in advance how all these kids are going to drive their kids to the soccer games.

Once or twice we already had "the feeling" - just a few times will be enough to make things right:

"Time when the prediction was made that Google could deep below 250 in a severe Bear market valuation passed in our memory as so distant and happy that it is almost not worth mentioning. But the call was done and was right on the money.

Other observations could come into life with recent developments. Announcement about the new Head of Treasury fired the rally in the market. Yesterday all hope was lost: VIX made break up, DOW has violated Bearish Flag downwards and US Dollar almost broke up to upside. Today was the different story and first Gold start to rally and overtake very important resistances on the way to 800. HUI, GDX and all Goldies have followed in unison with gains up to 31% in Barrick Gold ABX. November, 2008"

"This is why we did not like to short the last leg down and preferred to accumulate Rally plays like China FXI, Zinc CZX.v, Zinc/Copper, CUU.v, Grains Now the chances are that US Dollar will go finally down on fundamentals, markets will rally and then US Corp should prey that Oil will stay below 75, our Lithum ideas will be handy as well now. Commodities is the place to be for us again: base metals Juniors are sold into the ground - for China play and Gold and Silver for "Bet against Central Banks", it is a new fashion among Hedge Funds, when they are buying gold. March, 2009"

But back to the Lithium and how we are going to drive with gold at 5000:

"We have been proudly running Gold Bull for nearly ten years now: Gold first, than Majors and follow up on Junior side. We were always wondering about Future of Energy and have collected some great memories on Uranium Run, Solar and Water plays. Gold Bull has years to run, but we are searching constantly for new Macro trends - it is very interesting to find out what will be the next Bull which will come out of these rubbles in case we are right and Inflation will be the answer to the Deflation war scenario. It is time for Lithium to come into picture.

Lithium is the leveraged play on Peak Oil and rising Oil price with coming Inflation. Sector is very small and market is even more smaller - everything is ready for the parabolic move in case of supporting fundamentals.

Recent Oil Spill shows the real price for Oil and leaves no doubt for us that there will be no more cheap oil: offshore drilling is costly now, it will be even more costly later. Relatively cheap Oil is in the hands of state owned companies in not so friendly to U.S. places. Oil squeeze will come from diminishing production rates and rising Inflation. The move will be even more explosive than in the Gold market - in the end only minority of people is effected by the gold price even now, Oil is the underlining of all Western Energy Diet. It is not sustainable. Emerging markets are taking more and more share of world wide production, oil producing countries are spending more at home. If you account all cost to produce, deliver and protect Oil supply to U.S. corp the price is already above 150 USD/barrel."

Peak Oil theory moves from status of almost conspiracy theory and into the official government reports:

More on Peak Oil:

This year we have quite a few warnings already about Peak Oil from main stream economists, universities, US military and government agencies all around the world. The question now is not if, but when is it going to happen.

We have time still, but it is running out very fast. After a certain point in the oil price increase the only concern we are going to have about Electric Cars will be their availability on a mass scale to preserve our way of life and freedom."

In the last weeks we had a very important confirmation of returning risk appetite and liquidity coming into the junior mining sector. Most of our Summer 2010 Picks have been breaking to the upside already, finally reflecting the fundamentals and catching up with Gold, Silver, Copper and Zinc prices and Majors' valuations. M&A deals like in Potash, Gold, Zinc and Lithium to name a few, will drive this process further. Junior mining companies are holding resources, which majors are ready to buy to keep up their production rate - trading premium for time and risk developing them.

It's much more risky, but the reward is based on a very high leverage of exploration and development plays in these micro cap companies. If our investment thesis is wrong or we chose the wrong company, the end game will be brutal to our investment outcome - therefore you have to know what you are doing. Today we will discuss our lithium hit list below: all these companies are in the Byron Capital Lithium Index and we own these stocks or have owned them before. The game here is based on the combination of the rising price of underlining commodity (Lithium Bull this time), multiplied by the developments in this particular junior: exploration discoveries and resource definition with strategic partners involved and up to the M&A as it happened with Salares Lithium recently.

As usual, please do not forget that we do not provide any investment advise on this blog."

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