Step out of your Google search box and look at the big picture. What world is facing today: China stock market bust and strong commodity market boom after that. The truth is that flood of liquidity created by FED and Other central banks is eroding value of all currencies, all this unrestricted credit supply is chasing restricted in its nature Real Goods, creating bubbles in all asset classes from basic metals to modern art. Magic 444 number is very close now in Dow Jones China index, it could be too esoteric for financial analyses, but to put it simple - it is the same meaning for Chinese as 666 for Christians. This bubble in Chinese market is unsustainable and created by a problem of trying to keep Jinn in the box. Capped by artificially low rate of exchange of YUAN, local currency is chasing still relatively very small stock market. Suppressed low wages and uneconomic (when all real expenses accounted including environmental and health) production costs fueled by "bad" loans from State sector can not be sustained for needed healthy rate of growth. Chinese Dragon has grown up and need to be on a healthy diet of financially responsible consumption by growing middle class and rising savings reinvested into economy. What is necessary for this positive outcome? Transparent capital market, recapitalised banking sector with recycled "bad loans" for state owned enterprises. Now Bubble mentality is taking over: mutual funds and black boxes are chasing last 20-30-40 % of the upside fearing to miss the opportunity, Woos and Guys are taking their savings and putting them "to work" their magic to riches in Parabolic last leg of bull market before correction. Whole world is getting crazy with intoxication of "free" money. But trouble is already here: USA is facing stagflation - stagnating of economy growth in real terms with increasing inflation in all basic goods: energy, food and commodities. For all those goods advertised on Google you need not clicks, but bricks to produce them and now you have to compete for them with Woos and Guys. China is already preparing for necessary painfully coming back to reality. Stock market bubble need to be deflated the sooner the better. Once liquidity will dry out market will plunge 30-50% to its still solid bull uptrend line. A lot of reckless people will be hurt as usual. Shock waves will hit all asset classes. Picture will be painted as USD will fly again as "safe heaven" when all emerging markets will take a hit. Outcome could be disastrous or very positive for China, Emerging markets and world in total. In my positive scenario China need to sterilise excess liquidity by increasing real rates and reserve requirements for banks. Currency control must be relaxed so that excess capital can go overseas and secure real assets for future growth. Part of Currency reserves must be used for recapitalising banking sector with cleaning out all bad nonperforming loans, reserve diversification from "reserve currency of choice" US Dollar must be speed up by way of deployment of Investment agency and increasing share of other currencies, gold and strategic reserves of oil and basic materials. Is it my dreams or I am just reading you out loud recent headlines coming from China. I know my limits - it is headlines, Bubble will be popped out in nearest future, a lot of "wealth" will evaporate, those who survive will come back to safety of bank deposits with rising Yuan and higher deposit rate. Shock will keep people in China out of market for a while like it was in Russia after 1998. After panic SAFE investment agency and banks will step into the market at around 200 level and buy out back what they have sold to "foreigners". Increasing minimal wage will help to stimulate internal consumption growth which will become solid base for healthy economic growth in range of 5-7% per year for decade to come. No magic here but very disturbing for US consumer truth is that even if wages in China will be doubled, nobody still will be able to compete with China . US economy will continue effectively import inflation with rising prices on all basic goods produced in China. This is the phenomenon of disbalances in the world. If within next 5 months Dow will lose 50% depression in USA will be for years, China's market after 50% loss will be back in the end of 2008. Can you imaging in USA doubling of wages, energy consumption or copper consumption per capita? But it will be reality in China within next 3-5 years, which will lead to unproportional rise in consumption of basic goods and big ticket items because now biggest part of income is spent on first necessities like food and housing. What is the limited part in my vivid imagination? Real assets, gold and silver as ultimate store of value and hedge against falling USD and political disturbances, commodities which are close to peak in production and still perceived as very risky class of assets. Turn on TV and you will hear about oil at 40 dollars, talk to insiders and they are still calculating copper price at 1.o dollar per pound. Nobody could believe that this commodity bull is for real and not for couple of years. I prey and hope that shifting of power from USA in its late stage of empire as dominant force to multi polar sustained political environment will not be disturbed by war and effective reduction of demand from growing population. In all other cases careful investment in resources, particularly in junior companies will pay out handsomely. Look for trustworthy management, stable political situation and economical resources in the ground. Even if all assets initially will be hit by sell off you will be very lucky if you will have opportunity to add to your positions gold at 50USD, silver at 1.0USD and copper at 8 cents in the ground. Do not bet your house, use margin or time against yourself in option trades. But if you have capital, deploy it carefully and be ready to buy more on any pull backs. Be twice as carefull in this market: small cap stocks are easily manipulated, but volatility will be your friend with proper risk assessment, homework and discipline. Common sense secrets of trade could help you on initial steps. Go for small companies which are close to production and in the process of economic assessment of already discovered reserves. You will have double leverage of rising prices and increasing asset base of the company. I will mention few companies for your further study. Silver Wheaton (SLW) has very interesting model of effective silver bank with high leverage to silver price. This is a big cap silver company and is well on the radar screen of investment crowd. Such stocks will benefit on initial capital inflow. Tanzanian Royalty Exploration Company (TRE) is highly leveraged to price of gold and managed by legendary Jim Sinclair who is not reading the gold story, but making it. Sterling mining (SRLM.ob) will start production in December 2007. Avino Silver and Gold mines owns former producing mine and is close to production and has value of only production assets close to recent market cap. Mines Management (MGN) was able to buy out huge deposit in mining friendly Montana at boot sale price tag and now is actively moving its into production. And of cause my story will not be even close to give you the real feeling of bull market for years to come without mentioning Lundin mining (LMC) and Lundin family itself which is behind many successful projects. Recent takeover of Tenke mining is creating one of the most promising intermediate copper/zinc producers and be ready for M&A fever around such companies which will drive commodity market to new highs after consolidation phase will be finished.
Monday, May 28, 2007
Sunday, May 27, 2007
Thursday, May 24, 2007
Gold, Silver, HUI Emotion Case study
Rocket Science case study. You have a strange hobby - you are collecting plasma screens. So you are regular in your local store. You know their "normal" price. You have observed in the store that sometimes people are crazy buying the same plasmas for 40-75% mark up and thousands of them even waiting on the street and asking you to sell them if you have any. One day you will be stunned that plasmas are selling with discount at 50-75% and the same thousand people are trying to sell you some. What will be your actions in that market place? (Do not forget that you are crazy enough to have that hobby)Three most important things in Investing: Capital, Capital, Capital. CS.
I am very blessed in many ways. Good thoughts are coming to me and sometimes I am bother to mention them. I hope you did not miss my Warning Piece. First time I really ACTED as I saw the situation: could I have been more bold in Action? No question about it, but first time I really closed the sequence: Observe, Make decision, Act. Now it is very good feeling to be able to employ capital at distressed levels of pricing in areas where nothing has changed fundamentally and they just got ahead of themselves. I remember that feeling when market has turned on a dime and you Saw it before, but was Not able to Act. You just sit in gripping panic and paralyses, unable to act. You would think: tomorrow, on uptick I will Sell - only to find yourself with minus 30% from the top. No problem here if you have studied the case and made intelligent, informed decision that this asset is in the Bull market, but if you saw the Signs, made Decision and the only problem is your Will and ability to Act - your performance will be not self confident. The main question here is not even the money, but Capital itself - your ability to Judge, Find value, Act accordingly and Follow. Technical analyses is not more esoteric than our life itself: picture of all ACTS in the market regarding this Asset. It has nothing in common with Intrinsic Value of that asset, but is the footprint of market Participants' Perceived Value. It is Emotional in nature and could be easily manipulated intentionally and "naturally" as noise of the market Participants' Excitement or Fear. Fear is more stronger emotion and usually brings down perceived value in the fearful eyes very sharply. Is everything so hopeless? Nope, so far not at all. If you will be able to Buy at least not at the Top and Sell not at the Bottom, Bull market will help all idiots to believe they are genius (I am in this category according to conventional economical and financial wisdom). I really urge you if you are reading: study at least what I wrote in CS category (Secrets of Common Sense). If you have strong and strange feeling that it is BS quit immediately and never come again, talk to your CFA and sleep well. If not: Read, Think and Challenge - it will be unbearable for nature that you will see part of something and will not understand the Whole, your education will be finished without even beginning. Remember: "You will be rich or poor not those advising you". My very expensive lessons:
1. Find the BULL, not for a day, week or month, ideally for 5-10 years. Mine is Junior Mining Now. Gold, Silver, Uranium, Metals - Things. Main drivers: End of Empire and USD - PGM as store of Ultimate Value, Rising of New Powers and Leap Frog into consumption of basic Necessities.
2. Pick up companies: first Potential Value, not 10-50% - Thousand things could go wrong - you need cushion of IHPV (Insanely High Potential Value). I was hesitating for a while when found CUU.v Copper Fox Metals, but acted firmly before stock took off from 0.5-0.6 level.
3. Leave only those with Credible Management. Like Warren Buffet put it: "I have never did any good deal with bad person". Why I have taken profit on Part of CUU.v (all initial Capital is out)? Publish Resources with 0% Cutt Off is Gross and until explained is minus in my assessment.
4. Check TA what is the Timing? (sorry Sir Warren) First asset class, then Company.
5. If it is Buy, check catalyses: what will help unleash potential value? Is it in foreseeable future?
6. Make decision - act boldly, with limits but in strong fashion. With time if you are right anomaly of misspricing will be not for long in the Market.
7. Then will start the Most Important process - Following: when is to Sell? This very important stage separates Fools and Their Money. I was a champion in this League in 2001-2002. The biggest problem is leverage, if you are not an Ace, kill it as you read this piece. Only margin call could force you into loss selling usually at the bottom of the correction. Even if you did not sell at Top, but weathered the storm the Bull market is your friend until it ENDS.
8. Profit is a profit, nobody gets bankrupt taking profits. If you feel very comfortable there could be a trouble - you could be biased in your Judgement, if the charts are screaming Sell - make assessment: Fundamentals, Management, TA. Take profit on biggest winners if TA is indicating Sell. Will you buy this company now? If not - SELL. If your capital intact new ideas will come. If you are not sure take 30% profit.
It is very simple and easy, couple of millions, few years and you will master your touch. If it is all too complicated and you do not have time to read CS and think - RUN away, do something else in your life. All I need from you now is just to be good to yourself and your own money. You can Share this piece with those who close to you. We will need a lot of thinkers with capital and positive energy. Do not forget the First Sentence.
Sunday, May 20, 2007
Saturday, May 19, 2007
Gold sales by Central banks
"The Banco de Espana's holdings of foreign currencies and gold have fallen to €13.2bn (£9.02bn), equivalent to 12 days of imports.
Over the past two months the Banco de España has sold off 80 tonnes of gold, flooding the world market with enough bullion to dampen the usual spring rally. The bank has reduced its holdings of US Treasuries, British gilts, and other investments at a similar rate."
Over the past two months the Banco de España has sold off 80 tonnes of gold, flooding the world market with enough bullion to dampen the usual spring rally. The bank has reduced its holdings of US Treasuries, British gilts, and other investments at a similar rate."
Sunday, May 13, 2007
Disaster is coming, it is always here, do not go to bunker - you will miss the best part of life. CS
Save the World and the Great Country, start from yourself, turn off TV and read a book. Think and write something, invest in yourself, seek for signs and meaning, energy and trust. Look around and act, first inside and the rest will follow, just do not let it pass away, give it a Try...
"Every Empire begins with a humbug. Later it develops into mass illusion, self-congratulation, hallucination, farce, and finally disaster. Until the disaster comes, you never know quite where you are. Because for every imbecility that comes along, there are dozens of eager intellectuals ready to promote it and at least half of the population is ready to believe it. Bill Bonner and Addison Wiggin"
"Depressions or recessions are caused by basic economic changes of supply or demand or credit. What leaders say about circumstances cannot in itself help or hurt the situation, except perhaps for a few days. Harry D. Schultz"
Signs A Bull Market is Ending (based on HDS):
1. Investment sentiment is still bullish, but economic structure continues to weaken.
2. P/E ratios - market is "...driven by P/E expansion" what is it? Maybe it is just stupidity expansion?! Earnings trick in Q1 2007: cut all estimates and get amused on Bubble Vision on unexpected strong earnings. Wall Streat beloved Google EPS fell in Q1/07 over Q4/06.
3. FED is caught in between: can not CUT in order to stimulate economy because USD will fall further triggering massive exodus of IOU Holders, can not Raise - consumer is on his knees already.
4. Consumer and Investor confidence is still at its peak as it should be at the Top.
5. Gold. In times of uncertainty interest in gold and gold shares picks up. All this spring silent dumping of gold into the market by Central Banks can not break the neck of the Bull. How longer Central bankers will be allowed to commit their crime against their own citizens? It is rhetorical question, the whole system design like it. Just do not get caught in it.
6. Real Estate. Now is in apparent Bear market, killing perceived wealth and consumer's ability to spend beyond any financial reason..
7. Stock market action and general excitement about it. Free money is everywhere.
8. Unanimity of Bullish forecast. Turn on Bubble Vision.
9. Sharp rise in Debt. All M&A is liquidity driven, Public/Private flip/flop.
Watch yourself and your "genius" touch: "...tide is lifting all boats, only when it is coming off you can see who is without swimming trunks" Warren Buffet.
Have a nice weekend.
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