Mobius: Positive on Commodities, China

Monday, September 1st, 2008

Mark Mobius, executive chairman of Templeton Asset Management, is very positive on commodities, especially integrated emerging markets oil companies including Chinese and Indian energy firms like Reliance. He shares his views with CNBC’s Martin Soong and Sri Jegarajah.

click to view video

“China’s Still a Great Investment”

The long-term story in China is still very bright. And investors should take note that H-shares are currently trading at a substantial discount to their A-share counterparts says Mark Mobius, executive chairman at Templeton Asset Management. He also goes further afield to say that Russia is in a sweet spot,  that Putin has done all the right things for Russia and comments positively that Russia’s diplomacy in the Georgia affair has far reaching foreign relations benefits.

Tags: China, Commodities, Gold, Iron Ore, Mark Mobius, Metals, nickel, Oil & Gas
Posted in Agriculture, BRIC, Brazil, China, Commodities, Emerging Markets, Gold, India, Infrastructure, Markets, Oil & Gas | No Comments »

Let Fannie, Freddie Fail: Jim Rogers

Monday, September 1st, 2008

Fannie Mae and Freddie Mac should not be saved if they go bankrupt, and economic stimulus packages do more harm to economies in the long run than good in the short term, Jim Rogers, CEO of Rogers Holdings, told CNBC Friday, August 29, 2008 at 3:15AM from Singapore.

View Part 1, Click Play

View Part 2, Click Play

Tags: Credit Markets, Derivatives, Fannie Mae, Financials, Freddie Mac, Jim Rogers, Mortgage
Posted in Banks, Credit Markets, Economy, Financials, Geo-political, Gold, Markets, Monetary Policy, Strategy, US Stocks, wisdom | No Comments »

PIMCO Co-CEO: When Markets Collide

Sunday, August 31st, 2008

About a month ago, Charlie Rose interviewed PIMCO’s Mohamed El Erian. El Erian is one of the country’s most successful money managers. He’s the co-CEO of the Pacific Investment Management Company, better known as PIMCO which oversees more than 829 billion dollars. He previously led Harvard University’s endowment to substantial returns on investment. In the interview, which is available below, Charlie Rose speaks to him about his new book “When Markets Collide” and how he sees the global economy today.

View Part 1, Click Play

View Part 2, Click Play

View Part 3, Click Play

Tags: credit market, Derivatives, El-Erian, PIMCO
Posted in Banks, China, Credit Markets, Economy, Emerging Markets, Financials, Fixed Income, Gold, India, Investment Strategy, Markets, Monetary Policy | No Comments »

Hendry: Speculation is Dead, Gold is Heading to $600

Saturday, August 30th, 2008

As you know, GreenLightAdvisor.com is a huge fan of the outspoken Hugh Hendry, CIO, Eclectica Asset, who has been a unique, eloquent, and brash voice in this market. Its our sense that Hendry is also uniquely alone, and lucid, in the marketplace in terms of his outlook, and for this reason should be added to your must see/must listen to list.

click image to watch

The segment which aired August 19, 2008 on CNBC Europe, also contains midway, a terrific interview with GE CEO Jeff Immelt.

“There is no role for speculation or speculators today. This is kaput,” Hendry said. “If we were Second World War generals, we’ve exposed our flanks. We’ve been wiped out. This is about fundamentals … this is about losing money.”

As the crisis unfolds, the policymakers’ focus should shift from the threat of inflation to that of the world economic downturn, which could be more severe than economists anticipate, he said. (Watch Hendry’s interview below for more on the economy, inflation and commodities).

China, which many believe will balance out slowdowns elsewhere, will struggle if difficulties in the U.S. continue, while the current spike in producer prices is just a hangover from rising oil prices earlier this year, Hendry said.

“I fear that the central bankers of the world are fighting yesterday’s battle,” he said.

As for the banking sector, it is “insolvent,” Hendry said, adding he can’t tell just how low those stocks will go.

Tags: Banks, Commodities, Economy, Hugh Hendry, Monetary Policy, Recession
Posted in BRIC, Banks, Brazil, China, Commodities, Credit Markets, Crude Oil, Economy, Emerging Markets, Financials, Fixed Income, Gold, India, International Markets, Markets, inflation | No Comments »

Commodity Snapshot

Saturday, August 30th, 2008

Below we provide Bespoke’s trading range charts of ten major commodities.  The green shading represents two standard deviations above and below the commodity’s 50-day moving average, and moves above and below indicate extreme overbought and oversold levels.  It’s no news that commodities have suffered major pullbacks over the last two months, and the charts below provide a good view on how bad it has been.

After trading at the top of its range for what seemed like forever, oil finally traded to the bottom of its range late last week, and after touching extreme oversold territory, it finally bounced for a couple of days, only to see big declines again on Friday.  Like most other commodities, natural gas unfortunately hasn’t gotten a bounce.  Since touching 13.58 in early July, nat gas is down 42%.

While gold declines from $1000 to under $800 make the headlines for precious metals, platinum and silver have actually gotten hit harder.  From their peaks, silver has fallen 38% and platinum has fallen 40%.

Corn, wheat, orange juice and coffee have actually staged some pretty good rallies off of oversold levels over the last couple of weeks.  Wheat almost touched overbought territory last week, but all four are still well off their highs earlier this year.

Tags: coffee, Commodities, Metals, Oil and Gas
Posted in Agriculture, Commodities, Crude Oil, Gold, Oil & Gas, energy | No Comments »

Global P/E Ratios and Dividend Yields

Friday, August 15th, 2008

Below we highlight the estimated current year P/E ratios and dividend yields for the major equity indices of 13 countries.  As shown, Europe has the lowest estimated P/E ratios, with Italy, the UK and France all below 10.  The US ranks 3rd to last behind China and Japan.  European equity markets also offer some attractive dividend yields well above 4%.

Source: Bespoke Investment Group

Posted in Gold, Markets | No Comments »

UPS Hopes China Ads Deliver

Sunday, August 10th, 2008

Check out the new ‘China Only’ UPS ads, that we will never see on TV in North America. UPS is really pinning its hopes on these, now ubiquitous, China ads. Judging by the message of the ads, it appears that UPS understands that what the Chinese revere is good ol’ American ingenuity, probably more than American culture. You don’t need to understand Chinese to get it. China is an integral part of America’s corporate growth strategy.

In recent weeks, UPS’s ads have become ubiquitous in China, showing up on buses and subways, on TV and radio, and on the luggage carousels at Beijing International Airport. The tagline on the billboards targets China’s emerging business managers: “If UPS can fully assist the Beijing 2008 Olympics, they can fully assist you.”

Its not just advertising or talk. The company is putting its money where its mouth is:

UPS has been planning for this for three years, timing all the traffic lights along its Beijing delivery routes and measuring the height and width of every bridge, tunnel and overpass. The company estimates it will have handled 19 million pieces of equipment and other items by the end of the Games, using resources that include 2,000 employees and 217 trucks.

The target isn’t TNT, its China, and China acquisitions.

Source: WSJ.com. Alex Roth, August 11, 2008, UPS Hopes China Ads Deliver

Posted in Gold, Markets, inflation | No Comments »

Video: Nouriel Roubini (3 Parts)

Friday, July 25th, 2008

Nouriel Roubini, NYU Stern School of Business, opines about the market, the credit crisis, and the housing market in this 3 part interview:

Bear Market Only Half Over, But It’s Not Armageddon

More Than $1 Trillion Needed to Solve Housing Crisis

‘They’re All Toast’: Roubini Says Brokers, Even Goldman, Can’t Stay Independent 

Sources:
Video Interview on Tech Ticker: Roubini: “Bear Market Only Half Over, But It’s Not Armageddon”

Tags: Banks, Brokers, Economics, Financials, Housing Market, Nouriel Roubini, RGE Monitor
Posted in Credit Markets, Financials, Gold, Markets, Monetary Policy | No Comments »

Video: Faber Says Fannie, Freddie Should Split Up, Not Get Aid

Friday, July 25th, 2008

Investor Marc Faber, publisher of the Gloom, Boom & Doom Report, talks about the future of Fannie Mae and Freddie Mac, the global economy, and the outlook for stocks and commodities. Faber said Freddie Mac and Fannie Mae should close down their business or split into private companies and not get government aid.

click for video

00:00 “The world is in recession already.”
01:35 Earnings to “decelerate”; technology stocks
02:59 Need to close down or split Fannie, Freddie
05:11 Concerns about technology stocks
05:41 S&P 500 forecast; outlook for interest rates
07:50 “The Fed is totally ineffective.”
08:39 Outlook for oil prices, commodity markets
10:35 Credit crunch, impact on economy
11:24 Overseas interest in U.S. assets; China
13:46 U.S. resource companies “attractive” to Asia
14:47 Worst case: “colossal bust with inflation”

Source:

Faber Says Fannie, Freddie Should Split Up, Not Get Aid

Bloomberg, July 23, 2008 07:22 EDT

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=af89KR4uyEGI

Tags: Bail Out, Credit Crisis, Fannie Mae, Freddie Mac, Marc Faber
Posted in Banks, Commodities, Credit Markets, Financials, Geo-political, Gold, Markets | No Comments »

Horizons BetaPro Bull Plus and Bear Plus ETFs

Friday, July 11th, 2008

Canadian investors looking for the equivalent of the popular Proshares which are available on American exchanges can do so via Horizons BetaPro ETFs which trade on the TSX. These ETFs allow investors with long-only accounts to easily bet against the market or hedge their bets.  The Horizons BetaPro ETFs provide either double or double the inverse of the daily returns of the asset classes they track.  In the current market environment, the HBP Financials Bear Plus ETF (up 31.4%) and HBP Nymex Crude Oil Bull Plus (up 113.8%) have been huge winners.

Below is a listing of Horizons BetaPro ETFs and their YTD returns. YTD returns are not available for the funds launched this year.

Tags: Agricultural Grains, Bear Plus, Bull Plus, ETF, Financials, Horizons BetaPro, Howard Atkinson, JovFunds, Mining, Natural Gas, Nymex, Proshares, S&P 500, TSX 60, ultrashort, US Dollar
Posted in Agriculture, Canadian Stocks, Commodities, Crude Oil, ETF, Emerging Markets, Financials, Fixed Income, Gold, Markets, Oil & Gas, US Stocks, mining stocks | No Comments »

Gold vs. Oil Ratio

Monday, June 30th, 2008

July 2, 2008 - Courtesy of BMG Inc. - The Gold:Oil Ratio gives us a curious chart. What is to be made of this comparison between two commodities? Some will argue that gold is a currency, and that this chart shows an inverse price for oil in real money, gold. With oil at all–time highs and gold just off of its own high price, the two are showing the effects of inflation as they increase in price with every new US dollar printed. The relationship between the two are seen in this chart, and interesting points are noted.

Hurricane Katrina gave us an oil price spike in August 2005, which shows up as a sharp bottom in the chart. Gold’s run to over $1000 earlier this year shows up as a top, followed by a sharp decline in the ratio as oil prices ran up to $140 per barrel while gold retreated to the $900 area. This seesaw movement of this ratio’s chart may only be indicating the ebb and flow of these two markets. But we can take something from the long-term average of this ratio of 15: If oil is the “right price” and the average of 15 is applied, the price of gold would be headed towards $2025. If gold is at the right price, then oil would be headed to $60. Believe either of those calculations at your own peril. The ratio spends time above the long-term average of 15 typically during a bull market in equities. The average for this decade is around 10.

With this value, the ratio suggests gold would be $1350 or oil $90; perhaps these are more reasonable short-term targets as suggested by this ratio.

www.bmsinc.ca/pdf/goldoil2008.pdf

Tags: Barisheff, BMG Inc., Gold, oil, Ratio
Posted in Commodities, Gold, Markets, oil | No Comments »

Interview: Nick Barisheff, Bullion Management Group Inc.

Tuesday, June 17th, 2008

Exclusive Interview
Nick Barisheff,
President and CEO,
Bullion Management Group Inc.

This week we interview Mr. Nick Barisheff, President & CEO, Bullion Management Group, and discuss with him the importance of gold bullion. Mr. Barisheff founded Bullion Management Group Inc. in 1997, and is the portfolio manager of BMG BullionFund, Canada’s only open-ended fund investing purely in gold, silver, and platinum bullion.

For a PDF version, click here:[PDF] Interview with Nick Barisheff, BMG Inc.  Here is the interview: 

GreenLightAdvisor.com: What’s the most important thing people need to understand about gold?
 
Nick Barisheff: Many people think gold is a commodity like copper, zinc or pork bellies, but it has 3,000 years of history as money. It was money that no government created by edict.  It was just adopted for usage by itself, and it was and still is the best form of money.  Currently, we have a 37-year global experiment in paper money.  All prior paper money experiments ended in hyperinflation, with the currencies becoming worthless.  All previous hyperinflations were contained within a single country, but this time, because of the reserve status of the US dollar, it is likely to be global in nature.

Right now, the price of gold is rising while most currencies are losing purchasing power as well as their value against gold.  Gold comes back into its monetary role when there’s a loss of confidence in the financial system or in paper money, and that’s when people are attracted to it.
Before 1971, the monetary system was governed by the Bretton Woods Agreement. Under that agreement, the US dollar was backed by gold, and other currencies were pegged to the dollar.  Other countries could trade their US dollars for gold.  Essentially, US gold indirectly backed all other currencies. Then things changed.  As the US was getting into the Vietnam War and into President Johnson’s policy of guns and butter, US gold reserves started declining.  Countries holding dollars were presenting their US dollars and asking for gold in return, and that led to US gold reserves dropping from a peak of 22,000 tonnes to 8,800 tonnes. On August 15, 1971, President Nixon “closed the gold window” and stopped the exchange of US dollars for gold.  Closing the gold window was a euphemism, but basically the US declared bankruptcy. When you can’t meet your obligations when they are due, that’s what it is. So from that point in time, we’ve had 37 years where the entire world has been on a global fiat currency monetary system.

Since 1971, when the dollar was freed from the constraints imposed on a currency backed by gold, the US has experienced increasing federal government and current account deficits.  The US is now borrowing $800 billion annually to fund its consumption of foreign-made goods and commodities, and the federal government is running a deficit of almost $350 billion.  At some point, foreigners will become unwilling to continue funding US expenditures, forcing the Federal Reserve to expand the money supply at a faster pace.  This will result in rising inflation, rising interest rates and a continuous decline in the US dollar.
 
GLA: We’ve had the fastest money supply growth in almost 40 years that’s resulting in increased inflation. Why would an investor want to go into T-bills, given that interest rates don’t even cover half of the stated inflation rate, which we know isn’t even the real inflation rate?
 
NB: For the first time in history, we have an unlimited ability, by all central banks, to print,  however much money we want, so to speak.  Apart from the US M3 money supply growing at about 20%, we also have India and China growing theirs at about the same rate. China is at 18%, India is at 20%, and Russia is at 45%. As China or India sell goods to the US, they take in US dollars and they print yuan or rupees against those US dollars.  Japan’s a little different; there, individuals and corporations can take their US dollars and buy US assets themselves. In China you have to turn your US dollars in to the central bank.

In today’s inflationary environment, many who invest in fixed income investment do not appreciate that instead of being “safe” investments, they are in fact guaranteed losses of purchasing power when you take inflation and taxation into account.  We have done some analysis into a systematic withdrawal from our Fund for those investors requiring income.  Based on the fact that precious metals have a long track record of staying ahead of inflation, an investor would be far better off in precious metals in terms of maintaining principal after inflation and having more after-tax cash flow to spend.
 
GLA: What did you think of John Embry’s (Sprott Asset Management) recent article about the manipulation of the price of gold? His assertion was that the central banks are deliberately keeping gold below $1,000 per ounce.
 
NB: John and Eric Sprott have recently written an extensive report called Not Free, Not Fair.  The report brings forth a great deal of evidence that the precious metals markets may be manipulated.  While it may seem like there’s a conspiracy to suppress the gold price, I think it’s simpler than that.  It’s a well know fact that it is the job of central banks to manage their country’s currency, that’s part of their mandate.  Central banks understand that gold is a currency, but one that they can’t expand as easily as paper money.  I don’t think there is any lack of understanding on the part of central bankers that gold is an alternative currency.
 
GLA: Isn’t gold considered to be just a commodity with no real monetary role anymore?
 
NB:  I’d like to refer to an article by Tony Fell , and it’s particularly interesting, given that he was chairman of RBC Capital Markets at the time of writing. He talks about how gold has three attributes: it’s a commodity, a store of value and a currency. He says so many people now think of gold only as a commodity or jewellery, or as an archaic relic, that there’s a feeling of “who needs it anymore?”  People don’t think of it as money.
 
However, the daily sales volume gives a conclusive indicator that gold is much more than an industrial commodity. The physical turnover of gold by members of the UK’s London Bullion Marketing Association is about *$25 billion per day. We’re talking about net turnover between the LBMA members. The volume is estimated at 7-10 times that amount. 
 
It’s pretty clear that these are currency transactions. That’s why gold, silver and platinum trade on the currency desks of all the banks and brokerages, not the commodity desks.
What people need to know is that gold is a currency [like dollars or euros or yen]. Gold is not trading at these volumes as a commodity or as some archaic relic.
 
GLA: What are your thoughts on technical analysis, given that gold is a currency?
 
NB: Technical analysis works if you’re looking at widely distributed stocks like the S&P 500, for example, where there are many, many transactions that accurately reflect public sentiment. The price of gold, however, can be impacted by one country, or one very wealthy individual who wakes up one morning and decides to buy, and then you can throw the charts away. Or when a government decides to sell or a government intervenes. I’ve looked at technical analysis for gold in the past and tried to back-test with various techniques and found that they don’t work more often than they do.  In the most recent case, there is no justification for the drop in gold price; it should have been rising because nothing has fundamentally changed. In fact, the fundamentals got worse and the gold price should have rallied.  None of the problems went away; nothing was solved; the conditions are as bad as or worse than they were previously. So the drop in gold’s price has been a false decline.
 
GLA: So, it’s the value of paper currency that changes, not the value of gold [so to speak]?
 
NB:  One of the attributes of gold as money is that you can’t simply create it at will, like paper money. It’s no one else’s promise of performance and it’s not someone else’s liability. It’s not going to zero, no matter what.  And, whether we’re moving the measuring stick of inflation or deflation really doesn’t matter, because the way gold should be measured is in terms of purchasing power.  It doesn’t matter if gold is priced at $1,000 in paper money per ounce or $2 in paper money per ounce, it will retain its purchasing power in either circumstance.
 
The first important step in the big picture of understanding gold is that it is a store of wealth with a 3,000 year history, and it’s money. Over the long term, it retains its purchasing power. That’s why they say that an ounce of gold will always buy a man’s suit.
 
Apart from that, the US dollar is down 85% in purchasing power since 1971. In 1971 you could buy a car with 100 ounces of gold; a car was about $3,500 and gold was $35 an ounce.  With 1,000 ounces, or about $35,000, you could buy a house. Today, you could buy several cars or a luxury car with 100 ounces, and a mansion with 1,000 ounces.  You could also buy more units of the Dow Jones Industrial Average with your ounce today than you could in 1971. So that ounce has preserved its purchasing power while currencies have lost over 80% of their value.
 
GLA: Apparently, in the last 40 or 50 years, there’s only been three years that there was net selling by gold investors, three years out of almost half a century. Is this true?
 
NB: People who hold bullion tend to hold it for a long time, as the core of their entire wealth.  It’s not sold once you understand its basic characteristics, because you have to have a reason to sell it, you have to use it to buy something better.  I tend to look at investment performance as to whether I end up with more gold ounces or less gold ounces rather than percentage returns; you get a different conclusion then. For example, if you had invested 44 ounces in the Dow in 2000, you would now get back only 14 ounces.
 
This current cycle is not a conventional bull market in precious metals; I think we’re in the midst of a change in the global monetary system. This is not going to be like a typical commodity cycle where we go up for four years and down for four years; I think we’re witnessing a transition into another monetary system, whatever form that may take. At the end of this period the US dollar will no longer be the world’s reserve currency.
 
GLA: What happens if the US dollar ceases to be the standard?
 
NB: What happened when the British pound ceased to be the standard?  It just ceased to be the standard.  Its decline in value is still ongoing.  It’s happened to every empire throughout history: the British, the Roman, the Greek, the Spanish, the Persian, and the Chinese. Every single empire ended up debasing their currency in order to maintain the empire.
 
GLA:  Is gold likely to increase further going forward or has it topped and investors have missed out?
 
Currently, we have a lot of noise in terms of the credit contraction, real estate bubble, record high debt at all levels, dangerous derivatives vulnerabilities and unsustainable US current account and trade deficits.  These could still blow up into bigger problems at any time. However let’s hope they get resolved or at the very least postponed somehow.
 
But there are two factors that are not changeable in all of this.
 
First: The US has to print money on an accelerating basis. Has to – because of the underfunded Social Security and Medicare obligations – which at present are about $60 trillion. If you took all of the net earnings of US individuals and companies it would not be enough to pay that off. You can’t tax people enough and politically you cannot tell everybody, “Sorry, we can’t give you your Social Security – we don’t have the money. And no Medicare either.” So they have to keep printing money.
 
Second: The issue of Peak Oil – it used to be a debate as to when the production of oil would peak. Now it looks like that has already happened, in March 2006.  As a result we have a situation where oil production is declining while demand is increasing, particularly from India and China.  This will result in ever-increasing oil prices, and also increasing prices for almost every product and service.
 
As these two forces – increased money printing and peak oil – interact, the result is a declining dollar alongside constantly increasing oil prices.  This leads to even greater oil price increases in an effort to offset the dollar decline.  These two highly inflationary factors are working in tandem, and they can’t be changed.
 
Therefore, as oil rises and the dollar declines, commodities – and particularly precious metals – will continue to rise.
 
GLA: What’s the relationship between oil and gold?
 
NB: There’s not necessarily a great deal of correlation between the two in the short term. However, in the longer term, the correlation has been in the order of about 16 barrels of oil for every ounce of gold.
 
GLA: Has that been consistent long term and what is the outlook for precious metals?
 
NB: With only short-term fluctuations, this ratio has held up over the long term. At this point the price of gold is undervalued compared to the price of oil. Gold should be closer to $1,500 an ounce if you use this measure.
 
On top of this kind of inflationary issue eroding financial confidence, we’re at peak production in gold. When the price of gold was low, miners employed high-grading to get the most easily attainable gold out of the ground. As the price rises, miners resort to lower-grade mining, which has become worthwhile – but in some cases you have to sift through tonnes of ore for each ounce.
Platinum, for instance; it takes six months to get an ounce of platinum out of roughly 10,000 tonnes of ore. Right now, almost all the platinum produced originates in South Africa, and the mines are miles underground, and electricity intensive. Power shortages in South Africa are interfering with production and slowing things down. All these forces are coming together, slowing production and driving up prices.
With silver, most of the aboveground reserves have been depleted – most of the silver that is produced is consumed each and every year. Silver also has two demand drivers – monetary and industrial. The number of industrial applications are growing every year while the monetary demand has also been growing in the past few years. It is important to remember that “silver” means “money” in several languages.
 
GLA: Why is gold so important as an element of diversification for investors?
 
NB: Take a look at the cycle from 1968 to 1982 – during that time it took stocks the whole 14 years to break even.  If you factor inflation into it, it actually took until 1995. So stocks didn’t look so good in the past cycle, and they are not looking very good now. The DJIA is well below its inflation-adjusted highs. Its performance is much worse when measured in gold ounces. The DJIA has declined from a high of 44 ounces of gold in 2000 to about 14 today, but if you look at a chart the Dow appears to be at new highs.  It’s like taking the Zimbabwe stock market and saying, “Look how well Zimbabwean stocks have done; the market was up 8,000%.”  But what if we adjust for the 100,000% inflation in that country? Not so good, is it?
 
BMG BullionFund is internally diversified.  We buy physical gold, platinum, and silver in equal amounts. While some people like to focus on gold, they would miss out on the fact that silver and platinum have both outperformed gold since the beginning of this cycle in 2002.
 
GLA: What do you do about inflation?
 
NB: First, it is important to look at real inflation. What is real inflation? The real number is around 9%, not 3%. The calculations the government uses for the Consumer Price Index (CPI) are really meaningless as a true inflation indicator. The real definition of inflation is an increase in the money supply that leads to an increase in prices. Prices do not increase on their own unless you have a shortage; when you increase the money supply, what you’re really doing is debasing the currency, and as the purchasing power of the currency declines prices appear to be rising. So with the US money supply (M3) growing at 20%, Canada’s growing at 9%, and most other countries’ growing at around 15%, that’s going to result in rising prices and real inflation.
 
If you take real inflation into account, Wainwright Economics suggests that the appropriate bullion allocation for a bond investor’s portfolio is 18%, and for the equity investor’s portfolio 40%, and that’s just to break even with inflation. Although this may sound incredible, think of the 1970s. How much bullion was required just to break even in an equity portfolio?  Bullion went up 2,300%, while equities were flat on a nominal basis. Inflation was 15%.
 
So without even getting wrapped up in a discussion about the complex subject of money, those two points are fairly straightforward. Ibbotson Associates confirmed that precious metals are the most negatively correlated asset class to the traditional financial assets, so it gives the biggest bang for the buck for the least amount of allocation. In the process you also achieve a more balanced, diversified portfolio. Advisors would do well to have an allocation to precious metals to protect their clients from under-diversification.
 
GLA: Do you think this pullback in gold is an opportunity to add to positions at this time?
 
NB: Yes as long as there hasn’t been a major change in the fundamentals that drive the price. When these pullbacks occur, you always get some technical interpretations, whether it’s conventional technical analysis or Elliot Wave, coming out with the idea that the bull market in precious metals is over and that it’s now going down forever and so on.
 
When these things happen, you have to ask if anything changed fundamentally to justify that decline.  If nothing changed fundamentally, the only conclusion you can draw is that something’s wrong in the technical interpretations.  In all likelihood the technical interpretation is wrong because there’s been an intervention by monetary authorities. Technical analysis only works when the markets are working freely.
 
GLA: Well, whatever it is they’re trying to do to knock the price down, once again, he who wins in the end is he who has the most ounces and the most shares. It’s got to have been a good year for you with gold prices up 10%, silver up close to 19% and platinum prices over 30%.
 
NB: Yes, it has. We have grown assets year-over-year by 80% this year alone, so it’s been a substantial increase, and performance-wise, we’re about 20% year-to-date.
 
GLA: Thank you very much for sharing your knowledge with us.
 
*All amounts expressed in US dollars, unless otherwise noted.
For a PDF version, click here: [PDF] Interview with Nick Barisheff, BMG Inc. 
  

Tags: Barisheff, BMG Inc., Bullion, fiat, Gold, inflation, Markets, money, Platinum, Silver, supply, US Dollar
Posted in China, Commodities, Credit Markets, Economy, Gold, India, Markets, inflation | 1 Comment »

Chart: Loss of Purchasing Power and Money Supply Growth

Monday, June 9th, 2008

Courtesy: Nick Barisheff, Bullion Management Group Inc. 

The above chart demonstrates the relationship between the increase in money supply as measure by M3 and the loss of purchasing power of the US dollar. Using the official CPI the US dollar has lost about 82% of its value while the total money supply has climbed from about $800 billion in 1970 to $13 trillion today. The annual increases in total M3 are now more than the total money supply was in 1970. If you use the old formula for the calculation of the CPI, based on a fixed basket of goods and services, without hedonic adjustments or substitutions, the US dollar has lost about 95% of its purchasing power. For a detailed explanation of the changes that have been made to the methodology now used to calculate the CPI see http://www.shadowstats.com/article/56.

http://www.bmsinc.ca/images/graphs/purchaseloss-l.jpg

Tags: Barisheff, BMG Inc., Bullion, CPI, M3 Supply Growth, Markets, US Dollar
Posted in CPI, Credit Markets, Economy, Gold, Markets, inflation | No Comments »

Don Coxe’s Recommendations, Basic Points (05/30/2008)

Tuesday, June 3rd, 2008

June 3, 2008 – Here we feature the recommendations of Don Coxe, BMO Capital’s Chief Investment Strategist. 

As usual, his paragraphs are eloquent and provide significant guidance. Don Coxe’s Investment Recommendations,  excerpted from Basic Points, Traders of the Lost Arc, May 30, 2008.

1. Assume that the leading US forecasters on the US economy will be cutting back on their economic and earnings forecasts. You could be pleasantly surprised, but you’ll more likely feel the other kind of pleasure—the sensation of being right.

2. Assume that the leading global forecasters will be cutting back on their economic and earnings  forecasts. The actual outcomes will doubtless vary widely, but enough to challenge the performances of global stock indices.

3. Until the US financial stocks stop declining, rallies in the S&P or Nasdaq are selling opportunities. If the US banks still have problems when they can pledge their otherwise-unmarketable merchandise to borrow T-Bills, then those problems aren’t going away in a hurry. If the BKX index breaks 75, assume that the bad news is about to become much worse.

4. Gold and gold stocks become more attractive each week that global food and fuel costs rise along with writedowns on bank balance sheets.

5. Natural gas prices have benefited from the unusually cold winter in the Northern Hemisphere. They could be hurt if the cooling continues through July—when air conditioning demand peaks. Nevertheless, we believe the natural-gas-oriented stocks are fundamentally attractive.

6. The dollar failed to rise significantly even as US stocks were rallying and economic forecasters were declaring that the worst of the housing problems were over. If it goes to a new low, it will drive even more global investment funds into commodities and/or commodity stocks.

7. Wheat is the only grain to have experienced a dramatic rise and fall—a short squeeze rally, followed by a collapse—amid evidence of a huge winter wheat crop. Otherwise, the grains and oilseeds have been wellbehaved, within strong uptrends. Build exposure to the leading agricultural stocks.

8. The risks to global economic growth from stagflationary food and fuel conditions continue to increase. The commodity class whose outlook is most negatively affected by such perceptions is the base metal and steel group. We believe those stocks are the only truly vulnerable commodity sector for the balance of this year—barring a sudden, Black Swan-style, reversal in oil.

9. We didn’t expect to see spot oil at $133. Nor did we expect the oil futures curve to move—albeit briefly—into contango. As this is written, oil for delivery in 2016 trades slightly above spot crude. If this move toward contango accelerates, expect response from the Fed and the ECB. Within the oil group, emphasize producers with long-lived reserves, and underweight the Big Oil companies that are failing to replace their production.

10. The only thing more bearish for nominal bond portfolios than a central bank that doesn’t fight inflation is a central bank that suddenly discovers it must stop inflation in its tracks. That’s what happened when Paul Volcker took charge after the ghastly mistakes of his predecessors. We shall become interested in nominal long-term bonds again when Bernanke & Co. Drive short rates strongly higher. In the meantime, investors should emphasize real return bonds.

Tags: balance sheets, Banks, Basic Points, Bernanke, Black Swan, Commodities, contango, Crude Oil, Dollar, Don Coxe, ECB, Fed, financial stocks, Food prices, Gold Bullion, Grain, interest rates, Markets, oil, Traders of the Lost Arc
Posted in CPI, Canadian Stocks, Commodities, Credit Markets, Crude Oil, Economy, Emerging Markets, Financials, Gold, International Markets, Markets, Oil & Gas, Strategy, US Stocks, contango, inflation, wisdom | 1 Comment »

Gold vs. Mining Stocks

Tuesday, June 3rd, 2008

June 4, 2008 - Courtesy Nick Barisheff, Bullion Management Group, www.bmsinc.ca.

The above chart shows the comparative performance of the largest gold mining companies compared to the performance of gold bullion. While some juniors and small producers may have outperformed bullion, their high risk and volatility detracts from any meaningful comparison. While the major gold producers outperformed bullion from 2002 to 2006, bullion has outperformed these stocks since mid-2006. Generally, mining stocks do correlate to the price of bullion, but during times of weakness in the equity markets they become correlated to the broad equity markets. The rising price of oil is a contributing factor to production costs. In today’s market, a fully diversified portfolio should hold equities for speculative growth and, as core holdings, fully allocated, segregated bullion.

Tags: Bullion, Gold, gold stocks, Markets, mining companies, mining stocks, physical gold
Posted in Canadian Stocks, Gold, Markets, gold stocks, mining stocks | No Comments »

Chart of the week: Gold vs. DJIA

Wednesday, May 21st, 2008

May 21, 2008 - Courtesy: Nick Barisheff, Bullion Management Group -  Bullion Management Group manage the Bullion Fund, a Canadian mutual fund that invests in Gold, Silver and Platinum bullion directly. The Bullion Fund trades at net asset value, and in the case of the precious metals themselves, at spot price. The following chart tells an important story about the value of diversification in changing markets.

Many investors believe the myth that gold is a risky investment, while blue chip US stocks are safe investments. The table above, which shows the performance from January 2000 to March 2008 of the individual stocks that made up the Dow Jones Industrial Average in January 2000,clearly refutes this myth. The table shows that many of the blue chip giants, such as GE and Microsoft, have lost over 70% of their value in US dollars. On the entire portfolio of Dow stocks, the equity loss has averaged 24.5%. For Canadian or European investors, additional currency exchange losses of 45% and 35% would have to be added to the equity losses. These losses are higher than the Index itself, which showed a slight increase of 6.7%, as eight of the original stocks have been replaced and the Index is weighted according to market capitalization. Unlike the Index, many investors with a buy-and-hold strategy would not have been in a position to simply replace the stocks. The picture for the NASDAQ Composite Index is even worse. While the Index itself is down by over 50% from its March 2000 high, the average performance of the actual stocks that made up the NASDAQ is even more dismal. Many of the 3,032 NASDAQ stocks that made up the Index in 2000 have lost all of their value, and have been replaced. Those who lost all of their investments with these stocks cannot simply replace them as the Index does. An allocation to “risky” gold, which can never decline to zero, would have at least mitigated these losses through the positive returns of over 224% that it generated over the same period.

http://www.bmsinc.ca/images/graphs/dowstockvsgold-l.jpg

Tags: Chart, DJIA, Gold, Markets, US Stocks
Posted in Gold, Markets, US Stocks | No Comments »

Derek Webb Interview, Part 1 - Outlook and Investment Strategy

Tuesday, May 13th, 2008

May 12, 2008 - GreenLightAdvisor.com recently interviewed [Part 1] Derek Webb, Portfolio Manager, Webb Asset Management. Here are some excerpts from Part 1, in which Mr. Webb shares his outlook and his thoughts about how he trades in volatile and range bound markets. Here are some excerpts:

Regarding the Fed’s recent moves…

Anytime the Fed puts this much liquidity in to the system it’s like blowing into a pipe; all that pressure has to go somewhere—When the Fed drops hay bails of money out of the helicopter, those hay bails of money are like molecules. They have to attach themselves to something.

When you look at the huge amount of money put into the system because of the Long Term Capital Meltdown and Russia—now that liquidity event created the internet bubble. This is no different.

All of this liquidity is going to find a home. I’ll tell you that I think it’s finding its home right now. Fundamentally I am very bullish because of all this liquidity.

On his investment focus…

Through our quantitative homework we found that the delta or change in earnings is the only thing that’s predictable in terms of determining the direction of a stock’s price. That’s all we focus on; that’s all our research focuses on. So, where is that delta accelerating right now—it’s in commodities. Agriculture is number one, Oil and gas are number two, some base metals number three, like copper—The shine has kind of come out of precious metals in the short run, but I don’t think that trade’s over, I think it’s more of a seasonal thing right now.

On when to sell:

[Firstly], If we saw one analyst lower EPS forecasts for Potash, for example, WE WOULD BE OUT. Analysts are out there doing site visits. They’re doing their homework – as long as they’re raising their numbers we’re going to be long. As soon as we would see them hold steady or lower their numbers we would be out.

Secondly, if the earnings themselves just start to de-accelerate, meaning we are looking at a smooth line of earnings, not to get complicated, but we look from 3 quarters ago out to the next quarter and if that rate of change de-accelerates were out.

Thirdly, one negative earnings surprise and we’re out.

And lastly, if the relative strength indicator of the stock de-accelerates were out.

We’re ruthless on all our positions.

And lastly, if the relative strength indicator of the stock de-accelerates were out.

PART 1: Derek Webb Interview, GreenLightAdvisor.com.

Visit Webb Asset Management for more information.

Tags: Agriculture, bifurcation, Derek Webb, Fed, Investment Strategy, liquidity, Markets, Metals, Monetary Policy, Oil and Gas, Webb Asset Management
Posted in Agriculture, Banks, Canadian Stocks, Commodities, Credit Markets, Crude Oil, Economy, Financials, Gold, Markets, Oil & Gas, inflation | No Comments »

Chart: US M3 Money Supply Growth

Wednesday, May 7th, 2008

May 7, 2008 -  Courtesy: Nick Barisheff, The Bullion Buzz Newsletter, Bullion Management Group Inc.

US M3 Money Supply Growth

M3, which is no longer published by the US Federal Reserve, is the broadest measure of money supply. It includes M2, as well as certain accounts held by banks and thrift institutions (including balances in money market mutual funds held by institutional investors). Since March 2006, M3b, a reconstructed version of M3, has grown by nearly $4 trillion, from approximately $10.5 trillion to about $14.2 trillion. To put this in perspective, total M3 in 1971, when the US cut the dollar’s link to gold, was less than $800 billion. The current annualized rate of increase is now about 20%. Since the classical definition of inflation is an increase in money supply that leads to an increase in goods and services, the price increases we are now experiencing are destined to accelerate. Given these inflation realities, portfolios need to be rebalanced to ensure that purchasing power is preserved. As precious metals are proven hedges for inflation, portfolio holdings should be rebalanced to ensure adequate allocations are held.

http://www.nowandfutures.com/key_stats.html

Tags: Currency, Economy, inflation, M3, M3 Money Supply Growth, precious metals
Posted in Banks, Credit Markets, Economy, Financials, Fixed Income, Gold, Markets, Monetary Policy, inflation | No Comments »

Jeff Rubin: The Age of Scarcity (04/24/08)

Wednesday, April 30th, 2008

April 30, 2008 - CIBC World Markets Chief Strategist, Jeff Rubin, says that Oil will eventually reach $150/barrel in 2010 and over $200/barrel by 2012. He cites among the leading reasons, the advent of cheap cars from India and China, or rather Tatas and Cherys, that will enable millions of middle class Asians who couldn’t previously afford a car, to do so, Take these developments and place them agaisnt the backdrop of peak oil and a decline in oil exports from key suppliers, Saudi Arabia, Russia and Kuwait, and we are in the midst of a long term supply/demand imbalance. Here are couple of excerpts:

Whether we are already at the peak in world oil production remains to be seen, but it is increasingly clear that the outlook for oil supply signals a period of unprecedented scarcity.

Our latest review of probable supply suggests oil production will hardly grow at all, with average daily production between now and 2012 rising by barely more than a million barrels per day (see pages 4-7). Despite the recent record jump in oil prices, the outlook suggests that oil prices will continue to rise steadily over the next five years, almost doubling from current levels.

While global oil supply is not growing, global gasoline demand is, and will continue to grow as cheap cars from Tata and Chery dramatically cut barriers to car ownership in the developing world. Millions of new households will suddenly have straws to start sucking at the world’s rapidly shrinking oil reserves.

Car purchases in Russia, for example, are exploding as US sales stagnate (Chart 2), while in India the advent of the Tata Nano, a car that will sell for as little as US$2,500 will allow millions of households in the developing world to own automobiles when they otherwise could not. It is the savings necessary to buy a car, not the price of gasoline that poses the greatest obstacle to fuel demand growth in those countries. But between rapidly rising domestic incomes and rapidly falling car prices, that obstacle is becoming more and more surmountable.

To read the complete report, click here:

StrategEcon: The Age of Scarcity, CIBC World Markets, April 24, 2008

Tags: Asia, Chery, CIBC World Markets, Economy, energy, India, Jeff Rubin, Middle Class, oil, Russia, Scarcity, Tata
Posted in Agriculture, Banks, Brazil, CPI, China, Commodities, Credit Markets, Crude Oil, Economy, Emerging Markets, Financials, Geo-political, Gold, India, International Markets, Latin America, Oil & Gas, Russia, energy | No Comments »

Hard numbers: The economy is worse than you know

Wednesday, April 30th, 2008

April 30, 2008 - Kevin Phillips, author of Bad Money: Reckless Finance, Failed Politics and the Global Crisis of American Capitalism, published a recent article in Harper’s Magazine, about the way in which economic statistics have been massaged over many years by many White House administrations, one after the other, in order the mask the true nature of the US economy over the years. Here are some excerpts from this excellent article:

Ever since the 1960s, Washington has gulled its citizens and creditors by debasing official statistics, the vital instruments with which the vigor and muscle of the American economy are measured. The effect has been to create a false sense of economic achievement and rectitude, allowing us to maintain artificially low interest rates, massive government borrowing, and a dangerous reliance on mortgage and financial debt even as real economic growth has been slower than claimed.

The story starts after the inauguration of John F. Kennedy in 1961, when high jobless numbers marred the image of Camelot-on-the-Potomac and the new administration appointed a committee to weigh changes. The result, implemented a few years later, was that out-of-work Americans who had stopped looking for jobs — even if this was because none could be found — were labeled “discouraged workers” and excluded from the ranks of the unemployed, where many, if not most, of them had been previously classified. By the 1969 fiscal year, Lyndon Johnson orchestrated a “unified budget” that combined Social Security with the rest of the federal outlays. This innovation allowed the surplus receipts in the former to mask the emerging deficit in the latter.

Richard Nixon, besides continuing the unified budget, developed his own taste for statistical improvement. He asked his second Federal Reserve chairman, Arthur Burns, to develop what became an ultimately famous division between “core” inflation and headline inflation. If the Consumer Price Index was calculated by tracking a bundle of prices, so-called core inflation would simply exclude, because of “volatility,” categories that happened to be troublesome: at that time, food and energy. 

Core inflation could be spotlighted when the headline number was embarrassing, as it was in 1973 and 1974. (The economic commentator Barry Ritholtz has joked that core inflation is better called “inflation ex-inflation” — i.e., inflation after the inflation has been excluded.)

In 1983, under the Reagan administration, inflation was further finagled when the Bureau of Labor Statistics (BLS) decided that housing, too, was overstating the Consumer Price Index; the BLS substituted an entirely different “Owner Equivalent Rent” measurement, based on what a homeowner might get for renting his or her house. This methodology, controversial at the time but still in place today, simply sidestepped what was happening in the real world of homeowner costs.

In addition to Phillips’ assertions here, The US Government stopped publishing money supply statistics, specifically M3, so that we would no longer be able to track the amount printed money that gets added to the country’s money supply every year since. Hmmm…?

Read this complete article here: Hard Numbers: The Economy is Worse Than You Know, Harpers Magazine, courtesy of TampaBay.com, April 25, 2008.

Tags: Bad Money, Bad Money: Reckless Finance, Barry Ritholtz, Economy, Failed Politics and the Global Crisis of American Capit, inflation, Kevin Phillips, Markets, The Big Picture
Posted in CPI, Economy, Financials, Geo-political, Gold, Markets, Monetary Policy, Politics, Strategy,