03 October 2008
Man doesn't need God...
...to punish him for his greed, for man is perfectly capable of punishing himself.
29 August 2008
Don't - don't - don't believe the hype!
Earlier this month I drove down to Brussels, Belgium, to buy some Krugerrands. I could have bought them in my home country, The Netherlands, but I found the premiums at local dealers outrageous. In Brussels, I found a dealer that only asked a couple of euros above the spot price, which came down to a 1.5% premium.
At that time, it was already surprising that at every local dealer, premiums were over 5% for 1oz Krugerrands. And taking a day off from work, spending a full day travelling to Brussels, a distance of 220kms (about 135 miles), and EUR 60 on fuel was certainly worth the difference.
Now, with the spot price in euros pretty much similar to the price at the time I bought the coins, the Krugerrands can only be bought at crazy premiums on top of the spot price. Now, at my favourite dealer in Brussels, the bid price is even higher than the spot price.
According to Bloomberg, the reason for that is that Rand Refinery, the producer of Krugerrands, just received a Swiss order for Krugerrands of an abnormal size. It now appears that no Krugerrands will be available at Rand Refinery until the 3rd of September.
I went to Rand Refinery's website and saw that the premiums charged for large amounts (50+) 1oz Krugerrands went upto 5%! And that will get a retail margin on top of it.
The trend we are now seeing is that there is a clear decoupling of physical gold prices and paper gold prices. Whilst it is suspected that large financials are selling their gold, demand for physical gold remains high and is even increasing at current prices. This results in rising premiums and many times in dealers having to refuse coin sales. A simple google search will lead you to websites of many bullion dealers around the world, where you can check what the difference is between bid & ask. Spreads have become enormous and at many websites, you will see that stocks are depleted. The situation with silver is quite similar or possibly even worse.
So, in other words, if you read about the metals boom/bust-scenarios and about the gold price targets that most analysts have suddenly reduced to well-below $700, stop worrying. Don't take any risks and buy physical gold or silver, rather than paper. We're approaching times when almost anyone will want to buy your coins or bars. And let's not forget that mining companies do not produce paper gold. This means that that at some stage we will have to include the current premiums that are charged for physical gold into the valuations of the already undervalued mining sector.
Now, with the spot price in euros pretty much similar to the price at the time I bought the coins, the Krugerrands can only be bought at crazy premiums on top of the spot price. Now, at my favourite dealer in Brussels, the bid price is even higher than the spot price.
According to Bloomberg, the reason for that is that Rand Refinery, the producer of Krugerrands, just received a Swiss order for Krugerrands of an abnormal size. It now appears that no Krugerrands will be available at Rand Refinery until the 3rd of September.
I went to Rand Refinery's website and saw that the premiums charged for large amounts (50+) 1oz Krugerrands went upto 5%! And that will get a retail margin on top of it.
The trend we are now seeing is that there is a clear decoupling of physical gold prices and paper gold prices. Whilst it is suspected that large financials are selling their gold, demand for physical gold remains high and is even increasing at current prices. This results in rising premiums and many times in dealers having to refuse coin sales. A simple google search will lead you to websites of many bullion dealers around the world, where you can check what the difference is between bid & ask. Spreads have become enormous and at many websites, you will see that stocks are depleted. The situation with silver is quite similar or possibly even worse.
So, in other words, if you read about the metals boom/bust-scenarios and about the gold price targets that most analysts have suddenly reduced to well-below $700, stop worrying. Don't take any risks and buy physical gold or silver, rather than paper. We're approaching times when almost anyone will want to buy your coins or bars. And let's not forget that mining companies do not produce paper gold. This means that that at some stage we will have to include the current premiums that are charged for physical gold into the valuations of the already undervalued mining sector.
20 August 2008
What we do for money and how we fail to see the signals
The first eight months of the year are almost behind us and with 99% certainty we can say that 2008 will not be positively remembered for anything except maybe for the Beijing Olympics. Although even that event has had some nasty controversies surrounding it, such as the Tibet situation, Phelps' victory over Cavic, two disqualifications on the 200 metres and the alleged doping use of heptathlon silver medalist Lyudmila Blonska. I wouldn't be surprised if some Jamaican heads are next on the chopping block (every winner is considered suspicious these days).
There is certainly a link between the Olympics, today's political issues and today's economic issues. All have something to do with two things: power and money. Nowadays, being a good sport just doesn't count anymore. The more money & power dominate life, the more you'll see vile games being played.
To see what roles money and power play in the arena of foreign politics, one only needs to read recent cover stories on Georgia. Georgia is important because it's the United States' only way left to get oil and gas out of the Caspian. The EU would never even think of training Georgian soldiers as Russia could simply retaliate by shutting down gas pipelines, leaving two thirds of Europe in darkness.
Many believe that those who have the energy sources will have the power in the years to come. Russia is well aware of this and so is the US. For many decades, the US have increased their power through its dollar hegemony, through eliminating the gold standard and through maintaining close ties with the net exporters of fossil fuels. Although that last part hasn't always been very successful, considering the somewhat fragile relationships with Russia, Venezuela and Iran.
Similar to Governments, companies have done a lot for money and power as well. As a marketeer, I always believed that becoming a world leader in your company's playing field should never be a target 'an sich'. It is a daft and empty target that says nothing about how financially successful your company is or about what you have actually contributed to society. Nowadays, have exactly that in mind: growing at any cost. Companies that grow into new markets and new geographies through endless takeovers always remind me of those guys at school that were usually the best at sports but with the lowest grades in anything other than sports.
Takeovers of companies has for many companies become a target by itself. And the preferred takeover targets are often competitors, because they are the quickest way to grow market share. First of all, I think it should be a rule to never take over a competitor as integration is often impossible and corporate cultures are usually not compatible. But also for the simple fact that these kinds of takeovers usually go hand-in-hand with mass layoffs. The airline industry is a good example of that.
Companies have become bigger and bigger and thereby slower to respond to changing environments. Current fuel prices have pretty much single-handedly eliminated half the world's airlines. Most have been swallowed by competitors, who gave a different meaning to the word synergies. Synergy used to be a positive word, describing how the outcome of a system is greater than the sum of its parts. Beautifully said, but I don't think the ancient Greeks had mass layoffs in mind when they invented the word synergy.
Having said that, I do greatly respect companies who have clear long-term business strategies that are not simply focused on absolute power, but at the added value that products and services should offer customers and how society as a whole will benefit. It's hard to find such companies these days. Even companies created to help people in financing their mortgages to provide them a home for their families have completely forgotten their raison-d'etre. I am obviously referring to Fannie Mae and Freddie Mac, Government-sponsored entities (GSEs) that were supposed to support home ownership and rental housing. Being listed companies, they had shareholders to report to and these shareholders were interested in one thing only: money. They wanted money and they wanted it fast. The mortgage industry as a whole has become so focused on 'quick wins' that its greed destroyed itself, a bit like a dog chasing its own tail and then eating it.
We are clearly being sent a message that the greed and materialism of this world is not the right way, but blinded by our own greed, we fail to see the signals. And so, history repeats itself in a funny way. In the first half of the 20th Century, two world wars and an economic depression were the signals that we received. Now, we have once again forgotten what greed and military world hegemony did to all major world powers ever since man started writing down history.
Keepin all this in mind, I am clearly taking a defensive standpoint when it comes to my investment decisions. I recently bought gold coins with some of my savings and I only short financials and indices and buy junior companies that I believe in. As I mentioned, the bigger companies get, the more they lose their ability to quickly respond to changes. And more than ever, we are now in a rapidly changing environment, that requires us to think about issues we never really needed to think about. We need to reconsider the bank(s) that we store our savings at. We may need to reconsider the vehicle that we use for transportation and possibly even the company that we work for.
If I may repeat: our savings aren't safe. Our pension schemes aren't safe. Our houses aren't safe and our jobs aren't safe. And still, too many people are denying the signals that we are getting. People are still borrowing money from their banks to invest in companies that are screaming to be bailed out by tax payers. All this once again proves that a pair of eyes may allow us to read, a pair of ears may allow us to listen, but we really need a brain to see.
There is certainly a link between the Olympics, today's political issues and today's economic issues. All have something to do with two things: power and money. Nowadays, being a good sport just doesn't count anymore. The more money & power dominate life, the more you'll see vile games being played.
To see what roles money and power play in the arena of foreign politics, one only needs to read recent cover stories on Georgia. Georgia is important because it's the United States' only way left to get oil and gas out of the Caspian. The EU would never even think of training Georgian soldiers as Russia could simply retaliate by shutting down gas pipelines, leaving two thirds of Europe in darkness.
Many believe that those who have the energy sources will have the power in the years to come. Russia is well aware of this and so is the US. For many decades, the US have increased their power through its dollar hegemony, through eliminating the gold standard and through maintaining close ties with the net exporters of fossil fuels. Although that last part hasn't always been very successful, considering the somewhat fragile relationships with Russia, Venezuela and Iran.
Similar to Governments, companies have done a lot for money and power as well. As a marketeer, I always believed that becoming a world leader in your company's playing field should never be a target 'an sich'. It is a daft and empty target that says nothing about how financially successful your company is or about what you have actually contributed to society. Nowadays, have exactly that in mind: growing at any cost. Companies that grow into new markets and new geographies through endless takeovers always remind me of those guys at school that were usually the best at sports but with the lowest grades in anything other than sports.
Takeovers of companies has for many companies become a target by itself. And the preferred takeover targets are often competitors, because they are the quickest way to grow market share. First of all, I think it should be a rule to never take over a competitor as integration is often impossible and corporate cultures are usually not compatible. But also for the simple fact that these kinds of takeovers usually go hand-in-hand with mass layoffs. The airline industry is a good example of that.
Companies have become bigger and bigger and thereby slower to respond to changing environments. Current fuel prices have pretty much single-handedly eliminated half the world's airlines. Most have been swallowed by competitors, who gave a different meaning to the word synergies. Synergy used to be a positive word, describing how the outcome of a system is greater than the sum of its parts. Beautifully said, but I don't think the ancient Greeks had mass layoffs in mind when they invented the word synergy.
Having said that, I do greatly respect companies who have clear long-term business strategies that are not simply focused on absolute power, but at the added value that products and services should offer customers and how society as a whole will benefit. It's hard to find such companies these days. Even companies created to help people in financing their mortgages to provide them a home for their families have completely forgotten their raison-d'etre. I am obviously referring to Fannie Mae and Freddie Mac, Government-sponsored entities (GSEs) that were supposed to support home ownership and rental housing. Being listed companies, they had shareholders to report to and these shareholders were interested in one thing only: money. They wanted money and they wanted it fast. The mortgage industry as a whole has become so focused on 'quick wins' that its greed destroyed itself, a bit like a dog chasing its own tail and then eating it.
We are clearly being sent a message that the greed and materialism of this world is not the right way, but blinded by our own greed, we fail to see the signals. And so, history repeats itself in a funny way. In the first half of the 20th Century, two world wars and an economic depression were the signals that we received. Now, we have once again forgotten what greed and military world hegemony did to all major world powers ever since man started writing down history.
Keepin all this in mind, I am clearly taking a defensive standpoint when it comes to my investment decisions. I recently bought gold coins with some of my savings and I only short financials and indices and buy junior companies that I believe in. As I mentioned, the bigger companies get, the more they lose their ability to quickly respond to changes. And more than ever, we are now in a rapidly changing environment, that requires us to think about issues we never really needed to think about. We need to reconsider the bank(s) that we store our savings at. We may need to reconsider the vehicle that we use for transportation and possibly even the company that we work for.
If I may repeat: our savings aren't safe. Our pension schemes aren't safe. Our houses aren't safe and our jobs aren't safe. And still, too many people are denying the signals that we are getting. People are still borrowing money from their banks to invest in companies that are screaming to be bailed out by tax payers. All this once again proves that a pair of eyes may allow us to read, a pair of ears may allow us to listen, but we really need a brain to see.
13 August 2008
The other side of the South Ossetia war
Many of us have been looking forward to the Olympics for some time and spend as much time as possible watching sport that we usually wouldn't be watching. Since the Chinese have a fetish for numbers, they decided to start off on the 8th of the 8th in 2008. Because eight is a lucky number.
Not for everyone. It was exactly that day that the Russians decided to stop the killings of hundreds, possibly thousands of South Ossetians and 15 Russian peacekeepers. Georgian troops started the conflict on the 1st of August and South Ossetians fled into Russian territory. On the 5th of August, Russia warned Georgia that if the killings would continue, it would take necessary action. Georgia cleverly offered a ceasefire, whilst continuing the killings. Russia did the expected and sent its troops into South Ossetia to restore the order.
Until that time, there was hardly any mention of the killings in South Ossetia. This changed when Russia got involved. The Russian invasion was all over the news and suddenly competed with the Beijing Olympics. Russia was the bad guy once again as it wanted to rebuild the former Soviet empire.
Many sources see things differently. Israeli intelligence source DebkaFile mentioned: Last year, the Georgian president commissioned from private Israeli security firms several hundred military advisers, estimated at up to 1,000, to train the Georgian armed forces in commando, air, sea, armored and artillery combat tactics. They also offer instruction on military intelligence and security for the central regime. Tbilisi also purchased weapons, intelligence and electronic warfare systems from Israel.
Russian newspaper Pravda stated that USA and Ukraine are partly responsible for the conflict as they supplied sniper armaments to Georgia.
Georgian President Saakashvili now claims that the US underestimated the Russian threat and that "the reputation that America has gained since the Cold War is going to hell right now". Saakashvili is clearly stirring things up and mentions that the US should now involve the West in the conflict, probably meaning Europe. This man is obviously trying the start a WW-III and all we can do is that the EU will have enough people opposing military action against Russia (and Iran, but that's a different story). But since France assumed EU Presidency, President Sarkozy is certainly taking an approach quite different from his US counterpart: dialogue.
Although Western media - exceptions are hard to find - show Russia once again as the aggressor and Georgia as the victim, an increasing number of people seem to point the finger at Georgia, including former Georgian President Eduard Shevardnadze, former Russian President Mikhail Gorbachev and an American who happened to whitness the killings in South Ossetia.
In the end, it's all about oil again. The Baku-Tbilisi-Ceyhan pipeline, transporting Caspian oil to the Mediterranean is certainly a hot item as the West has become a structural oil importer and the former Soviet Union being a net oil exporter. Quite similar to Iraq and Iran.
For those who really want to hear or read both sides of the story, keep an eye on Russia Today and Infowars, in addition to your usual Western media.
Not for everyone. It was exactly that day that the Russians decided to stop the killings of hundreds, possibly thousands of South Ossetians and 15 Russian peacekeepers. Georgian troops started the conflict on the 1st of August and South Ossetians fled into Russian territory. On the 5th of August, Russia warned Georgia that if the killings would continue, it would take necessary action. Georgia cleverly offered a ceasefire, whilst continuing the killings. Russia did the expected and sent its troops into South Ossetia to restore the order.
Until that time, there was hardly any mention of the killings in South Ossetia. This changed when Russia got involved. The Russian invasion was all over the news and suddenly competed with the Beijing Olympics. Russia was the bad guy once again as it wanted to rebuild the former Soviet empire.
Many sources see things differently. Israeli intelligence source DebkaFile mentioned: Last year, the Georgian president commissioned from private Israeli security firms several hundred military advisers, estimated at up to 1,000, to train the Georgian armed forces in commando, air, sea, armored and artillery combat tactics. They also offer instruction on military intelligence and security for the central regime. Tbilisi also purchased weapons, intelligence and electronic warfare systems from Israel.
Russian newspaper Pravda stated that USA and Ukraine are partly responsible for the conflict as they supplied sniper armaments to Georgia.
Georgian President Saakashvili now claims that the US underestimated the Russian threat and that "the reputation that America has gained since the Cold War is going to hell right now". Saakashvili is clearly stirring things up and mentions that the US should now involve the West in the conflict, probably meaning Europe. This man is obviously trying the start a WW-III and all we can do is that the EU will have enough people opposing military action against Russia (and Iran, but that's a different story). But since France assumed EU Presidency, President Sarkozy is certainly taking an approach quite different from his US counterpart: dialogue.
Although Western media - exceptions are hard to find - show Russia once again as the aggressor and Georgia as the victim, an increasing number of people seem to point the finger at Georgia, including former Georgian President Eduard Shevardnadze, former Russian President Mikhail Gorbachev and an American who happened to whitness the killings in South Ossetia.
In the end, it's all about oil again. The Baku-Tbilisi-Ceyhan pipeline, transporting Caspian oil to the Mediterranean is certainly a hot item as the West has become a structural oil importer and the former Soviet Union being a net oil exporter. Quite similar to Iraq and Iran.
For those who really want to hear or read both sides of the story, keep an eye on Russia Today and Infowars, in addition to your usual Western media.
04 August 2008
Junior miners: market manipulation or just underperformers?
The precious metals rally that ended in May 2006 was a very good time for almost any investment in mining, whether it was the AMEX Gold Bugs Index (HUI),the Philadelphia Gold and Silver Sector Index (XAU) or junior mining companies. But after that rally, something changed. After the spot gold price reached $730 in May 2006, there was a correction period that was followed by a rally to $1,030. Another correction followed and the gold price seems to near a bottom at the current levels around $900, still up roughly 24% from its May 2006 high.
The HUI-index has now fallen to a level just below the May 2006 high at 390. The XAU Index also seems to flirt with the support level around 160, which once again corresponds with the highest level reached in May 2006. The fact that these indices underperformed the precious metals price by more than 20% is already pretty shocking, but the picture becomes even darker when studying junior miners. The benchmark indices for Junior Mining companies, the FSO Index (see www.financialsense.com) which consists of 40 junior mining companies, is down almost 30% from its May 2006 high! Charts from Frank Barbera on a.m. website even show that the FSO/XAU ratio actually more than halved since the first quarter of 2007.
But what causes this severe underperformance of junior miners compared with large caps and with precious metals prices in particular? Some say that market manipulation is to blame. Market manipulation is one of those terms that always appears when precious metals or related stocks perform badly. The question is whether market manipulation is really that unrealistic. Let's take a closer look at some mining funds in Nunavut Territory in the North of Canada.
Nunavut was established in 1999 and is thereby the youngest Canadian province. Nunavut Territory is extremely rich in natural resources and as such offers great potential for various industries, including mining, fishing and tourism. As soon as precious metals prices started to rise, the (junior) miners in Nunavut saw their share prices rise along with the precious metals rally. Some of the companies that benefited were Cumberland Resources, Miramar Mining and WMC Resources.
One thing that those four Nunavut-plays have in common is that they were all taken over by large cap mining companies, that continue to look for Nunavut miners. In 2005, shareholders of Australian mining company WMC Resources had two potential buyers outbidding eachother. Eventually, the winning bid was made by BHP Billiton at A$7.85 per share, significantly higher than Xstrata's A$7.00 per share offer. This was a significant premium over the A$5.00 share price before the battle started. UBS Securities however rated the company in a valuation range of well over A$10 per share.
Cumberland Resources was acquired by Agnico-Eagle Mines in 2007 and did well. The company's shareholders received $7.48, roughly a 25% premium over the share price before the acquisition was announced. Shareholders who bought their shares two years prior to the deal would have easily made 400% return on investment.
Miramar Mining was bought by Newmont Mining this year for C$6.25 per share or a 23% premium over the price before the announcement. Those who bought Miramar shares two years prior to the deal made 84%, still not bad, but certainly a good deal for the buyer.
All above-mentioned deals may be 'good deals' for the buyer, but they are certainly not bad deals for the sellers. This is a situation that could now easily change. With junior mining shares having hit rock bottom, a 50% premium is still hardly something to cheer about for investors who saw their shares drop more than 50%.
Some of the Nunavut miners that are still independent seem almost guaranteed takeover targets, but the question is whether it's really worth it. Some deals outside Nunavut show a pretty scary picture. For instance, Aurelian Resources received sell recommendations with a price targets as low as C$1.40 in addition to a tsunami of negative rumours about Ecuadorian Government's mining laws. You have to ask yourself why all the bad news and downgrades are not affecting Kinross Gold Corp's judgment of Aurelian (still considered attractive at a share price well over C$8). The latest rumour is the Ecuadorian Government possibly bidding for Aurelian, which is the reason why the share price is still well-below the offer. This scenario is just another way to scare off investors, quite similar to news coverage of the the Venezuelan mining laws affecting Gold Reserve and Crystallex. So far, it's all rumours and one has to wonder whether these countries are really going to create a tremendous job loss and harm relations with any foreign company operating locally, or whether it's all one big Jim Cramer-esque conspiracy.
Geopolitical risks however do not apply to the Nunavut miners, but market manipulation may be as applicable to junior miners as it is to the producing miners in 'less politically-stable" countries. Fact of the matter is that takeover candidates are no longer by definition the desired stocks to hold. One of those takeover candidates is the junior (partly-)Nunavut play Trade Winds Ventures.
Trade Winds Ventures had a high in 2004 of C$1.65. It then fell back to the current five-year low of C$0.13. And what's really changed since then? Momentum, that's really all I can think of. In their Detour Lake project (Ontario) alone, they have 800K ounces of indicated resources and 1.5M ounces of inferred resources. In addition to that, Trade Winds have projects in Nunavut, China and in B.C. The company has an institutional share holder base, C$2.8M cash and has a market cap of only C$10M!
And this is just one example of a ridiculously cheap junior miner. There are so many players out there with ridiculous market capitalisations. The only thing you have to accept is that there is no guarantee that your investment will go down further in the short term. Whatever you do, don't sell. In the long run, the true value of these companies will emerge. For now, all we can do is hope that no one will take them over at a 30% or even 50% premium, for there is so much more potential in these junior miners. As for my disclosure: I hold no shares in Trade Winds Ventures, but I will buy on Tuesday the 5th as soon as Canada is open again.
Good luck to all.
The HUI-index has now fallen to a level just below the May 2006 high at 390. The XAU Index also seems to flirt with the support level around 160, which once again corresponds with the highest level reached in May 2006. The fact that these indices underperformed the precious metals price by more than 20% is already pretty shocking, but the picture becomes even darker when studying junior miners. The benchmark indices for Junior Mining companies, the FSO Index (see www.financialsense.com) which consists of 40 junior mining companies, is down almost 30% from its May 2006 high! Charts from Frank Barbera on a.m. website even show that the FSO/XAU ratio actually more than halved since the first quarter of 2007.
But what causes this severe underperformance of junior miners compared with large caps and with precious metals prices in particular? Some say that market manipulation is to blame. Market manipulation is one of those terms that always appears when precious metals or related stocks perform badly. The question is whether market manipulation is really that unrealistic. Let's take a closer look at some mining funds in Nunavut Territory in the North of Canada.
Nunavut was established in 1999 and is thereby the youngest Canadian province. Nunavut Territory is extremely rich in natural resources and as such offers great potential for various industries, including mining, fishing and tourism. As soon as precious metals prices started to rise, the (junior) miners in Nunavut saw their share prices rise along with the precious metals rally. Some of the companies that benefited were Cumberland Resources, Miramar Mining and WMC Resources.
One thing that those four Nunavut-plays have in common is that they were all taken over by large cap mining companies, that continue to look for Nunavut miners. In 2005, shareholders of Australian mining company WMC Resources had two potential buyers outbidding eachother. Eventually, the winning bid was made by BHP Billiton at A$7.85 per share, significantly higher than Xstrata's A$7.00 per share offer. This was a significant premium over the A$5.00 share price before the battle started. UBS Securities however rated the company in a valuation range of well over A$10 per share.
Cumberland Resources was acquired by Agnico-Eagle Mines in 2007 and did well. The company's shareholders received $7.48, roughly a 25% premium over the share price before the acquisition was announced. Shareholders who bought their shares two years prior to the deal would have easily made 400% return on investment.
Miramar Mining was bought by Newmont Mining this year for C$6.25 per share or a 23% premium over the price before the announcement. Those who bought Miramar shares two years prior to the deal made 84%, still not bad, but certainly a good deal for the buyer.
All above-mentioned deals may be 'good deals' for the buyer, but they are certainly not bad deals for the sellers. This is a situation that could now easily change. With junior mining shares having hit rock bottom, a 50% premium is still hardly something to cheer about for investors who saw their shares drop more than 50%.
Some of the Nunavut miners that are still independent seem almost guaranteed takeover targets, but the question is whether it's really worth it. Some deals outside Nunavut show a pretty scary picture. For instance, Aurelian Resources received sell recommendations with a price targets as low as C$1.40 in addition to a tsunami of negative rumours about Ecuadorian Government's mining laws. You have to ask yourself why all the bad news and downgrades are not affecting Kinross Gold Corp's judgment of Aurelian (still considered attractive at a share price well over C$8). The latest rumour is the Ecuadorian Government possibly bidding for Aurelian, which is the reason why the share price is still well-below the offer. This scenario is just another way to scare off investors, quite similar to news coverage of the the Venezuelan mining laws affecting Gold Reserve and Crystallex. So far, it's all rumours and one has to wonder whether these countries are really going to create a tremendous job loss and harm relations with any foreign company operating locally, or whether it's all one big Jim Cramer-esque conspiracy.
Geopolitical risks however do not apply to the Nunavut miners, but market manipulation may be as applicable to junior miners as it is to the producing miners in 'less politically-stable" countries. Fact of the matter is that takeover candidates are no longer by definition the desired stocks to hold. One of those takeover candidates is the junior (partly-)Nunavut play Trade Winds Ventures.
Trade Winds Ventures had a high in 2004 of C$1.65. It then fell back to the current five-year low of C$0.13. And what's really changed since then? Momentum, that's really all I can think of. In their Detour Lake project (Ontario) alone, they have 800K ounces of indicated resources and 1.5M ounces of inferred resources. In addition to that, Trade Winds have projects in Nunavut, China and in B.C. The company has an institutional share holder base, C$2.8M cash and has a market cap of only C$10M!
And this is just one example of a ridiculously cheap junior miner. There are so many players out there with ridiculous market capitalisations. The only thing you have to accept is that there is no guarantee that your investment will go down further in the short term. Whatever you do, don't sell. In the long run, the true value of these companies will emerge. For now, all we can do is hope that no one will take them over at a 30% or even 50% premium, for there is so much more potential in these junior miners. As for my disclosure: I hold no shares in Trade Winds Ventures, but I will buy on Tuesday the 5th as soon as Canada is open again.
Good luck to all.
07 September 2007
Bearish times ahead - be cautious
Usually I try to come up with some analyses of undervalued stocks every now and then. I haven't posted anything during the past few weeks and I must admit that my perception of the market has recently changed. Before much of the subprime woes were dominating the news, I was still of the opinion that the major US indices would go up much further than 14,000 based on the simple fact that the Fed would keep printing more and more money. This would not specifically be good news for stocks, but it would certainly lead money to lose its value and that usually helps share prices to appreciate. I think there is no better example of this than the Zimbabwe stock exchange.
But as I mentioned, my perception changed. I am not very bullish anymore, in fact, I am bearish. The subprime problems have certainly put the train in motion. Mortgage lenders are to a great extent responsible for the situation we're in now. They are directly or indirectly responsible for making lending more difficult, for rising interbank rates, for falling housing prices and to some extent for the (coming) drop in consumer spending. The same goes for credit card companies. I have always had my thoughts about capitalist countries where possessions are bought on credit. The only thing I will ever buy on credit is a house and I will never pay more for a house than five times my household income.
American home owners now face situations that will wake them up. The American Dream was never meant to be bought with borrowed money, was it? Taking your borrowed money to the stock market is asking for trouble as well. This is where the Yen carry trade kicks in. We already saw this year that at times when the Dollar/Yen dropped, so did stock markets and so did for instance precious metals. This situation is slightly different now. The Yen has strengthened again since its June peak and this has certainly not helped the American and European indices, but precious metals prices are suddenly flourishing. Gold broke out of its sideways range and seems to be starting a new bull run. Silver may be behind, but gold's little brother will probably catch up in the coming months.
From this point in time, I expect risk to be priced into stocks again. I have to admit that it continues to surprise me when I watch CNBC and hear analysts say that Apple is a steal at 37 times earnings. It continues to surprise me that analysts are advising to buy 'tech', since 'tech' is where the growth will be in the coming years. I strongly disagree. If you ask me, the only potential growth sectors will be mining, energy and base materials. Not because demand for oil, gold or steel will go up, but because both the Euro and the US Dollar are losing value. The Central Banks' capital injections haven't helped in this respect and they will soon be caught in a stagflation spiral (i.e. a stagnating economy in combination with high inflation rates).
Add to this the recent 'Al Qaeda trades', where unknown parties have been buying huge quantities of out-the-money put options, both in Europe and on Wall Street, and we have a very dark and cloudy scenario. As if that's not enough, we are also in a Puetz Window (the days in between a full moon and a solar eclipse), which has historically been the likeliest time for stock market crashes.
Last Friday, we could already see that all this uncertainty has led investors to buy precious metals as well as the Japanese Yen. These are also the positions that I am in today: I am short EUR/JPY, long silver, long mining companies and I hold puts and put spreads on major indices. Not because I am convinced that we will get a crash like we had in 1987, but because I am convinced that there are very weak times ahead of us. I am also convinced that stock valuations today are not what they were one year ago. With a possible recession coming up, the potential end of the carry trade period, the increased difficulty to attract money and the consequential drop in M&A activity, a stock valued at 37 times earnings is really not that cheap anymore.
16 August 2007
Time to start shopping again...?
I am sure that the past weeks have been disastrous for many investors as very few had seen this drop (and its timing) in the stock markets coming. Even those who did saw it coming may not have expected it to be this fierce. I think I may include myself in that last category. With the lion share of my portfolio invested in American stocks and a long gold position, this week has certainly been one that I do not wish to experience a second time. My long position in gold has been liquidated and I was too early to close my short position on the Dutch AEX index, which generally follows the US indices.
Now is the time to sit and think about what steps to take. Do I sell my shares, waiting for further drops? Do I move extra money into my trading account? Do I sit and wait until the bottom is there, knowing that current valuations are ludicrously low? This is probably a choice that many private investors are now thinking of and their decision partly determines the future course of the markets.
Let's have a look at the signs that we're getting. The move that we've seen since the year-highs was fiercely downward, then sideways, then fiercely downward again. Corrections like these are never ended with a sideways move. They always end after a last fierce sell-off, followed by a quick rise. The first downward move was mainly caused by financials that were (or were not) affected by the subprime woes. The second downward move, the one that we're in now, is not caused by financials - even though all newspapers, television stations and websites will tell you that investors are selling on subprime fears. And the financial sector is the only one that is going up again! The main sectors that are now hit are services, basic materials and to a lesser extent the energy sector. These are the sectors that had not yet had serious sell-offs and investors are now simply taking profits, based on fear or emotions if you like. In addition to that, the carry trade has its effect as well, which has affected precious metals prices as well.
All this means that you're now able to buy dividend cannons like Southern Copper at a p/e below 10, a growth company like Companhia Vale at a p/e of 9 and Freeport-McMoran at a p/e of 8.4. And these are not companies that have performed badly so far this year! This Thursday's sell-offs also mean that telecom stocks are reasonably priced again, even though this is not one of my favourite sectors. It means you can buy Apple at $112, where hardly anything's changed since everyone wanted the stock at $140. (I personally continue to think that it's crazy to pay over 30 x earnings for any company, unless it's a junior company with great prospects, but I seem to be the only one)
All I can say is that today we are one step closer to a turnaround, which doesn't necessarily mean that 12500 was the bottom for the Dow. There may be a further drop, but I am pretty confident that we will not see a drop as fierce as the one we've seen this Thursday. Profit has now been taken in the sectors that are fundamentally the strongest sectors and these best-performing sectors are the last ones to get hit.
From this I can conclude that the bottom is near. I will therefore not sell any of my stocks and wait for better times to come, however painful this may be. The only thing one can do is write some calls or buy some puts, just in case we haven't seen the bottom yet. I still think the precious metals are the sector to be in and especially gold. I will therefore look for a new long position in gold, once again with a stoploss. To all investors who felt the way I felt this week, hold on tight, start shopping again, but whatever you do, don't be the last one selling. After all the economy can't be that bad, because my fiancee's still out there shopping for shoes as if nothing changed this week...
Disclaimer: The author has no position in any of the above-mentioned stocks.
Now is the time to sit and think about what steps to take. Do I sell my shares, waiting for further drops? Do I move extra money into my trading account? Do I sit and wait until the bottom is there, knowing that current valuations are ludicrously low? This is probably a choice that many private investors are now thinking of and their decision partly determines the future course of the markets.
Let's have a look at the signs that we're getting. The move that we've seen since the year-highs was fiercely downward, then sideways, then fiercely downward again. Corrections like these are never ended with a sideways move. They always end after a last fierce sell-off, followed by a quick rise. The first downward move was mainly caused by financials that were (or were not) affected by the subprime woes. The second downward move, the one that we're in now, is not caused by financials - even though all newspapers, television stations and websites will tell you that investors are selling on subprime fears. And the financial sector is the only one that is going up again! The main sectors that are now hit are services, basic materials and to a lesser extent the energy sector. These are the sectors that had not yet had serious sell-offs and investors are now simply taking profits, based on fear or emotions if you like. In addition to that, the carry trade has its effect as well, which has affected precious metals prices as well.
All this means that you're now able to buy dividend cannons like Southern Copper at a p/e below 10, a growth company like Companhia Vale at a p/e of 9 and Freeport-McMoran at a p/e of 8.4. And these are not companies that have performed badly so far this year! This Thursday's sell-offs also mean that telecom stocks are reasonably priced again, even though this is not one of my favourite sectors. It means you can buy Apple at $112, where hardly anything's changed since everyone wanted the stock at $140. (I personally continue to think that it's crazy to pay over 30 x earnings for any company, unless it's a junior company with great prospects, but I seem to be the only one)
All I can say is that today we are one step closer to a turnaround, which doesn't necessarily mean that 12500 was the bottom for the Dow. There may be a further drop, but I am pretty confident that we will not see a drop as fierce as the one we've seen this Thursday. Profit has now been taken in the sectors that are fundamentally the strongest sectors and these best-performing sectors are the last ones to get hit.
From this I can conclude that the bottom is near. I will therefore not sell any of my stocks and wait for better times to come, however painful this may be. The only thing one can do is write some calls or buy some puts, just in case we haven't seen the bottom yet. I still think the precious metals are the sector to be in and especially gold. I will therefore look for a new long position in gold, once again with a stoploss. To all investors who felt the way I felt this week, hold on tight, start shopping again, but whatever you do, don't be the last one selling. After all the economy can't be that bad, because my fiancee's still out there shopping for shoes as if nothing changed this week...
Disclaimer: The author has no position in any of the above-mentioned stocks.
Subscribe to:
Posts (Atom)
