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Thursday
May202010

Agnico-Eagle Mines Limited Call Options Closed

AEM Chart 21 May 2010.jpg


As we can see from the above chart the down turn in gold prices had a dramatic effect of AEM sending the stock price $10.00 lower in just a few days with the stock closing at $56.76 in today's trading session. We can also see that the technical indicators have U-turned suddenly and are now heading towards the floor.

This drop was harder and faster than we anticipated and put paid to our trade so we closed the position for an average of around $0.20 per contract today. There were times when we could have taken a profit on this trade, however we held onto the possibility of making a bigger profit and we got it wrong and paid the price. We also made the mistake of sailing too close to the expiry date which is this Friday leaving ourselves no room to manoeuvre. So there we go, its back to the drawing board for us.

Agnico-Eagle Mines Limited trades on the NYSE under the ticker symbol of AEM and on the Toronto Stock Exchange under the symbol of AEM.TO.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.

The latest trade from our options team was slightly more sophisticated in that we shorted a PUT as follows:

On Friday 7th May our premium options trading service OPTIONTRADER opened a speculative short term trade on GLD Puts, signalling to short sell the $105 May-10 Puts series at $0.09.

On Tuesday the 11th May we bought back the puts for just $0.05, making a 44.44% profit in just 4 days.



Accumulated Profits from Investing $1000 in each OPTIONTRADE signal 14 May 2010.jpg

Recently our premium options trading service OPTIONTRADER has been putting in a great performance, the last 16 trades with an average gain of 42.73% per trade, in an average of just under 38 days per trade. Click here to sign up or find out more.


Silver-prices.net have been rather fortunate to close both the $15.00 and the $16.00 options trade on Silver Wheaton Corporation, with both returning a little over 100% profit.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.
Wednesday
May192010

The End of the Gold Bull Market

Gold Bull and Bear 20 May 2010.jpg

David Galland, Managing Director of Casey Research, interviews… David Galland.

Q. With gold and gold stocks on a tear, does Casey Research still recommend holding 1/3 of a portfolio in cash?

A. The answer depends, of course, on what country you are currently sitting in. Were I sitting in the eurozone, I would have already moved much of my safe-harbor cash into the “resource” currencies such as Canada and Norway… i.e., countries that are rich in the natural resources that the world needs and will always need.

If my derrière were resting in a seat planted on U.S. soil, as it is, and I didn’t plan on doing any significant overseas spending, then I would feel relatively comfortable – for the time being, with a larger than usual allocation to the dollar. But I would have been diversifying into the resource currencies as well.

Q. Hold the fort, dude – how can you write frequently about the demise of the dollar and yet be “relatively comfortable” holding the stuff?

A. In a nutshell, the monetary inflation, quantitative easing, and insane spending of the U.S. government, emulated by countries around the globe, have set the table for a large serving of currency depreciation down the road.

Once that depreciation begins to appear in the form of price appreciation, we’ll look to trade our greenbacks for more in the way of tangibles – probably more gold… maybe real estate in a good location, location, location… maybe more silver… maybe deep-value energy stocks… maybe antiques… maybe some of all of the above.
 
For the time being – because price inflation is not out of control and yields are so low – there is little real carrying cost to holding a larger allocation to cash, and the flexibility and security of having cash is a big plus.
 
Q. What about gold and gold stocks today?

A. Gold is sound money. Always has been, probably always will be. In the sort of crisis now underway – a crisis that to no small extent is now focused on sovereign fiscal and monetary excesses – gold has a particularly important role in protecting wealth.

If you don’t own it, start accumulating it, preferably on the inevitable dips. If you do own it, hold it and consider accumulating it up to somewhere between 20% and 30% of your portfolio, though the exact amount will depend on factors such as your cash flow needs, personal debt obligations, your age and work status, etc., that we can have no way of knowing.

One of the nuances in answering this question has to do with deciding what form of gold to own. While we like physical gold held in a safe place, you don’t want to go overboard, because things can happen. For instance, robbery, or even a house fire that melts your wealth back into the dirt.

In addition, at some point the gold bull market will end, and when it does, the scramble to sell will likely overwhelm the coin dealers to the point where they literally take their phones off the hook. That creates the potential for big gaps down in the price between the time you decide to sell and are actually able to sell. Mind you, I don’t see that being a concern anytime soon – but it’s always worth keeping in the back of your mind.

There are a number of other bullion alternatives – a big positive being that many are easy to buy, hold, and sell – including allocated and unallocated gold accounts, electronic gold, gold ETFs, and so forth. Some are better than others – and all are worth understanding before making investments. Our Casey’s Gold & Resource Report is a good source for this sort of info.



Generally our recommendation is to hold your gold in a variety of investment vehicles as that will mitigate the risks of having too many eggs in one basket.

Turning to gold stocks, savvy investors will already be well positioned in the best of the best. And will own many positions risk-free, having already recaptured their original investment. If that is the situation you are in, and you really understand the companies you are invested in, then at this point either hanging in for the big upside or trading the surges and dips makes sense. If you are new to the sector, I wouldn’t chase the stocks just now – but rather put in stink bids – i.e., 10% to 20% below the current market, and look to get filled on a correction.
If you are new to the gold stocks, or risk-averse, then look to build a portfolio of large-cap gold stocks such as we cover in Casey’s Gold & Resource Report. Those will attract a lot of attention from the public at large, and from institutions, as the bull market gathers steam.




If you have experience with gold stocks, and a higher tolerance for risk, then you may want to focus on the small-cap Canadian explorers and developers. Those juniors have amazing volatility and, when the news is good, the upside can be breathtaking.

Regardless of the approach you take, don’t chase stocks as they move higher – but look to build your portfolio on dips over the next few months.

The idea is to get positioned before the underlying price of gold reaches a level where the public starts to come into the sector in a big way – at which point, if history is any guide, the early investors will make stunning returns.

Q. At what price do the gold stocks catch fire?

A. Some years ago, we had someone spend the better part of a week in a musty storage room full of old Canadian newspapers, paging through past issues and recording the price and volumes of the gold stocks during the last big run-up, in the 1970s. We then compared that data to the gold price in inflation-adjusted dollars in order to determine the price when the broader investment public began piling into the gold. The number worked out to about $1,250 per ounce in today’s dollars. In other words, when gold decisively takes out $1,250 an ounce and holds above that level, if history is a guide, we may start seeing the average guy on the street – and the institutions – pile into the stocks.

Of course, while interesting from an historical perspective, that analysis has no scientific basis. The key point, therefore, is that during the last big gold bull market the public wasn’t involved in the gold stocks when they should have been – in the run-up phase – but rather only piled in after the price of gold bullion soared, relatively late in the bull market. So far, the average Joe and Jill are just not in this market. But they will be.

Q. How high do you think gold will rise?

A. At our recent Crisis & Opportunities Summit, an attendee asked how high we thought the dollar price of gold would reach in this bull market.

My response was that there really is no way of actually forecasting that number, for the simple reason that, in a fiat currency regime, the underlying unit of valuation is so intangible. Let’s say you lived in Zimbabwe some years ago and owned an ounce of gold. One day your ounce might be worth 1,000 of the local currency units. A year later, it might be 1,000,000. Or even 10,000,000,000.

While the U.S. is no Zimbabwe – at least not yet – its currency is just as intangible, for the simple reason that the government can print the stuff pretty much at will. To say that gold will go to $5,000 in the current crisis is really just another way of saying that the dollar currency unit will fall by some significant degree. But, given the uncertainty in the economy and the unknown of what actions the government and the Fed might take next, we really can’t know how much purchasing power the currency unit will lose in the months and years just ahead.
To date, the government has been extraordinarily – breathtakingly – willing to abuse the dollar. They have largely gotten away with it so far, but that certainly doesn’t mean they will get away with it forever. When the time comes for the piper to be paid, we suspect he’ll be paid pennies on the dollar… which could easily result in gold trading for $3,000, $5,000, $10,000 per ounce – but, who knows, maybe even $10,000,000,000.

The point is, given the choice between dollars and gold, you are far more likely to preserve your wealth over the duration of this crisis with gold.

Q. Is the gold bull market getting old? How much longer can it last?

A. Having been around and actively involved in hard assets – as the editor of “Gold Newsletter” and the conference director of the New Orleans Conference – during the last big gold bull, I hope I can provide some useful perspective.

For instance, I can well recall when, in late 1979, all of the many gurus of the day were predicting gold would keep going higher and higher still. Well, as we all know, it didn’t.
What’s interesting about this time around is that there is almost no scenario we can envision that is going to kick the legs out from under the gold market – at least not anytime soon. In contrast, in the late 1970s, the gold bulls coulda/shoulda seen that the Fed had a lot of room to act – i.e., by pushing up interest rates – in order to tackle the price inflation that was the key driving force in the soaring gold prices of the time.

Today, the situation is profoundly different. Starting with the fact that this is, at the core, a debt crisis. And the one thing you can’t do in a debt crisis is to encourage interest rates to rise. Look no further than Greece for that lesson.

So, we have an unprecedented monetary inflation, truly out-of-control sovereign spending and debt, unprecedented levels of private debt, unprecedented trade deficits, a massively overbuilt and overpriced post-bubble real estate market, and, importantly, near historically low interest rates.

So, we have to ask ourselves – other than continuing to exercise its powers of fiat money creation – what ammunition does the government have at its disposal to address the structural problems of today’s economy? And, of course, actually creating more money and more debt isn’t addressing the structural problems, it is compounding them.

Of course, the government can default on their sovereign obligations – an option I think we’ll see Greece and others of the PIIGS take, and probably fairly soon.

They can also continue to inflate, which we expect them all to do.

And they can… no, actually, I think that about sums it up: default or inflate. In either scenario, gold is going to be seen as the ultimate safe harbor.

Q. Won’t the government see gold as a threat to its fiat currency and try to do something about it?

A. Of course, governments might try any number of stunts that could affect gold. For example, raising margin requirements to curb playing the markets with leverage, or even attempting outright confiscation.

All we can do is to monitor the situation closely and try to anticipate their next moves in order to get out of the way. A number of people I know have opened safety deposit accounts in other countries as one way to hedge their bets against confiscation. Others have bought numismatics – but be careful on that front, because that can increase illiquidity.

It is not out of the question, in my view, that before this is over, we could see a revaluation of gold in order to re-link the U.S. dollar to it – because sooner or later, as the crisis reaches its climax, something is going to replace the fiat currencies – but at this stage it’s impossible to guess what that will look like. If we did see a return to a gold standard, then the government could actually be responsible for sending gold up by many multiples.

Back to the present, at this point I can’t see anything that is going to derail this bull market – but I do see a whole lot of things with the potential to send it into the stratosphere.

Q. Thank you for your time.
A. My pleasure. Always happy to be of help.
Q. You’re kind of strange, talking to yourself and everything. You know that, right?

A. Sometimes I wonder.  
 
Europeans are starting to get the picture – many precious metals sellers in Europe are now finding themselves out of stock – but most Americans are still woefully clueless when it comes to the safe-haven value of gold. And timing can be most important. Read our FREE report How Do I Know When to Buy? Receive it here.









Keep smiling its all falling into place for gold and silver bugs.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.

The latest trade from our options team was slightly more sophisticated in that we shorted a PUT as follows:

On Friday 7th May our premium options trading service OPTIONTRADER opened a speculative short term trade on GLD Puts, signalling to short sell the $105 May-10 Puts series at $0.09.

On Tuesday the 11th May we bought back the puts for just $0.05, making a 44.44% profit in just 4 days.


Accumulated Profits from Investing $1000 in each OPTIONTRADE signal 14 May 2010.jpg

Recently our premium options trading service OPTIONTRADER has been putting in a great performance, the last 16 trades with an average gain of 42.73% per trade, in an average of just under 38 days per trade. Click here to sign up or find out more.


Silver-prices.net have been rather fortunate to close both the $15.00 and the $16.00 options trade on Silver Wheaton Corporation, with both returning a little over 100% profit.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.



Tuesday
May182010

Gold Prices Observations 19 May 2010

USD Chart 19 May 2010.jpg


The volatility continues across the markets and is aptly demonstrated here by the USD which started the day heading south and then bounced to gain 1.39%. Gold prices drifted lower in Hong Kong and in London before heading higher in New York as the chart shows. We have warned about volatility increasing and becoming the order of the day, so hang on to your hard hats and your position in the gold and silver sector as they will reward you in time.

Going forward get used to the idea of $100/oz movements per day in gold prices and say $2.00/oz per day for silver prices, then you will not be taken by surprise and not shook out of your position. We are heading into the summer season which can be a little lacklustre in the precious metals space, however, with the European pantomime going from bad to worse this summer may be a tad more active than usual. The new government in the UK will no doubt open the books and shock horror, the financial skeletons in the cupboards will come life with alarming frequency having a knock on effect on the pound. The race to the bottom for currencies will gather pace and now appears to almost unstoppable, the pound, the Euro and the US Dollar are all in deep pooh.

Gold Chart 19 May 2010.jpg

In a missive from Jim Sinclair today he summarised the action as follows:

The euro below $1.20 would strongly suggest Chairman Volcker is right on the subject.
 
The euro below $1.10 would confirm that Volcker is correct.
 
Presently there is key support at $1.2150.
 
The euro today traded as high as 1.2448 and dropped below $1.2150 trading now at $1.2202. That is outrageous activity for a major currency
 
There is no central bank nor is there any intervention that can stand against the tool of credit default derivative swaps. Gold is you're only safe harbor.




Keep smiling its all falling into place for gold and silver bugs.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.

The latest trade from our options team was slightly more sophisticated in that we shorted a PUT as follows:

On Friday 7th May our premium options trading service OPTIONTRADER opened a speculative short term trade on GLD Puts, signalling to short sell the $105 May-10 Puts series at $0.09.

On Tuesday the 11th May we bought back the puts for just $0.05, making a 44.44% profit in just 4 days.

Dont forget to enter the competition to win a free subscription, click here.

Accumulated Profits from Investing $1000 in each OPTIONTRADE signal 14 May 2010.jpg

Recently our premium options trading service OPTIONTRADER has been putting in a great performance, the last 16 trades with an average gain of 42.73% per trade, in an average of just under 38 days per trade. Click here to sign up or find out more.


Silver-prices.net have been rather fortunate to close both the $15.00 and the $16.00 options trade on Silver Wheaton Corporation, with both returning a little over 100% profit.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.



Tuesday
May182010

SPDR Gold Trust (ETF) Call Options Competition

GLD Chart of June Call Options 18 May 2010.jpg

The above table is a snap shot of the prices paid for the various call options that are currently available on the SPDR Gold Trust (GLD) for the June 2010 series. The number outlined in the box, $2.99, is the last price paid for the June 2010 series with a strike price of $120.00 and the last bid stands at $2.99 and the last ask stands at $3.05, as of 18 May 2010.

Now, we invite you to estimate/guess/predict what the last price for these call options will be at the close of business on Friday, 28th May 2010, so thats the challenge.

The prize is a free subscription to OPTIONTRADER, from SK Options Trading, which costs $99.00. The reader who can get it right will be the winner, however, our decision will be final. The closing date will be this Sunday, 23rd May 2010. Please enter your answer in the comments box under this article, emails to us will not be accepted as an entry. We will close this competition as stated on Sunday so you only have a few days to make your decision and place it in the comments box. If there is more than one winner we will go with the first entry. Will the price go up from here or will it go down from here, thats for you to decide, but its your chance to win this extraordinary valuable prize.


Right then, back on your toes you've got some thinking to do!

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.

The latest trade from our options team was slightly more sophisticated in that we shorted a PUT as follows:

On Friday 7th May our premium options trading service OPTIONTRADER opened a speculative short term trade on GLD Puts, signalling to short sell the $105 May-10 Puts series at $0.09.

On Tuesday the 11th May we bought back the puts for just $0.05, making a 44.44% profit in just 4 days.



Accumulated Profits from Investing $1000 in each OPTIONTRADE signal 14 May 2010.jpg

Recently our premium options trading service OPTIONTRADER has been putting in a great performance, the last 16 trades with an average gain of 42.73% per trade, in an average of just under 38 days per trade. Click here to sign up or find out more.


Silver-prices.net have been rather fortunate to close both the $15.00 and the $16.00 options trade on Silver Wheaton Corporation, with both returning a little over 100% profit.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.


Sunday
May162010

Bud Conrad: Beyond the Point of No Return

Bud Conrad 15 May 2010.jpg
Bud Conrad


"We're heading toward government devaluing its currency to devaluate its debt in order to survive. That means you need to protect yourself. You can't just have savings accounts paying no interest. You need to go and buy gold," says Bud Conrad, chief economist with Casey Research, in this exclusive Gold Report interview. Despite the grim outlook for the U.S. dollar and other paper currencies worldwide, Conrad believes he and other speakers at the recent Casey Research 2010 Crisis and Opportunity Summit have information you need to both prosper and protect yourself during the coming economic storm.

TGR: Today we are talking with Casey Research Chief Economist Bud Conrad who recently presented a riveting talk during Casey Research's 2010 Crisis and Opportunity Summit. Here are four major points from his talk:

1. The world economy is in a calm between a credit crisis turning into a currency crisis as the collapse of the private debt bubble is replaced by a government debt bubble that will also collapse.

2. The world is at a point of no return for government debt as debt-to-GDP approaches 100%. When debt becomes too big, governments cannot control the interest rates and currency. The lead warning is Greece, much the same as Lehman Brothers was in the credit bubble crisis.

3. Peak oil. The wealth of humanity has been built on energy. Half the world's conventional oil supply is already used. That means that the quantity of oil produced each year will not increase much from the current level even as demand from developing countries like India and China increases. Wars over oil have already started. Energy prices will rise. We will see a substantial rise in the cost of food, as food production requires energy.

4. The U.S. can prosper and stay ahead of the rest of the world by developing and investing in three forms of technology—the Internet and cell phones, new medicines through biological breakthroughs and new sources of energy. All are good investment opportunities and are necessary for human expansion.
 
TGR: What lens were you using as you developed these themes?

BC: I was trained as an electrical engineer and I spent much of my career in the computer business, so I look at things from a total system point of view. Whenever somebody has an issue I say, 'let's look at the data.'

We have sort of a blue sky overhead right now, as people think things are improving, but I think we're in the eye of the storm. We had heavy winds blowing from the credit crisis and we all know what happened. The governments came along to bailout the problems and purchase all the toxic waste of sub-prime mortgages and bad debt from too much private lending.

Governments now have a huge credit bubble, just like we had with the housing mortgage bubble. I think that the government debt bubble will burst and that will be the other side of the hurricane, as the winds swirl around and hit us from the other direction in terms of a currency crisis and government debt collapse.

TGR: Are you at odds with the strategy the U.S. government is using to stave off the recession?

BC: If we decide we're going to build a few roads, maybe build a bridge, hand out some money for basketball programs or some other idea that seems to be part of large government programs, then we won't have achieved much. Last year, the government spent about $1.5 trillion more than it collected in taxes. The Federal Reserve also spent $1.5 trillion buying mortgage debt to keep that market from further collapse. So the government spent $3 trillion dollars to give us the current blue sky of a small recovery. The current blue sky could be measured as 3% of GDP. GDP is about $14 trillion, so that's about $400 billion of economic growth. Well, $3 trillion spent for $400 billion of economic growth is a pretty bad return on your investment. Add to that several trillions of guarantees and future government obligations for Fannie, Freddie, FDIC, PBGC etc., and I have the basis for believing that these obligations are big enough to cause the collapse of the sovereign debt of the United States Furthermore, I don't think it's just the U.S.; I think it's worldwide. In other words, we're going to have debt crisis in the U.S. and Europe and other countries that have expanded their government debt too.

TGR: Is Greece the bellwether for this potential doomsday scenario?

BC: Greece is being bailed out, but it's one set of governments bailing out another set of government debt. Pretty soon the question is who's going to bailout whom? The U.S. debt is getting out of control at a spending rate approximately equal to Greece's (in terms of percentage of GDP per year.) I think we're in a far more precarious position than most people realize.

TGR: Did people examine similar themes at the recent 2010 Casey Research Crisis and Opportunity Summit?

BC: I think there was a general attitude in the conference that our government debt is so serious that we can't recover to as stable level. I call it "beyond the point of no return" because interest on the debt continues to grow even if the government tries to cut spending. Other speakers like Sprott Asset Management's John Embry and Bill Bonner, who heads the AGORA set of newsletters, worry about our government and the debt. Bonner talks about the "collapse of empire." Embry talks about the corruption in our banking system. And we had a whole section on energy.

TGR: Let's go back to your "point of no return."

BC: The point of no return is when government debt gets so big that it can never be paid off. That's the problem that happened in Greece. Government debt is so big that the other countries of the European Union have had to come in with a $110 billion bailout, which I believe is probably not enough, over a three-year period, to try to put the Greece situation back on track. What happens when Spain, Portugal and Ireland are added to Greece?

TGR: And in the U.S.?

BC: In the U.S. I think we are past the point of no return in the sense that the government debt and obligations for retirees from baby boomer times of $75 trillion dollars cannot be paid off with dollars that are now denominated at the value that most people think they should be. In other words, we're heading toward government devaluing its currency to devaluate its debt in order to survive. That means you need to protect yourself. You can't just have savings accounts paying no interest and the purchasing power of these dollars declining. You need to buy gold.

TGR: Is peak oil another reason to buy gold?

BC: One of the best discussions in our conference was about how the explosion of the offshore oil rig in Louisiana is much like what Three Mile Island was for nuclear energy. This kind of deep water oil drilling is potentially far more dangerous than we thought it was; not only dangerous in the short term for the investors who build rigs and spend hundreds of millions of dollars putting these things together, but now for the environment. It's going to affect our ability to do offshore drilling, which we had hoped could be one of the new sources of oil to keep the wealth of the planet and humanity growing.

TGR: Explain the role energy plays in the growth of humanity.

BC: We have grown to 6.5 billion people from 1.5 billion people over the last century because we could take the work off the backs of men and animals and put it onto machines. We created electronics, computers, medicine and so forth to improve our lifestyle. We have lived truly in the most abundant time for humanity, but we have used up half of the oil. You cannot grow energy production at the level that Asia and India would like in order to have the kind of lifestyle we have here in the West. The result is a worrisome situation politically because it can lead to wars over resources. It could also lead to starvation because the production of food is dependent on energy. Energy is used to provide everything from fertilizer to diesel fuel to food storage to transportation. Energy has allowed us to move from my father's time of 50% of the U.S. population scratching food out of the surface of the earth to only 3% of the population producing food, much of which we export.

TGR: Why aren't more people talking about the dearth of oil and the collapse of the paper money?

BC: The combination of energy as a problem and the financial collapse of paper money systems are a reason for much more concern than is generally disseminated in the normal business news. This is really important. We really need to find new sources of energy.

TGR: Yet in the midst of all these looming crises, you see opportunities for investment. Tell us about some of those.

BC: The basic question of most investors who come to our conference is: What should I be doing in terms of investment opportunities? Casey Research focuses heavily on extracting resources. We have two newsletters talking about gold, one on junior mining stocks and one more about big stable mines. We offer similar services in the energy sector. The point of these is to give people the ability to protect themselves from what governments are doing to us.

TGR: But in terms of a sector, what is one that you focus on?

BC: One of the most important things to think about is the future of technology. In some sense, technology is the savior for mankind. It's brought us this great abundance and I think can continue to do so.

TGR: With that in mind, what are some specific ways one can invest?

BC: I don't usually pick companies myself because I tend to look at the macro-picture. I think it's necessary to have a good understanding about how all these things tie together. My new book Profiting from the World's Economic Crisis: Finding Investment Opportunities by Tracking Global Market Trends gets to how this whole system works and how can find ways to protect yourself. For example, I believe the dollar is doomed; and, along the way to its collapse, there will be much higher interest rates to compensate lenders for the potential inflation. You should expect interest rates to rise, and there are ways to invest in that either through futures or ETFs.

TGR: What about opportunities in high-tech?

BC: We've just gone through a credit crisis. We've watched General Motors collapse. We've watched the airlines struggle for decades. One of the things that is nice about technology, for example, is that Apple (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), Google Inc. (NASDAQ:GOOG) and Intel (NASDAQ:INTC) all have cash in the bank. They have no debt. Apple just blasted through to being the third-largest company in the U.S. in market cap. I'm not making Apple a recommendation for investment as it is already so high, but it shows how important technology can be with new iPads and so forth. For anybody who wants to see how these forces all hang together, I have five chapters of recommendations in my book. My message is to fear for the dollar and prepare for a future wherein stagflation is the watch word for guiding your investment principles.

TGR: Won't the collapse in the value of the dollar drive the technology companies that you just listed to move to other countries? Aren't we at risk there?

BC: They've already gone. There is no production of anything done in Silicon Valley; all the plants for semiconductors and so forth are in Asia. But there will be competition for intellectual resources in the future. I think we have an edge on the front end of the invention of technology. There are plenty of foreigners here in Silicon Valley. Indians and Chinese are starting their own companies. I think we still have the leading edge in our education and development of new things; and I think we should emphasize and support it. I'm even going to take a libertarian's antithesis here by suggesting government support of our invention and creativity would be a very good investment. If we don't, Asians are no dummies. They'll figure out how to do things on their own and, in fact, they are.

TGR: How so?

BC: One of the reasons for China's great leap forward was active participation in new technologies. China moved from being the low-cost producer to doing their own offshoring to Indonesia where they get cheaper labor. They're trying to move up the food chain to the more complex things like electronics rather than cheap consumer goods. Watch the sweep of anointed society moving from the West toward the East.

TGR: What about other sectors where technology is key?

BC: We need a new way to do medicine. If we actually push forward on biotechnology, I think there are opportunities for humanity. Cracking the genome means that we have figured out how to use biological methods so that people can repair parts of their bodies with living tissue rather than pills. Pills are based on chemistry that, hopefully, has some kind of molecule that makes us feel better. There is a whole new trajectory for the biological sciences that can be used to improve the human condition.

You can see an overwhelming need for new energy sources. We need new ways to absorb the sun's energy to extend humanity's position on this planet. The U.S. is in the best shape technologically to prevail and keep its empire from collapsing in the way so many large and successful collections of society and empires have in the past. I'm not sure we will, but I think that's the best opportunity for us both as a nation and as individuals. If we invest in finding the right technologies, we will all do better.

TGR: Where is a low-risk place to put your money?

BC: I think you'll do well by investing in gold. In some sense, gold is just plain a stable island. It doesn't change when you invest in it; you are really just making a solid savings position.

TGR: Are there any other metals that you see as being a safe harbor?

BC: All of them. Silver is a cheap man's gold but more volatile. As gold goes up, silver goes up more. As gold goes down, silver goes down more.

Think about energy. Oil is often called "black gold." I think of it as an opportunity for investment that isn't just about savings, particularly if you're investing in not just the material but also the new ways of generating energy. Perhaps then you are adding to humankind's knowledge about how to improve its situation, as well as getting good returns.

TGR: What were some major investment themes in talks during the summit?

BC: Gold, energy, interest rates rising, agriculture, water, methods of investing, personal considerations of living in the U.S. or other countries and how to do it, how to handle passports, how to handle your money in a different country than where you live, etc. Most people said it was one of the best conferences they had ever been to.

TGR: Great, this has been very informative. Thanks so much for your time, Bud.
The future may not be rosy, but it isn’t hopeless either. At the just concluded Casey Crisis & Opportunity Summit, geniuses in their field – like Bud Conrad, Doug Casey, Bill Bonner, John Embry, and many more – analyzed the current state of the economy… and devised the best investment opportunities for savvy investors. Learn more here.
 
Bud Conrad holds a Bachelor of Engineering degree from Yale and an MBA from Harvard. He has held positions with IBM, CDC, Amdahl and Tandem. Bud, a futures investor for 25 years and a full-time investor for a decade, is also sought after as key note speaker in Dubai, New Zealand, Vancouver, New York and many other cities. He has appeared on TV on CNBC, FOX, and on many radio shows. As Chief Economist at Casey Research, he produces original analysis.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.

DISCLOSURE:

1) Brian Sylvester and Karen Roche of The Gold Report conducted this interview. They personally and/or their families own shares in the following companies mentioned in this interview: None.

2) The following companies mentioned in the interview is a sponsor of The Gold Report: None. 3) Bud Conrad: Doug Casey, Casey Research, LLC, Casey Early Opportunity Resource Fund, LLC and other entities in which he has an interest, employees, officers, family, and associates may from time to time have positions in the securities or commodities covered in this interview, Casey's publications or web site. Corporate policies are in effect that attempt to avoid potential conflicts of interest and resolve conflicts of interest that do arise in a timely fashion.




Keep smiling its all falling into place for gold and silver bugs.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.

The latest trade from our options team was slightly more sophisticated than usual in that we shorted a PUT as follows:

On Friday 7th May our premium options trading service OPTIONTRADER opened a speculative short term trade on GLD Puts, signalling to short sell the $105 May-10 Puts series at $0.09.

On Tuesday the 11th May we bought back the puts for just $0.05, making a 44.44% profit in just 4 days.

Accumulated Profits from Investing $1000 in each OPTIONTRADE signal 14 May 2010.jpg


Recently our premium options trading service OPTIONTRADER has been putting in a great performance, the last 16 trades with an average gain of 42.73% per trade, in an average of just under 38 days per trade. Click here to sign up or find out more.


Silver-prices.net have been rather fortunate to close both the $15.00 and the $16.00 options trade on Silver Wheaton Corporation, with both returning a little over 100% profit.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.

Saturday
May152010

High River Gold Mines Limited: Q1 $27M profit, Olma Target $1.82.

HRG Logo 31 July 2009.jpg

Chris Charlwood has very kindly sent us this missive updating us on the current state of play over at High River Gold Mines Limited (HRG) which we hope that you find interesting and informative.

 
Olma Investment Company has increased its target price of High River Gold to $1.82 based on the Q1 2010 results – a 117% increase from today’s share price. Production problems (seen to be as one time) caused production to drop to 77.8K oz  from 94.6k oz in Q4. However, the company was able to retain much of its previous quarter’s profit ($27.3M versus $31.6M in Q4) due to cost controls. HRG has reduced its debt down to $62.6M and is expected to pass the tests with Royal Gold to release its third party investments as collateral. Olma shows the company as having a negative net debt (surplus) of  $19.9M.
 
Things to look forward to?
1.    Royal Gold to release 3rd party investments of $78.4M (current values).
2.    Bissa Feasability study completion with multi million oz potential.
3.    Drilling program to extend mine life at Irokinda and Zun-Holba.
4.    From Q1 MD&A; “The new mill at Berezitovy should enable increased production in the second half of 2010. Further operational improvements planned for Taparko may result in higher production in the second half of 2010.”
5.    Q2 gold prices looking to be $1185/oz avg. compared to $1109/oz avg. in Q1.
6.    Severstal Gold possibly announcing an IPO with market cap. in the $4.2B range. With HRG making up 63% of total production in Q1 (77.8k oz vs.123k oz), on a production basis only, this would value HRG at $2.65B or $3.31/share.
 
HRG has a very committed minority shareholder base with very little selling. However, HRG needs new investors buying shares to move the price up significantly. We are hoping that Severstal/HRG management will begin to promote the HRG story by pursuing research coverage from investment banks, presenting at mining and investment shows and hiring an Investor Relations firms.
 
Sources
 
HRG Q1 2010 results
http://finance.yahoo.com/news/High-River-Gold-Reports-First-ccn-816689089.html?x=0&.v=1
 
Olma Investment report
http://freepdfhosting.com/a74bb86fa9.pdf         
 
Third party Investments
http://freepdfhosting.com/e367e467a0.pdf
 
 
Chris Charlwood
Retail Investor
Rainerc7@gmail.com
604-718-2668

So there we have it, as usual we are still holding on to this stock.

Keep smiling its all falling into place for gold and silver bugs.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.

The latest trade from our options team was slightly more sophisticated in that we shorted a PUT as follows:

On Friday 7th May our premium options trading service OPTIONTRADER opened a speculative short term trade on GLD Puts, signalling to short sell the $105 May-10 Puts series at $0.09.

On Tuesday the 11th May we bought back the puts for just $0.05, making a 44.44% profit in just 4 days.

Accumulated Profits from Investing $1000 in each OPTIONTRADE signal 14 May 2010.jpg

Recently our premium options trading service OPTIONTRADER has been putting in a great performance, the last 16 trades with an average gain of 42.73% per trade, in an average of just under 38 days per tradeClick here to sign up or find out more.


Silver-prices.net have been rather fortunate to close both the $15.00 and the $16.00 options trade on Silver Wheaton Corporation, with both returning a little over 100% profit.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.

Saturday
May152010

What If Doug Casey Is Right?

By Jeff Clark Editor Casey’s Gold & Resource Report
 
Gold is once again above $1,200 and making new highs. And yet, Doug Casey thinks we’re just getting started, estimating gold could touch $5,000 before this is all over. A titillating thought, to be sure, but... how likely is that?
 
Gold’s latest rise stems from mounting fear that the Greek bailout will be followed by other euro-area countries queued for a me-too handout. In other words, gold is serving its historical role as a safe haven, a store of value, and an alternate form of money when governments recklessly plunge themselves heavily into debt and abuse their currency.
 
“But Jeff, $5,000 gold is a long way up,” the skeptics observe. “If you step back and look at the big picture, isn’t the gold price bubbly here?”

One way to test Doug’s thinking is to look at other simmering trouble spots that would similarly impact gold should they boil over. So, let us indeed review the big-screen events I believe could send gold a lot higher. See if you agree. 
 
ONE: The PIIGS are not done squealing.

Greece’s Gordian Knot of public debt has not been solved. In fact, Moody’s is considering downgrading Greece’s debt to junk status, stating that the announced €750 billion aid package will be “inadequate to stabilize the problems in both Greece and Portugal.”
 
Ireland appears next likely to be downgraded. Spain and Italy are not far behind. And little reported is the European Central Bank (ECB) saying it will purchase billions of troubled assets from Europe's largest banks as part of the rescue program. Where have we seen this before? And gee, it’s worked so well; 68 U.S. banks have failed so far in 2010, a full year after the government provided bailout money.
 
But it’s the long-term consequences of intended ECB actions that are most worrisome. “The ECB is going to crank up the printing presses,” says Anton Börner, head of Germany's export federation. “In five to ten years we will have a weak currency, with rising inflation and higher rates of inflation that will act as a break on growth.”
 
Nouriel Roubini notes that “rising sovereign debt from the U.S. to Japan and Greece will ultimately lead to higher inflation or government defaults. While today markets are being worried about Greece, Greece is just the tip of the iceberg.”
 
So the obvious question is, what happens to the gold price as debt contagion spreads beyond Greece and the monetary effects of the bailout slam onto the shores of other European countries? 
 
TWO: Knee-jerk confidence in the dollar keeps inflation at bay.

The U.S. debt-to-GDP ratio stands at 90.1%, and the projected 2011 budget deficit is $1.26 trillion or 7.1% of GDP. Total U.S. debt exceeds $55 trillion, over $180,000 per citizen, and the new healthcare legislation is expected to add another $1 trillion burden on the economy. These numbers put America in league with our squealing European friends mentioned above.
 
Plus, the U.S. monetary base was ballooned and remains over $2 trillion. Are we absolutely sure governments are done printing money? How will government leaders react if bank failures continue? Or commercial real estate crashes? Or state pensions begin to fail? Or unemployment remains in double digits? 
 
It’s clear the U.S. dollar will suffer inflation due to high and growing debt-servicing costs, government payrolls, and unfunded entitlement promises. The U.S. can either default or inflate, and the former is unthinkable to a career politician. At some point – and we think it is fast approaching – global investors will see that U.S. indebtedness has reached unsustainable levels and exit the dollar, which today means selling bonds. Interest rates will be forced higher, and the U.S. will face its own Greek Moment.
 
So, what happens to the gold price when the dollar starts falling in earnest?
 
THREE: The public still doesn’t own much gold.

This may be the biggest one of all. To show just how small the investment in gold is on a worldwide scale, consider these facts:
 
Jim Rogers reported that at a conference of 300 money managers last month, 76% admitted they still own no gold.

Fund manager John Paulson is having difficulty raising money for his gold fund.
Total investment in all forms of gold represents less than 1% of global financial assets. If investment demand merely doubles to 2% – something we see as easily attainable – it will have a powerful effect on the gold price.

What happens to the gold price when the public begins to clamor for it and a true gold rush gets underway?
 
FOUR: The Unknown Unknowns.

A boxing coach will tell you rule #1 is to not get fixated on the hand that’s punching you – because that’s when the other glove comes flying in and decks you, sending you down for the count.
 
It’s the unexpected event, the unforeseen catastrophe, the surprise punch that could catch us all off guard and send gold higher. And while we may like the green on our screen from a rising gold price, my fear is that an unexpected economic or monetary ambush could be serious enough that what the gold price is doing is a secondary affair.
 
Prepare for the unknown. And that, perhaps, is gold’s greatest strength – not that it can make you rich, but that it protects you and your family from unpredictable events that would otherwise be catastrophic.
 
Whether you agree or not that gold will reach $5,000 an ounce, don’t miss the point. Any number of events could send gold higher. And it is during calamitous times of crisis, devaluation, debasement, inflation, and the unknown that gold is needed most. Imagine the Greek worker who has one-third of his assets in gold right now; he may be smiling more than rioting.
 
I think the rise in price is sending us a message. And this is what I think gold is saying...
 
I won’t always be this cheap. If you don’t buy me soon, you may regret it. I may get less expensive in the short term, but don’t mistake that to mean I’m losing value or that everything is fine with your paper currencies or your economic future. What you’ve done to your fiat currencies will hurt you. What is coming to the price of things will overwhelm you. What the government has debased will haunt you. I’m here to protect your finances. I may be the only thing that can really do that.

You can be cautious about the price, but don’t be short-sighted about the purpose. Are you sure you own enough of me?

We review and recommend a new gold fund in the April issue of Casey’s Gold & Resource Report. And you can access all our back issues, including one that names the least expensive dealers for buying physical gold. Get a risk free trial here...



Keep smiling its all falling into place for gold and silver bugs.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.

The latest trade from our options team was slightly more sophisticated in that we shorted a PUT as follows:

On Friday 7th May our premium options trading service OPTIONTRADER opened a speculative short term trade on GLD Puts, signalling to short sell the $105 May-10 Puts series at $0.09.

On Tuesday the 11th May we bought back the puts for just $0.05, making a 44.44% profit in just 4 days.



Accumulated Profits from Investing $1000 in each OPTIONTRADE signal 14 May 2010.jpg

Recently our premium options trading service OPTIONTRADER has been putting in a great performance, the last 16 trades with an average gain of 42.73% per trade, in an average of just under 38 days per tradeClick here to sign up or find out more.


Silver-prices.net have been rather fortunate to close both the $15.00 and the $16.00 options trade on Silver Wheaton Corporation, with both returning a little over 100% profit.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.


Friday
May142010

Gordon Browns Poison Pill

Gordon and David 14 May 2010.jpg

Gordon: Guess what? The city is stuffed!
David: mmmmmmm.....

The economic future of the UK took another hit recently when their European partners, Sarkozy, Merkel and Salgado refused Britain's request to delay European legislation which will undermine London's ability to operate as per usual.

The following is an excerpt from the Financial Times which summarizes the situation very well indeed:


European Union countries led by France and Germany plan to push through controversial new hedge fund regulations next week after turning down British pleas to defer a vote in Brussels.
The refusal by Paris and Berlin to delay a decision on the rules, which are opposed by the UK, has set up a bruising early confrontation with David Cameron's new government.

British diplomats tried on Wednesday to persuade Paris and Berlin that Mr Cameron's coalition needed more time to prepare for Tuesday's meeting of EU finance ministers.

But Nicolas Sarkozy, French president, and Angela Merkel, German chancellor, are determined to settle a new regulatory framework on hedge funds and the private equity sector, which they claim were partly to blame for the financial crash.

Elena Salgado, finance minister of Spain, which holds the rotating EU presidency, said other finance ministers would not agree to a further delay.

"We have a sufficient qualified majority," Ms Salgado said in an interview with the Financial Times. "There is a very clear majority of countries that want to approve it. After that, there still has to be the dialogue with the [European] parliament . . . [But] our intention is to approve it." A senior German official said: "We want this put to a vote next week."

Britain looks certain to lose any vote and George Osborne, chancellor, could be forced to swallow plans requiring greater transparency from hedge funds and private equity groups.

The measures are opposed in the City as being excessively onerous. London is Europe's main private equity centre and home to 80 per cent of its hedge fund industry.

The directive has also caused concern in the US. In March, Tim Geithner, US Treasury secretary, wrote to EU officials warning that, if unchanged, the new regulations could trigger a transatlantic rift by unfairly locking US funds out of European markets.

"The Americans are going absolutely ape," said a person involved in the negotiations. "There's this overwhelming belief now in Europe that if we legislate first, then the US will follow what we do."

Under the new rules, hedge fund managers and private equity firms could be forced to curtail the amount of leverage they use, make regular disclosures about their portfolios and would be forced to hold their assets with European banks.

Non-EU hedge funds could face similarly exacting requirements if they wish to market themselves to EU investors. Managers and investors have said the proposed changes could force much of the industry from Europe.

The proposed directive is a poison pill left by Gordon Brown, the former prime minister, who persuaded the Spanish presidency to delay a vote until after the May 6 election.

The issue will be an early test of relations between Mr Cameron's government and the rest of the EU. The Tory leader has insisted he does not want a fight with the EU in spite of his party's eurosceptic stance, but he is regarded with suspicion by Mr Sarkozy and Ms Merkel.

To read the article in full please click this link.



Well, Gordon has left David with his starter for 10, as the game show used to say. David Cameron may just find his back bone and say NO, just as the French have done many times in the past when it didn't suit them. Or, he could call for a referendum on the UK staying in the EU and allow the British people to decide their own future, maybe not.

We are of the opinion that one size does not fit all in the European space, it is not the same as the United States, Greece and Germany, for instance, are poles apart economically as one needs to raise interest rates and the other needs to lower them.

Its all interesting stuff, sometimes we wake up on a morning and think that we are living in the middle of an Agatha Christie novel, exciting and mind boggling at the same time. Interesting it might be, however as 75% of British law emanates from Brussels it really is only a side show. The unelected commissioners rule eurozone and most of them are career politicians who have never had a proper job, enough said.

Agatha Christie Books.jpg


Keep smiling its all falling into place for gold and silver bugs.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.

The latest trade from our options team was slightly more sophisticated in that we shorted a PUT as follows:

On Friday 7th May our premium options trading service OPTIONTRADER opened a speculative short term trade on GLD Puts, signalling to short sell the $105 May-10 Puts series at $0.09.

On Tuesday the 11th May we bought back the puts for just $0.05, making a 44.44% profit in just 4 days.


Accumulated Profits from Investing $1000 in each OPTIONTRADE signal 14 May 2010.jpg


Recently our premium options trading service OPTIONTRADER has been putting in a great performance, the last 16 trades with an average gain of 42.73% per trade, in an average of just under 38 days per trade. Click here to sign up or find out more.


Silver-prices.net have been rather fortunate to close both the $15.00 and the $16.00 options trade on Silver Wheaton Corporation, with both returning a little over 100% profit.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.

Thursday
May132010

Agnico-Eagle Mines Limited Call Options Update 12 May 2010

Just a quick note to update the team on the purchase of the MAY 2010 series Call Options at a strike price of $60.00 on Agnico-Eagle Mines Limited, (AEM) for which we paid a price of $4.64 per contract. These contracts closed today at bid $4.20 and ask $4.35 putting this trade about 8% under water.

We made the purchase on the 11th February 2010 when Agnico-Eagle was trading at around $58.00 area. The stock has had a rocky ride but rallied recently on the back of improved gold prices to close at $63.95 today. As these contracts expire on the 22nd May 2010 we must now look to close this position shortly even though it may mean taking a small loss.

Agnico-Eagle Mines Limited trades on the NYSE under the ticker symbol of AEM and on the Toronto Stock Exchange under the symbol of AEM.TO.

From time to time we get asked to comment on the market so its over to MarketWatch for this snippet:

By Myra P. Saefong, MarketWatch

TOKYO (MarketWatch) -- It'll be tough for metals to outdo the spectacular annual gains they saw in 2009, but a few have a shot and most are likely to continue to see prices climb this year.

That's not a bad assessment for a market that's already posted yearly price gains of around 24% in gold, 49% in silver, 117% in palladium and nearly 140% in copper.

This year, "all metals should fair reasonably well in 2010 as investors move to hedge themselves against inflation and U.S. devaluation, which will be major issues," said Sam Kirtley, chief executive officer of SK Options Trading.

And "by far, the metal we are most bullish on this year is gold, as we see continuing weakness in the U.S. dollar driving the yellow metal to new all-time highs, probably in the first quarter of this year," said Kirtley.


This leads on into this excerpt from SK Options Trading:

When looking at the leverage of gold stocks relative to gold prices, they do exert some leverage and regularly outperform the yellow metal. However by how much they outperform gold varies considerably, and it is hard to calculate how much leverage a stock will give you due to the external factors detailed above.

So in our quest for the best gold investment vehicle, one that exerts direct undiluted correlated returns to the gold price, with added leverage that is quantifiable to a reasonable accuracy, we think that options are the best choice. Options contracts are directly linked and correlated to gold, without the hassle of the external factors that often hamper gold stocks. Options are also not only a leveraged product, but one can tailor the leverage to suits ones preference, so it is possible to achieve a high level of leverage or a low level, whatever the investor desires, with the right combination of contracts.



Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.

The latest trade from our options team was slightly more sophisticated in that we shorted a PUT as follows:

On Friday 7th May our premium options trading service OPTIONTRADER opened a speculative short term trade on GLD Puts, signalling to short sell the $105 May-10 Puts series at $0.09.

On Tuesday the 11th May we bought back the puts for just $0.05, making a 44.44% profit in just 4 days.



Over on our sister site, silver-prices.net we have been rather fortunate to close both the $15.00 and the $16.00 options trade on Silver Wheaton Corporation, with both returning a little over 100% profit.

If you would like to get a bit more bang out of your buck, then check out our Options Trading Service please click here.


To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address.

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

For those readers who are also interested in the nuclear power sector you may want to subscribe to our Free Uranium Stocks Newsletter, just click here.

Thursday
May132010

Deficit Land Mines Dead Ahead!

Deficit Landmines Dead Ahead!

By Chris Wood, Jake Weber, and Vedran Vuk, The Casey Report

Hearing President Obama’s economic peptalks, you might be under the impression that the U.S. needs to keep spending for just a little while longer to stimulate the economy – but then will swear off big deficits.

Reinforcing the point, to address concerns stirred by a Congressional Budget Office (CBO) forecast that the U.S. government will accumulate total deficits in excess of $6 trillion over the next decade, in February President Obama issued an executive order to create a bipartisan fiscal commission. The commission’s task is to deliver recommendations to the president by December 1 for limiting future deficits to 3% of GDP. (The FY 2009 deficit approached 10% of GDP. The FY 2010 deficit will probably go even higher.)

It’s our contention that the president’s fiscal commission is mostly for show; the 3% limit is just a hoop for the clowns to jump through. U.S. government finances are now past the point of no return; the U.S. government lacks not just the will but the ability to close the gap between revenue and expenditure.

At The Casey Report, we like to focus on facts. Unfortunately, when it comes to government debt, the facts aren't pretty. They show that the country is already sliding towards financial collapse and hyperinflation in a way not dissimilar to the Weimar Republic.
Let’s first look at recent history to see how reliable CBO forecasts have been. In 1999 the CBO issued its 10-year forecast for 2000-2009 (see charts below). It looked as though we were heading into ten years of prosperity that would rescue us from little worries like the trillions in unfunded liabilities of Social Security and Medicare.

As you can see in the charts titled “CBO Revenue Projections 2000 - 2009” and “CBO Outlay Projections 2000 - 2009,” the CBO expected a budget surplus in every year from 2000 to 2009. And not just that, but that the surpluses would grow at an annual rate of more than 13% and would accumulate to $2.5 trillion over the decade.

One 13 May 2010.jpg

 
The next charts titled “Actual Federal Government Receipts 2000 - 2009” and “Actual Federal Government Outlays 2000 - 2009” show how wrong the CBO’s forecast was. One reason it went wrong was that the CBO naively assumed that the abnormally rapid rate of economic growth experienced in the 1990s would continue. It didn't.

Two 13 May 2010.jpg


A second reason is that the “conservative” Bush administration went on a spending spree – passing Medicare drug coverage and No Child Left Behind, to name two big tickets. While the CBO anticipated ending the past decade with a net budget surplus of $2.6 trillion, the U.S. government actually accumulated the largest deficit ever, a staggering $3.2 trillion. So the difference between the CBO forecast and eventual fact was only $5.8 trillion. (And that's not counting for off-balance sheet unfunded liabilities, such as $60 to $70 trillion for Medicare and Social Security.)

So what does the CBO foresee for the coming decade? And how far from reality is that foresight likely to stray?

In January, the CBO released “The Budget and Economic Outlook: Fiscal Years 2010 to 2020.” This long-term forecast expects the U.S to accumulate an additional $7.4 trillion in deficits during the eleven years beginning with 2010, which reflects an average annual deficit of about $670 billion.

Three 13 May 2010.jpg



The picture painted by the CBO is by no means rosy, but we think the facts could prove to be much worse. We have already demonstrated that the CBO's assumptions can be wildly off the mark, and there are many ways for things to go wrong in the years just ahead. Here are three of the big ones.  

The Revenue Landmine

The Congressional Budget Office projects total federal revenue of $2.2 trillion in 2010, a 3.3% increase from 2009, under the assumption that current laws and policies remain in effect.

Because of several tax provisions set to expire in December 2010 and what the CBO sees as a strengthening economic recovery, it projects that revenue will rise substantially after 2010, increasing by about 23% in 2011 and by another 11% in 2012.

According to the CBO’s projections, revenue will continue rising nonstop from 2013 through 2020 and will reach 20.2% of GDP. Almost all of the increase is attributed to expected growth in individual income tax receipts.

This forecast relies on the CBO’s expectation that the unemployment rate will average slightly above 10% in the first half of 2010 and then turn downward in the second half of the year. As the economy expands further, predicts the CBO, the rate of unemployment will then continue declining until, in 2016, it reaches 5%, the level that the CBO considers full employment.

The CBO projects annual government receipts to better than double between 2010 and 2020, growing at an average annual rate of 7.8%.

How do these growth projections compare with actual history?

Actual data from 2000 through 2009 show that over the last decade federal government receipts grew at an average annual rate of 0.9%. And the total increase in government revenue between 2000 and 2009 was only 3.9%. Even if we go back to 2007 and 2008, when tax receipts were at all-time highs, the increase from year 2000 levels was only about 25%.

Given the historical record, are we really supposed to believe government revenue will grow at an average annual clip of nearly 8% from now until 2020?

Comparing data during the first four months of fiscal 2009 to the same period for 2010,  government receipts are down more than $80 billion, or 10.4%, from the same period the year before. And remember, 2009 revenues were about 17% below those in 2007 and 2008.

There are countless plausible reasons that revenue might disappoint and not grow as rapidly as the CBO projects – the main ones being that the economy may not expand as expected and that the employment picture won't be as pretty as predicted.

So what happens to projected deficits if instead of growing more than 100% between now and 2020, government revenues only increase by, say, 50% (still a generous amount given recent history)?

Assuming revenue in 2010 matches 2009 and then grows by a total of 50% over the 10 years that follow, the accumulated deficits for the period would be $17.5 trillion, or about $10 trillion more than projected by the CBO.

The Interest Expense Landmine

Whether you’re an individual, a business, or the government, when you spend more money than you make, there is only one way to close the gap – by taking on debt and paying interest.

Until the end of 2008, the government's cost of funding its debt had been growing steadily, at about 11% per year, as both interest rates and the size of the debt were rising. When the financial crisis hit full throttle in 2008, interest rates headed toward zero and the government's net interest expense for 2009 dropped 26%, even though total debt was still growing.

The CBO projects that gross federal debt will continue to grow in the coming years, eventually topping $25 trillion by 2020 or nearly double where it stood at the end of 2009. And the CBO pins most of its hopes of financing the debt on the public’s savings.

Four 13 May 2010.jpg


While the CBO acknowledges that interest rates will have to rise to cover the next decade's $10 trillion deficit, its rate estimates are cheerful in the extreme. The CBO expects the 3-month Treasury bill rate to average 1.9% in 2010, fall to 1.5% in 2011, and then hold steady near 2% for the rest of the decade. The projection for yields on the 10-year Treasury note is 3.9% in 2010, 4.5% in 2011, and then slowly increasing to 5.3% by 2020. 

This paints a rather congenial picture for future interest rates. History, however, provides a much bleaker outlook. The chart below shows that interest rates can go much higher than what the CBO expects, and can go there quickly.

Five 13 May 2010.jpg

During the high-inflation 1970s, interest rates were volatile, but the overall trend was up, up, up. From 1971 to 1981, rates on both short-term and long-term debt averaged an increase of about one percentage point per year, to a peak of 15.5% on the 3-month bill and 15.3% on the 10-year note.  

While the CBO does assume that interest rates will rise over the next decade, a few key factors suggest its assumptions are wishful. 

The first issue is debt management. The Treasury will be issuing bills, notes, and bonds in unprecedented quantities. At the same time the administration plans to run trillion-dollar-plus deficits, the glut from past government expenditures is catching up. In the next four years, over $4.8 trillion worth of marketable Treasury debt will mature. As portfolios get packed with U.S. government IOUs, the Treasury will have to offer higher and higher rates to induce investors to accept more IOUs from the same issuer.

In fiscal 2009, the Treasury held over 290 auctions issuing more than $8 trillion in marketable securities. The auctions have been primarily focused on shorter-term maturity debt, which will make it progressively more difficult to roll over debt in the coming years.

The second major issue for the Treasury is foreigners. For decades the U.S. has relied on foreigners to purchase its debt; they now own roughly 50% of the outstanding debt held by the public. We may already be approaching the point at which they say, “Enough!” China’s holdings of Treasuries peaked in May 2009, and they have been buying Treasuries in much smaller doses since then.

In December, Japan reemerged as the top holder of Treasury debt, and the U.K. has been the third-place holder for most of the last decade. Both Japan and the U.K. have been buying more Treasuries, but the rest of the world has followed China in throttling back on purchases. The only way to continue luring foreigners back to U.S. Treasury debt will be with richer compensation, i.e., higher interest rates.

What happens to the CBO budget projections if their interest rate outlook is wrong? What happens if, for example, interest rates rise at the same pace they did in the 1970s? The result would be horrendous.

The blue in the chart below is the actual historical interest expense on all the federal government’s outstanding debt. The green line shows the CBO’s projected interest expense. Even their conservative estimate has total interest expense tripling over the next decade. The red line is our estimate assuming annual increases in interest rates of one percentage point. By our estimate, this would add $3.6 trillion in cumulative interest expenses by 2020.

Six 13 May 2010.jpg

And with the higher interest expense, total federal debt would climb to almost $35 trillion in 2020.

The Military Spending Landmine

The CBO views the wars in Iraq and Afghanistan as either guaranteed victories or swift departures. Rather than basing estimates on historical data, the CBO chooses unrepresentative and misleading growth rates for defense spending. Making matters worse, a middle road or a war escalation isn't considered in the budget outlook. CBO estimates fall into three groups: optimistic, rosy, and snake oil.

Optimistic. The first forecast assumes funding will follow the annual growth rate for nominal GDP, estimated to be 4.4% per year.

That rate is highly unlikely. In practice, there is no correlation between defense spending and GDP growth. As wars wax and wane, so does defense spending, regardless of GDP. Since 1985, the ratio of defense spending to GDP has ranged from 3.0% to 6.1%, and since 2001, the trend has been upward, not flat as the CBO predicts.

Rosy. Under this assumption, total defense spending increases at the rate of inflation, which the CBO with a straight face assumes will average 1.1% for the next ten years. 

Snake Oil. The last CBO estimate freezes nominal spending at the 2010 level (with the exception of certain minor programs). Essentially, it would let inflation eat away at total military spending.

The CBO estimates of total military spending from 2010 to 2020 that come out of its three assumptions are:

2010 Spending Frozen Estimate: $7.5 trillion
Inflation-Adjusted Estimate at 1.1%: $8.1 trillion
Nominal GDP Growth Estimate at 4.4%: $9.0 trillion

We have redone the CBO projections for military spending based on scenarios we consider more realistic. Without assuming any new wars, our most conservative projection still outpaces CBO estimates by nearly 3 trillion dollars. The three scenarios are:

Growing at the 1999-2009 rate. Military outlays grew at 8.5% during this period.

Growing at the 2002-2010 rate. Military outlays grew at 9.4%. 

New War rate. From 2002 to 2004, two wars pumped the growth rate for military spending to 14.06% per year. In this calculation, we assume a new war from 2011 to 2013 raising growth rates to that level; then growth returns to the 1999-2009 rate of 8.5%.

Our estimates of total military spending from 2010 to 2020 in our three scenarios are:
Growing at the 1999-2009 8.5% rate: $11.8 trillion
Growing at the 2002-2010 9.4% rate: $12.4 trillion
Growing at the New War rate: $13.5 trillion

Compared to the CBO’s largest estimate, $9.0 trillion, these projections are $2.8 to $4.5 trillion greater.

So what happens to the CBO’s projected deficits if the only revision we make is to assume military spending growth at the more plausible 2002 – 2010 rate of 9.4%? The U.S. government's average annual deficit over the next eleven years would exceed $1 trillion, and the accumulated deficit would exceed $11.6 trillion.

The Perfect Storm

So what happens if the government hits all three landmines – the revenue landmine, the interest expense landmine, and the military spending landmine?

If (1) federal revenues only increase by 50% from now until 2020, (2) interest rates rise by one percentage point per year, and (3) military spending continues to increase at the same rate as it did from 2002 to 2010, by 2020, the U.S. government would be running a deficit of $4.2 trillion per year.

And with the Perfect Storm's rising deficits, total debt would accumulate at an accelerating pace. In 2020 it would reach $50 trillion – double what the CBO is projecting.

Ten 13 May 2010.jpg

At $50 trillion, the national debt would be 208% of the CBO’s projected GDP for 2020, and the 2020 deficit would be $4.2 trillion, or 17% of projected GDP. The interest expense on U.S. debt alone would represent 12% of 2020 GDP and 55% of the total federal budget.

And this only takes into account the three potential landmines outlined in this article. There is much more that could materially change the landscape of the federal budget in the next ten years. The most notable factors not accounted for in our analysis are the entitlement programs – Social Security and Medicare – which are likely to make the government's debt problem significantly worse as the baby boomers start to retire. No matter how many times we shake the Magic 8-Ball, it keeps coming back with the same reading: “Outlook not so good.”

It is not the bus you see that runs you over. That’s why spotting oncoming trends is essential to navigating your financial health out of harm’s way and onto the path to profits. Which is exactly what The Casey Report will do for you each and every month. Learn more here





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