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Thursday
Jul212011

Euro Bonds May Be the Best Bet

euro bonds 21 july 2011.JPG



The bond markets are sending Europe’s leaders an unmistakable message: The opportunity to contain the euro area’s debt crisis is slipping away. If they want to save the union and its currency, the leaders will have to consider something far more ambitious than what’s been spelled out so far. Perhaps the unspecified agreement French President Nicolas Sarkozy and German Chancellor Angela Merkel reportedly reached last night on Greek debt marks the beginning of a wider -- and bolder -- effort.

Only three weeks after Greece averted disaster by passing the harsh austerity measures needed for a second bailout, investors have refocused their concern on the much larger economies of Spain and Italy. The yield on the 10-year Italian government bond, for example, has risen almost a percentage point to 5.6 percent as creditors demand bigger returns to compensate for the perceived risk of default.

It’s hard to overstate how dangerous these developments are for the euro area and the world.Italy’s debts are about three times more than those of Greece, Ireland and Portugal combined. Even one extra percentage point in borrowing costs would require Italy to cut annual spending by an added $27 billion (19 billion euros) to stabilize its debt burden. To get there, Italy would need to roughly double the austerity measures it passed just last week.

European leaders’ decision to hold an emergency meeting this week suggests that they recognize the need to restore confidence fast. But they’re still behind the curve. Even a hefty increase in an existing $626 billion (440 billion-euro) stabilization fund, along with proposals to shore up banks, won’t fix the problems. There are two fundamental uncertainties: How much investors and banks stand to lose if Ireland, Portugal, Spain, Italy and even Belgium go through restructurings, and how policy makers will prevent those losses from toppling the region’s financial system.


Radical Solution

Only a radical solution can stop the rot. Politically fraught as it may be, Sarkozy and Merkel need to do what Alexander Hamilton did in the 18th century to resolve a similar crisis in the fledgling United States: Push for the creation of a federal finance ministry with the power to assume the debts of individual euro-area members and the taxation authority to pay the debts.

The finance ministry could offer to exchange the bonds of individual euro-area governments for new euro bonds backed by the full faith and credit of the entire 17-nation group. The ministry could make the trade at full face value or differentiate among countries -- offering, say, 50 cents on the euro for Greek debt. Immediate provisions would have to be made to recapitalize banks hit hard by such losses.


Far From Ideal

The solution is far from ideal. Germany and other fiscally prudent nations would probably face higher borrowing costs. Persuading individual leaders and the people they represent to cede so much sovereignty to a unified finance ministry would also be a massive political challenge. But it might be Europe’s best bet at providing certainty and restoring confidence.

Such a euro-zone debt swap isn’t as expensive as it might seem. The euro area’s combined government debt, including the cost of bailing out banks, would amount to roughly 90 percent of its total annual economic output. This is in line with the U.S. debt level and a bit more than Germany’s, which stands at about 80 percent of GDP.

In return for backing the finance ministry, Germany and France, the union’s core members, would get much more power to enforce debt and deficit limits. Individual governments would have no authority to issue euro bonds to finance excess deficits, and financially strapped governments such as Greece would have a hard time borrowing on their own.

The position of individual governments would be similar to that of American states, which must operate under self-imposed balanced-budget rules to maintain access to credit markets. To ease the pain of the fiscal straitjackets, a European finance ministry would have to help support countries’ social safety nets in difficult times, just as the U.S. government does by aiding the states with unemployment insurance and stimulus spending.

All too often, the political will to address financial crises comes too late -- after markets have done their damage. The unfolding damage is painfully visible; let us hope that the political will becomes equally manifest in the meeting rooms of Brussels.

Regarding www.skoptionstrading.com. We have now placed a number of trades in the options arena.


For those subscribers who are too busy to trade their own accounts we are now able to offer an Autotrading program with our SK OptionTrader service, as we are pleased to announce that we have entered into a partnership with GlobalAutoTrading and therefore auto trading is now available for SK OptionTrader signals


Our model portfolio is up 338.11% since inception

An annualized return of 117.00%

Average return per trade of 40.41%

81 closed trades, 78 closed at a profit

Average trade open for 46.27days


sk chart 22 May 2011.JPG



The above progress chart shows our performance when profits are re-invested, however, to see exactly how it is going, please click this link.

So, the question is: Are you going to make the decision to join us today.

Stay on your toes and have a good one.

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.



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. (Winners of the GoldDrivers Stock Picking Competition 2007)

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.

SK logo 26 May 2011.JPG




Monday
Jul182011

Decline In US Real Rates To Send Gold Past $1800

One of main determinants of gold prices in the medium to long term is US real interest rates. US real rates are the rate of interest that can be earned on US Government bonds, minus the expected rate of inflation. One can monitor US real rates by watching the yields on Treasury Inflation Protected Securities (TIPS) and we watch them closely since they exhibit a negative relationship with gold. Currently when we analyse where US real rates are in relation to gold prices, we come to the conclusion that gold prices are low in relation to US real rates. However most importantly we think US real rates will likely head significantly lower, sending gold to $1800+ within a matter of months.

GOLD vs 10y TIPS

The basic fundamentals behind this inverse relationship are that when US monetary policy is looser, real rates fall and therefore investors buy gold for a number of reasons. We have covered this relationship in previously commentaries, but for new readers will we run through the dynamics at play here. Firstly, lower real rates could imply higher inflationary expectations in the future therefore gold is bought as a hedge against this possible inflation. Secondly, lower real returns in Treasuries drives investors into risk assets in search of a higher return. This also sends gold higher but it also sends most commodities, risk currencies and equities higher too. Thirdly, lower real returns on Treasuries reduce demand of US dollars, causing the dollar to fall and therefore the gold price to rise in US dollars. Finally, looser monetary policy implies that the economic situation is not as rosy as many would like to believe, so if the Federal Reserve acts by loosening monetary policy and driving down real interest rates then that sends a message that the economy is in a bad place therefore investors buy gold as a safe haven asset. There are probably many more reasons for this relationship, but we have just tried to cover the main ones.

Many gold investors tend to focus on the relationship between the US dollar and gold, citing that a lower dollar leads to higher gold prices in US dollars. Whilst this is an important dynamic of gold prices, the relationship gold has with US real interest rates is perhaps more important and more reliable for trading and investment purposes. For the first few years of this gold bull market, it was sufficient simply to acknowledge the USD down, therefore gold up dynamic, but in recent years things have changed. Over the past couple of years gold has rallied when the greenback has been making gains, as well as when it was weakening, therefore investors must now take note of the inverse relationship between US real interest rates and gold, which has been observed more consistently.

Whilst this inverse relationship is not perfect, it does have a distinct theoretical advantage over simply watching the USD versus gold relationship as sometimes both US dollars and gold can be in demand as safe haven assets. For example if there were to be a crisis, such as the recent sovereign debt issues in Europe, money would flow into gold in search of a safe haven, but also into dollars to escape the European issues. This creates what we dubbed "The Eurozone Crisis Premium" in the gold price. Investors would sell European bonds driving their yields higher, and buy US bonds driving their yields lower. Gold would be rising and the US dollar would be rising, negating their usually negative correlation. However US rates would be falling as investors bought treasuries as a safe haven and therefore the inverse relationship between gold and real US treasury rates is more likely to hold. That being said, we do of course closely monitor the currency markets as well as the interest rate markets, since both have major impacts on the price of gold.

The theoretical aspects of this relationship may all be well and good, but what really matters to investors and traders such as us is how these theories can be applied in the real world, and how effective they are in producing profitable signals to trade from. So here is a practical example of how we applied and profited from this relationship in the real world. In late August 2010 we noticed that US real rates were falling far more rapidly than gold prices were rising. We also held the view that the Federal Reserve was going to embark on another round of quantitative easing within the next three months; therefore we did not see US real rates rising, given that the Federal Reserve would likely begin buying bonds heavily. From this we inferred that gold prices we set to stage a major rally to a new all time high, so signalled to our subscribers to buy a great deal of out of the money GLD call options to benefit from this rise (more details can be viewed in our full trading records, which is published on our website). We banked profits in percentage terms, ten times higher that the gains made by gold or the HUI gold mining index during that period, and when the market began to price in QE2 and US real rates fell further we bought again and enjoyed a similar return.

We are now of the opinion that US real interest rates are low in relation to the current gold price and are heading lower, therefore we see the gold price going still higher to $1800 within the next six months. Of course this works both ways, so if US real rates begin rising there could be a serious correction/further consolidation in gold. We are monitoring this situation closely and adjusting our position (and that recommended to our subscribers) accordingly. However we are struggling to see what could either seriously dampen inflation expectations or cause a substantial rise in US interest rates, hence why we are very bullish on gold at present.

If the economic situation improves, inflation expectations will rise. If the economic situation deteriorates then central banks will likely combat this with further easiing of monetary policy, which will be explosively bullish for gold prices. Further loosening of US monetary policy could come in the form of QE3 or perhaps a cap on longer term rates, which could be achieved by the Federal Reserve stating a target two year interest rate. We think that being long gold is the best way to play this move and that options offer the best trade from a risk-reward perspective. Our options trading service has outperformed gold, the HUI and also the doubled leveraged gold ETNs.

GOLD vs 7y TIPS

Hopefully this article will have drawn the reader’s attention to this relationship gold has with US real rates and we suggest that it form a pillar of your fundamental analysis with respect to gold. This is not to say other relationships such as the USD and gold are not to be noted, they should be, but in conjunction with US real rates. By pulling all these relationships together one can get a better picture of where the yellow metal is headed and when it is going to move, which ultimately leads to more profitable trading.

As mentioned before, we are of the opinion that gold prices are heading to $1800, so if you would like to take full advantage of this then please visit our website www.skoptionstrading.com to sign up to SK OptionTrader, our premium options trading service that costs just $199. We have closed 81 trades with 78 winners, for an average gain of 40.41% per trade including the three losing trades. We run a model portfolio for subscribers to follow if they wish, with suggested capital allocations to each trade and this model portfolio has an annualised return on investment of 117%.

We think that options are the best way to benefit from this coming major rally in gold prices. We trade options based on GLD, so one can execute the same trades with a simple US brokerage account that has stock options trading. All of our trades have limited downside and given the potential explosive upside in gold over the coming months, we think the risk-reward in some options trades at present are too good to pass up. On 1st July we recommended such an opportunity which is now showing a 210% profit in two weeks, and we think it could triple again from here. So, to find out what this trade is and others like it sign up now as we are about to place a number of trades that we think will prove to be extremely profitable over the coming months.

The charts in this article are plotted with the gold price in US dollars on the left axis and inverted US real interest rates on the right axis to show the negative relationship between the two. The US real rates data is taken from the US Treasury Real Yield Curve and are commonly referred to as "Real Constant Maturity Treasury" rates, or R-CMTs. Real yields on Treasury Inflation Protected Securities (TIPS) at "constant maturity" are interpolated by the U.S. Treasury from Treasury's daily real yield curve. These real market yields are calculated from composites of secondary market quotations obtained by the Federal Reserve Bank of New York. The real yield values are read from the real yield curve at fixed maturities, currently 5, 7, 10, 20, and 30 years. This method provides a real yield for a 10 year maturity, for example, even if no outstanding security has exactly 10 years remaining to maturity. Gold data is taken from the London Bullion Market Association.

For those subscribers who are too busy to trade their own accounts we are now able to offer an Autotrading program with our SK OptionTrader service, as we are pleased to announce that we have entered into a partnership with Global AutoTrading and therefore autotrading is now available for SK OptionTrader signals.

Subscribe for 6 months - $499

 

Subscribe for 12 months - $799

 

Return on SKOT Port 160711

Return on SKOT 10k
Monday
Jul182011

Gold hits $1600/oz in early UK Trading

gold chart kitco 18 july 2011.JPG

Looks like a nice start to the week with gold prices hitting $1600.10/oz on the London Stock Exchange early this morning, UK time. Silver also joined in the fun and was trading at $40.09/oz as we write. We'll let the picture tell the story, have a good un.



Regarding www.skoptionstrading.com. We currently have a number of trades on the drawing board, two of which have been placed and are now showing a profit.


For those subscribers who are too busy to trade their own accounts we are now able to offer an Autotrading program with our SK OptionTrader service, as we are pleased to announce that we have entered into a partnership with Global AutoTrading and therefore auto trading is now available for SK OptionTrader signals.


Our model portfolio is up 338.11% since inception

An annualized return of 117.00%

Average return per trade of 40.41%

81 closed trades, 78 closed at a profit

Average trade open for 46.27days


sk chart 22 May 2011.JPG



The above progress chart shows our performance when profits are re-invested, however, to see exactly how it is going, please click this link.

So, the question is: Are you going to make the decision to join us today.

Stay on your toes and have a good one.

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.


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. (Winners of the GoldDrivers Stock Picking Competition 2007)

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.

SK logo 26 May 2011.JPG




Sunday
Jul172011

Gold is Not Money

Ben Gold is not money 18 July 2011.JPG


So there you have it, after 6000 years of being money, gold is not money according the Federal Reserve Chairman, Ben Bernanke. Ron Paul asked him directly and the answer was 'no' as you can see on this five minute clip. This is a strange comment coming at a time when gold prices are making all time highs as we can see on chart below, where gold is sitting at $1590.10/oz.

Our reading of history tells us that gold has long been recognized as a medium of exchange for international trade and a consistent store of value or wealth. We will have to agree to differ with Ben Bernanke on this point and try to make the best of the situation as we see it.

Gold chart 18 July 2011.JPG

With real interest rates being negative an alternative to paper money is sort after by those who need to protect whats left of their wealth, hence both gold and silver prices have been making steady progress for the last ten years. Have the fundamentals changed for the precious metals, not in our humble opinion, the euro-zone is drowning in debt as clueless politicians dash from meeting to meeting in the hope that someone will pull a rabbit out of the bag. Some hope!

Across the pond we have a president, who like most politicians is focused on keeping his ass in the White House to the detriment of the American economy. All around us government, at all levels, has grown to monstrous proportions and now acts as a enormous drag on the private sector, which is battling to merely survive. There comes a time when we have to take medicine which is unpalatable, but necessary in order to recover, but those who are in a position to administer such medicine just don't have the courage to do so and so we stagger from a sneeze to the flu to pneumonia in an economic sense.

We are stuck in this quagmire and can only anticipate that things are going to get worse before they get better. The tragedy here is that as things do get worse, those responsible for dragging us down will continue to interfere at a greater and deeper level making the situation worse. Under the banner of what is 'good for us' we will progressively lose our ability to operate as we see fit and will be corralled into a highly controlled state pig pen.

So, Defense how do we get the ball back?

First up is that the trend is your friend and both gold and silver have performed spectacularly well over the last decade so stick with them. Make sure that you can 'touch' your precious metals, keep them out of the banks and in a secure privately owned depository if its a large amount or in a safe place close to you if its a small amount.

The next step is to acquire a small number of quality mining stocks, something that we did some time ago and occasionally increase our exposure as and when the opportunity for a bargain presents itself. However, we are looking at the mining sector with some trepidation at the moment despite a growing call for these stocks to explode higher any minute now. As we see it the financial crisis is not behind us, it is in front of us and when it comes

there is the possibility that both gold and silver producers will be considered as 'stocks' and will be sold off regardless of their fundamentals, in the rush to generate cash and meet margin calls, etc. So for now we are observers here rather being active participants, but we still hold a core position in stocks.

The question of leverage and how to use it is often put to us and yes it does have a place in an investment strategy. You could borrow money to make a purchase, you could do the same by buying on margin, however, we don’t recommend either as the downside can and has been a painful financial bath for some. You could sally forth into the futures market and some of our subscribers have been successful using such a vehicle, however, your loses can be limitless, which in turn can lead to a few sleepless nights. If you can't sleep then you are in too deep and being tired is not conducive to good decision making. Our preference at the moment to utilize options to give our trading account a bit of a boost. Once an option has been purchased then you can relax a little as the purchase price is the maximum that you can lose so your loses are limited. Although you do need to stay vigilant and disciplined as the time factor is working against you and is constantly decaying the value of your position. We cannot overstress the importance of you being absolutely confident in that your purchase has the ability to move into profit quickly. Not for those of a nervous disposition as you can imagine. However we did receive a really nice comment on our site this morning regarding our latest trade which read as follows: “Still in the trade at a nearly $7000 profit in addition to the other trades. I have nearly doubled our self-directed 401k in the last year with your service. Thanks so much for your service.” So its not all doom and gloom out there, but it does take a little time to become aware of the state we are in and just what lies around the corner. Get your head up and take a good look at your surroundings, note the positives and the negatives and keep asking the question of just how can you best position yourself to get through the next few years, you may be surprised by the quality of your own skill sets and your own ability to apply them to great personal advantage.

Finally, try and trade in a relaxed manner, with a smile on your face and not when you are wound up as tight as a drum, you will make better judgment calls that way. For those subscribers who are too busy to trade their own accounts we are now able to offer an Autotrading program with our SK OptionTrader service, as we are pleased to announce that we have entered into a partnership with Global AutoTrading and therefore auto trading is now available for SK OptionTrader signals.














Regarding www.skoptionstrading.com. We currently have a number of trades on the drawing board, two of which have been placed and are now showing a profit.



Our model portfolio is up 338.11% since inception

An annualized return of 117.00%

Average return per trade of 40.41%

81 closed trades, 78 closed at a profit

Average trade open for 46.27days


sk chart 22 May 2011.JPG



The above progress chart shows our performance when profits are re-invested, however, to see exactly how it is going, please click this link.

So, the question is: Are you going to make the decision to join us today.

Stay on your toes and have a good one.

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.


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. (Winners of the GoldDrivers Stock Picking Competition 2007)

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.

SK logo 26 May 2011.JPG




Saturday
Jul162011

210% Gain in Two Weeks for SK OptionTrader Subscribers

After cashing out with triple digits profits before gold and silver prices corrected, subscribers to SK OptionTrader only had to wait a short time before we recommended yet another trade that has enjoyed extraordinary gains in a short space of time.

A trade recommended to SK OptionTrader subscribers on July 1st 2011 is now showing a gain of 210.29% after just two weeks.

Are we taking our profits and closing the trade, since we have tripled our capital? No.

Why not?

Because we think the trade could triple again from here!

On June 14th we wrote to SK OptionTrader subscribers saying that we were looking at placing this trade since “the risk reward dynamics in these trades could be about to become too good to pass up”. We said that we were waiting for prices to drift lower before we placed the trade.

On June 27th we informed subscribers that the the risk-reward dynamics were becoming attractive to us and we stated that we thought it was possible to at least quintuple the capital invested in the trade.

Then on July 1st we signalled to enter the trade. Our patience paid off since the cost of entering this options trade was now 43% lower than it was just two weeks before on June 14th when we first stated our intention to place the trade.

Given our comments that we thought it was possible to make 5 times one’s money in this trade and our track record in options trading, many subscribers followed us in to this trade.

Those subscribers who bought at a price similar to ours our now sitting on a gain of more than 200%.


Even buying more than a week later, would have doubled one’s capital.

The best part of this trade is that we think there is a lot more to come.

As we told our subscribers, “we aren’t about to flip these calls for a 14% gain, this trade is one that is looking for a home run, a return of multiple times the capital invested”.

Since this trade is still open we cannot reveal its details, as it would be unfair to our current subscribers.

However if you would like to find out what the trade is you can subscribe for just $199.

Just think if you had subscribed this time last month and placed $1000 in this trade, you could be sitting on a gain of 210.29%.

Your $1000 investment would now be worth $3102.90.

That’s a profit of $2102.90 in two weeks, which pays for a subscription more than ten times over!

If you think we are worth a try and you would like to find out what this trade is along with other trades in the future than you subscribe below.

In the interest of full disclosure, we do have other trades open at present and all of our open trades are showing significant gains.

We are about to issue a number of new trades that we think could be extremely profitable, so now is a great time to get on board.

Our subscribers get straightforward buy and sell signals as well as market commentary, which make options easier to understand and ensure trades are simple to execute.

So click the subscribe button to sign up and see our trading recommendations that could have tripled your capital in two weeks, and paid for your subscription fee ten times over in a matter of days.



Other key stats on the performance of SK OptionTrader are as follows:

Our model portfolio is up 338.11% since inception

That's an annualized return of 117.00%

We have an average return of 40.41% per trade including losses

We have closed 81 trades, 78 closed at a profit

The average trade is open for 46.27 days


For those subscribers who are too busy to trade their own accounts we are now able to offer an Autotrading program with our SK OptionTrader service, as we are pleased to announce that we have entered into a partnership with Global AutoTrading and therefore autotrading is now available for SK OptionTrader signals.

Subscribe for 6 months - $499

 

Subscribe for 12 months - $799

 

Friday
Jul152011

High River Gold (HRG) Update 16 July 2011

HRG Logo 31 July 2009.JPG

Always appreciated we now have an update from Chris Charlwood who 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.



July 15, 2011
 
To High River Gold Shareholders (HRG.TO),
 
HRG's Q1 results show over $214M in annualized cash flow and $292.5M in net liquid assets. At the recent trading price of $1.25, HRG's $1.05B market cap less the net liquid assets has it trading at a very low 3.5 times cash flow. With the $178M capex program for HRG properties in 2011 (including Bissa mine construction), we can expect HRG's resource base to increase from the current 5.8M oz of gold resources (8.4M oz if you include gold equivalent in silver). We have already heard of potential additional resources of 2M oz at Bissa, 4.5M oz gold equivalent in silver at Prognoz (represents HRG's 50%) and up to 2M oz at Bouly. Also, we are expecting positive drill results before year's end from the depleting Zun-Holba and Irokinda mines.
 
Nord Gold, a Severstal subsidiary and HRG's largest shareholder, attempted an IPO on the LSE early this year, but postponed it due to falling short of valuation targets. We minority shareholders warned Nord/Severstal that they needed to promote the HRG story to have it trading at its pro rata contribution value of Nord. The bankers in London likely saw the disconnect between HRG's $1B market cap and Nord's $4 - 5B valuation attempt. HRG contributes more than 50% of Nord's important metrics.
 
HRG vs. Nord Q1, 2011:
HRG produced 91,756 oz vs. Nord's 174,193 oz - 52.67%.
HRG's revenue was $124.4M vs. Nord's $244M - 50.97%.
HRG's cash flow was $53.5M vs. Nord's $78.7M - 68%.
HRG's total cash costs/oz was $560 vs. Nord's $603.
HRG's EBITDA was $64.3M vs. Nord's "normalized' $135.1M - 47.59%.('normalized' definition not given)
HRG's Net Income was $44.9M vs. Nord's $95.6M - 46.97% (including non-controlling interests).
HRG had $287M of working capital and $292.5M net liquid assets (cash, third party stock less debt). At end of Q3 2010, HRG made up 83% of Nord's total net liquid assets.
 
Recently an article suggested that Nord may attempt another buyout offer of HRG minority shares at a price of $1.50/share. I have collected share counts from all of the larger shareholders including institutions and larger retail shareholders. This core group holds 114M shares (including 66M institutional shares). Although we have not yet canvassed the smaller retail minority shareholders, we expect that their numbers would add significantly to this position. The 114M shares puts us well ahead of the minimum 85M shares (10%) required to prevent any squeeze out under Canadian securities laws. When the smaller retail share counts are collected, we should easily eclipse the 115M shares (50%, majority of minority) needed to keep HRG from going private by way of a related party bid.
 
Eric Sprott (with 4% of HRG via certain managed funds) has informed Nord management that he and other minority shareholders believe HRG to be worth at minimum 50% of Nord’s value. 
 
HRG's Q2 results should be out on August 15th. 

HRG's Q1 results.
http://finance.yahoo.com/news/High-River-Gold-Reports-First-ccn-2372744534.html?x=0&.v=1 
 
Nord Gold's Q1 results.
http://www.nordgold.com/
 
Nord Gold video and PDF Presentation
http://www.gowebcasting.com/events/denver-gold-group/2011/04/13/nord-gold-n-v/play/stream/2268     
 
HRG's Bissa gets mining license in Burkina Faso.
http://finance.yahoo.com/news/High-River-Announces-the-ccn-423237464.html?x=0&.v=1       
 
Chris Charlwood
Investor
Rainerc7@gmail.com - to be added or removed from e-mail list.
            604-718-2668      
www.stockhouse.com – for ongoing HRG shareholder communication.
 


We are still holding on to our position in High River Gold Mines Limited and have no intention of selling any of this stock in the foreseeable future.


Regarding www.skoptionstrading.com. We currently have a number of trades on the drawing board, two of which have been placed and are now showing a profit.



Our model portfolio is up 338.11% since inception, 2 years ago.

An annualized return of 117.00%

Average return per trade of 40.41%

81 closed trades, 78 closed at a profit

Average trade open for 46.27days


sk chart 22 May 2011.JPG



The above progress chart shows our performance when profits are re-invested, however, to see exactly how it is going, please click this link.

So, the question is: Are you going to make the decision to join us today.

Stay on your toes and have a good one.

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.


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. (Winners of the GoldDrivers Stock Picking Competition 2007)

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.

SK logo 26 May 2011.JPG




Friday
Jul152011

China Gets Picky

china map 16 July 2011.JPG




By Marin Katusa, Casey Research Energy Team

It turns out that China is not willing to pay whatever it has to for energy and metal resources.

Several resource deals have faltered in recent months, indicating an increasingly choosy Chinese perspective on energy and metal acquisitions. Add to that the growing concern that the global economy is once again stumbling and that commodity prices may be near a top, and you have a Chinese deal-making market that has gone from 60 to zero in no time.

On the metals side, observers are seeing a “buyer’s strike,” where companies are watching commodity prices from the sidelines rather than making deals. China’s Minmetals Resources, for example, stepped back from its bid to acquire copper producer Equinox Minerals after Barrick Gold (NYSE.ABX, T.ABX) topped Minmetals’ $6.3 billion offer with a $6.7 billion bid.

Equinox was lucky to get the higher Barrick offer; other companies, like Lundin Mining (T.LUN), have given up trying to find suitors willing to pay a fair price. In May, the company announced it couldn’t find an acceptable buyer for all or part of its copper, nickel, and zinc mines that are spread across Europe and Africa, citing a gulf between its project valuations and what buyers were willing to pay.
Both stories signal that there is a limit to how much even the deep-pocketed Chinese will pay for resources, even though securing resource assets is a stated national goal.

Pricing may be at the heart of the problem. Prices for oil assets in Alberta – home to the massive oil sands and a raft of light oil and natural gas plays – have soared: The average price per acre has climbed from C$2,185 in mid-2010 to C$3,111 today, according to government statistics. The price increased on the back of a series of international deals: France’s Total S.A. signed a C$1.75 billion deal with Suncor Energy to develop oil sands reserves; Malaysia’s Petronas inked a C$1.07 billion deal for ownership stakes in some Albertan natural gas fields; and China’s Sinopec spent C$4.6 billion for a 9% stake in Syncrude Canada.

But price isn’t the impediment to new deals – the biggest Chinese investment in Canada’s oil patch to date just fell apart because the potential partners couldn’t agree on how to work together. China’s largest oil and gas company, PetroChina International Investment, and Canada’s Encana (T.ECA) announced on June 21 that their C$5.4 billion deal to jointly develop Encana’s Cutbank Ridge gas project had fallen apart. The companies couldn’t agree on how to structure the joint operating agreement, though they did not elaborate on the specific issues.

Encana will now launch a fresh search for a new Cutbank partner… or perhaps partners. The PetroChina deal included stakes in gas production, reserves, acreages, pipelines, and processing facilities, but Encana now says it wants to split things up, offering a variety of joint-venture opportunities for portions of the undeveloped resources and infrastructure requirements while keeping the producing acres for itself.

The PetroChina-Encana deal was a bit of a sweetheart in the industry, often cited to support arguments about China’s growing interest in Canadian oil and gas. Its failure now supports the opposite stance: that China is getting pickier about what projects it supports and how that support plays out.

In the first five and a half months of 2011, Canadian energy companies sold a total of 231 million barrels of oil and gas reserves, less than half the 482 million barrels sold in the same period in 2010. The value of those Canadian oil and gas deals came in at $11 billion, down 35% from a year earlier (excluding the failed PetroChina deal). So there are fewer deals being made.

That may not last for long, especially given that a 34-day market slide has left valuations on the cheap side of average. According to Bloomberg, companies on the S&P 500 Index will earn 18% more this year than in 2010, but the index has fallen 6.8% since the end of April. The combination means valuations are the cheapest they’ve been in 26 years. The index is valued at 8.7 times cash flow, cheaper than in 81% of occasions since 1998; and it is priced at 2.1 times book value, which is lower than it has traded 90% of the time since 1995.

The challenge for a buyer right now is to actually ink a deal at current prices, because most potential targets are still valuing themselves using parameters pulled from the rich deals of 2010.

How will it all pan out? Only time will tell. If commodity prices continue to slide because of U.S. economic uncertainty, Greek default concerns, and slowing Chinese demand, deal-making will remain quiet for a while – until the floor is visible – as no one wants to buy a company today that will be cheaper tomorrow. If commodity prices rebound, deals will be back on the table, as no one wants to chase a rising price.

We expect the M&A world to remain fairly quiet for the next few months, as the global economic situation figures itself out. Greece has enough bailout funding to get through August without defaulting, but there are no guarantees beyond that. The U.S. Federal Reserve just lowered its growth forecast for the next two years but still remains confident that the American economy is simply going through a rough patch. As for China, there are as many analysts predicting continued double-digit growth as there are anticipating a significant, inflation-fueled slowdown.

Regardless, it seems that the age of huge, blind Chinese investments is waning. The Asian giant has become pickier in its choices and more demanding in its deals, and why shouldn’t it? After all, we are all relying on China’s massive population to support global economic growth. It seems reasonable that such growth should be on China’s terms.

[Marin and his energy team supply the most in-depth information on the energy markets – be it oil and gas, nuclear, coal, solar or geothermal. Read on to find out more about oil’s future… and the amazing profit opportunities arising from it. Free report here.]


Regarding www.skoptionstrading.com. We currently have a number of trades on the drawing board, two of which have been placed and are now showing a profit.



Our model portfolio is up 338.11% since inception

An annualized return of 117.00%

Average return per trade of 40.41%

81 closed trades, 78 closed at a profit

Average trade open for 46.27days


sk chart 22 May 2011.JPG



The above progress chart shows our performance when profits are re-invested, however, to see exactly how it is going, please click this link.

So, the question is: Are you going to make the decision to join us today.

Stay on your toes and have a good one.

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.


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. (Winners of the GoldDrivers Stock Picking Competition 2007)

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.

SK logo 26 May 2011.JPG




Thursday
Jul142011

SK OptionTrader Continues to Outperform Other Gold Trading Vehicles

The versatility of options is much greater than that of the actual underlying asset behind the option, for this reason SK Options Trading uses them to optimize trades from a risk-reward perspective. This use of options allows us to maintain a limited amount of risk whilst taking on an aggressive trading stance.

Options provide many more opportunities in the market than speculation on the direction of underlying asset prices. Through the timing of our trading signals, we have created a model portfolio that is currently up 338% with an annualized return of 117%. The performance of this model is possible due to the recognition and timing of, opportunities that are very attractive from a risk-reward perspective. It is also due to the fact that we use options as our trading vehicle, so can profit whether the market goes up, down or even sideways.

To demonstrate the advantages of options trading, and the relative performance of SK OptionTrader we have simulated all of our past gold related trades. The simulation is based on how a portfolio would have performed if investment capital had been risked in GLD instead of options for each gold trade we recommended. We have also mapped the performance of HUI and DGP, the gold stocks AMEX index, and Deutsche Bank double leveraged gold ETN. This chart creates a comparison of using the option trades we recommend, versus being invested in the market at the same time but with a long DGP/GLD/HUI position.

SK OptionTrader Continues to Outperform Other Gold Trading Vehicles

(Note: This only includes the performance of gold related trades, not any other trades such as silver, oil, equities etc)

The graph above clearly shows that our premium options trading service, SK OptionTrader, outperforms other methods of trading gold with a return of 142.45%.

Using only gold based trades, SK OptionTrader has outperformed both GLD and HUI nearly 7 times over, and has outstripped DGP more than double.



The purpose of this simulation is not to show our trading ability, but to demonstrate the advantages of using options as a trading vehicle relative to other instruments. Regardless of your own opinion of the direction of the market, we think options provide the best tool for trading gold.

If one is in favour of simply buying and holding, we would suggest that options could still have something to offer your investment portfolio. Since SK OptionTrader began offering trading recommendations to subscribers, gold is up around 50%, with the HUI index up around 25% and DGP up about 100%. This means that even in risking ones entire trading portfolio in DGP, one would not get close to the performance of gold options trading in the SK OptionTrader model portfolio.

Sometimes a large portion of our portfolio may be in cash, and in each individual trade, not more than 10% is ever risked and the risks are strictly limited. This means that our portfolio performance of 117% p.a. is not simply due to high leverage being taken, but due to options being very versatile instruments and allowing us to successfully profit from our market views being correct.

If you want to maximise the profitability of your portfolio, sign up to SK OptionTrader now to receive market updates and trading signals concerning options.

Feel free to check out our full trading record where we are averaging a return of 40.41% per trade including losses and contact us if you have any questions.


Due to number of subscriber requests that we have received, we are now able to offer an Autotrading program with our SK OptionTrader service, as we are pleased to announce that we have entered into a partnership with Global AutoTrading and therefore autotrading is now available for SK OptionTrader signals.

Subscribe for 6 months - $499

 

Subscribe for 12 months - $799

 

Thursday
Jul142011

The Greater Depression Is Upon Us

Depression car 15 July 2011.JPG





The phrase “Greater Depression” was coined by Doug Casey a decade or so back as a way of describing the economic crisis he foresaw as inevitable, and which is now materializing.

Because I think it is important for every organization to constantly challenge its own assumptions, I’ve long acted as something of a devil’s advocate here at Casey Research. By constantly pushing our analysts to revisit their assumptions and calculations, it is my firm intention for us to spot the fork in the road that indicates it is time to shift strategies away from investments designed to do well in the face of a currency debasement and to something else.

Being attentive to that fork in the road is hugely important, because even though we urge our subscribers not to overdo their exposure to inflation hedges, we recognize that many do. Many a good person had their clocks cleaned in the early 1980s solely because they had become overly enamored of their precious metals – so much so that they stopped thinking of them as an asset class and began thinking of them more in the terms one might associate with an amorous dinner date. Thus these investors were utterly unprepared when said date stood up and broke a dinner plate over their heads.

With that brief setup, I want to make our views clear: While we correctly anticipated the recent correction in precious metals, this correction is but a blip in a secular bull market that is very much intact.

Doug Casey has often said that the unfolding crisis is going to be even worse than he expects (which is saying something), and the longer the rest of us at Casey Research study the tea leaves, it is hard to disagree that the Greater Depression is still ahead.
Consider:

The eurozone is growing increasingly desperate. Watching the heads of Europe dither and debate over further bailouts to the unhappy Greeks and other troubled PIIGS – before ultimately reaching back into the pockets of the equally unhappy citizens in Germany and the decreasing number of still-functioning economies in the eurozone – reminds me of a down-on-his-luck blackjack player. He’s mortgaged his home to play the game but is now down to his last chips. He doesn’t want to risk his remaining resources but has no choice, because to walk away now will mean taking up residence in a cardboard box. And so, reluctantly, he shoves across another pile. The problem is that the game is rigged – and not in his favor. As the PIIGS start to default and either leave the eurozone entirely or are shunted off into some sort of sidecar organization, there will be great volatility in the euro and in the European markets.
 
The U.S. debt situation is far worse than anyone in Washington is willing to admit. We keep hearing calls for more, not less debt creation. But if people would stop kidding themselves and tally up all the many demands the U.S. government has against it, the actual debt-to-GDP ratio rises to something on the order of 400% – and even that is likely understating things. The fundamental flaws in the U.S. monetary system – flaws that have given license to the bureaucrats to smash the limousine of state straight into a wall – have required a remaking every 20 to 30 years or so. The problem is that there is pretty much nothing else that can be done to save the status quo at this point, and so the monetary system is likely to collapse. That means big changes ahead, including – or perhaps starting with – a poisonous ratcheting up of interest rates.
 
China’s miracle mirage. While having aspects of a free market, the hard truth is that China is run as a command economy by a cadre of communist holdovers. This is apparent in the cities that have been built for no purpose other than creating jobs and boosting GDP. It is also apparent in the growing inflation in China – the inevitable knock-on of the government’s decision to yank on the levers of money creation harder than any other nation at the onset of the Greater Depression. Meanwhile, signs of social unrest crop up here and there. Though so far they have been swiftly put down, there is no question that the ruling elite has to walk a very fine line. If the Chinese economy stumbles seriously, all bets are off. That we are talking about the world’s second-largest economy means this is not of small consequence.
 
Japan is essentially offline. Reports from friends in Japan – including one who was initially skeptical about the scale of the problems at Fukushima – have now changed in tone by 180 degrees. You can almost feel the growing sense of desperation as the already massively indebted nation begins to slide toward an abyss. There is little standing in the way of the world’s third-largest economy’s slide.
 
The Middle East is in flames. This, too, is far from settled. As usual, the U.S. government has been hopping here and there in an attempt to maintain its influence, but at this point pretty much everything is up for grabs. The odds of the U.S. retaining the same level of influence in the region that it has enjoyed over the last century are slim to none, especially now that even the Saudis are shipping more of their oil to China than to the U.S. Again, big changes are ahead.

I’m convinced that nearly everything about today’s world is going to change over the coming decade… much of it for the worse.
But that doesn’t mean that people – you – can’t come through this in more or less good shape, just as our parents and grandparents made it intact through the last Great Depression. Pay attention and take action, and you’ll do far, far better than most.
Some investment ideas…

First and foremost, protect yourself against the collapse of the U.S. monetary system. It is not as simple as ducking into the nearest coin store and loading up, though that should certainly be one part of your strategy. Between now and the endgame that leads into what we can only hope will be a new money based on something tangible, there will periodically be opportunities to make big moves with your portfolio.

I could give you a big pitch for our precious-metals-oriented services here, but won’t. I will say, however, that if you are new to the sector, do yourself a favor and sign up for our three-month no-risk trial to BIG GOLD – and do it today, so you can begin bottom fishing.

As Doug also likes to say, you should do whatever you want in this world, as long as you are willing to accept the consequences. If you are willing to risk going down with the ship, then do nothing.

Some other investible ideas…

* Everyday essentials. Energy is the classic essential. Sure, energy use and prices will ebb and flow with the economy, but ultimately everyone uses energy every day, and the people in emerging markets want to use a lot more of it. Carefully thought-out investments in energy, ideally bought on the dips, belong in everyone’s long-term portfolio.

* Breakthroughs to a brighter future. Throughout modern history, companies that make significant technological advances transcend bad economic times. Do you think that the company that finds a cure for a common variety of cancer will be weighed down, even by a stock market crash? Hardly. In cautious amounts, these sorts of potential breakthrough stocks belong in your portfolio.

* Investing in the inevitable. A ton of charts and data point to just how unusual and unsustainable today's low, low U.S. interest rates are. When these sorts of baseline trends eventually change direction, they tend to move in the new direction for years, and even decades. No one can pick the bottom, but anyone who is paying even a little attention can and should be getting positioned to profit from a sea change in U.S. interest rates while they still can. 

* One foot over the border. History has shown that having even one foot over the border can make the difference between losing everything and coming out just fine. Internationalizing your assets is not always easy or convenient, but that doesn't make it any less urgent that you do so.

As for crisis investments, no one has been focused on that longer or better than Doug Casey and the team here.

The bottom line is that while the scale of the crisis is beginning to become more widely apparent, and reading and thinking about it can become fatiguing for those of us who have been on this story from the beginning, the base case for a Greater Depression is fully intact. We need to gird our loins and continue to take active measures to prepare – with the caveat that even in this base case, there are prudent measures you can take to ensure that not all your eggs are in one basket.

[Gold and silver are still the best protection for any portfolio… especially now that China and other countries are getting ready to dump the U.S. dollar. Read more on how dangerous the situation is, and how you can come out ahead – free report here.]



Regarding www.skoptionstrading.com. We currently have a number of trades on the drawing board, two of which have been placed and are now showing a profit.



Our model portfolio is up 338.11% since inception

An annualized return of 117.00%

Average return per trade of 40.41%

81 closed trades, 78 closed at a profit

Average trade open for 46.27days


sk chart 22 May 2011.JPG



The above progress chart shows our performance when profits are re-invested, however, to see exactly how it is going, please click this link.

So, the question is: Are you going to make the decision to join us today.

Stay on your toes and have a good one.

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.


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. (Winners of the GoldDrivers Stock Picking Competition 2007)

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.

SK logo 26 May 2011.JPG




Wednesday
Jul132011

The Road to Perdition

The Road to Perdition.JPG





David Galland interviews Terry Coxon, The Casey Report

Terry Coxon worked side by side with best-selling author Harry Browne for years and is a rare expert in the arcane study of monetary systems. His remarks at this juncture in time, a time that might end up labeled in the history books as “Money Runs Wild,” are especially germane.

David Galland: You were involved with Harry Browne during the last great inflation in the U.S. How does the increase in the money supply that kicked off in 2007-2008 compare in terms of scale to what went on leading up to the inflation in the ‘70s?

Terry Coxon: The comparison is pretty muddled. In terms of the M1 money supply – the total of checkable deposits and hand-to-hand currency – we haven’t yet gotten near the persistently high growth rate that occurred in the 1970s. But the growth in the monetary base has been far more rapid than what happened in the 1970s. There is some time delay between growth in the monetary base and growth in M1, but to make the picture really cloudy, I'm afraid the comparison turns out not to be very useful. Unlike in the 1970s, the Federal Reserve is now paying interest to banks on their reserves.

In other words, the effect is that much of the increase in the monetary base gets locked up and sequestered because banks want to earn the interest on the reserves rather than lending the reserves out or buying investments and increasing the money supply.
DG: You are referring to the excess reserves banks have left on deposit with the Fed?

TC: Yes.

DG: Why do you think that the Fed is paying interest on those reserves? With policy makers and pundits saying that the economy needs a shot in the arm and a dose of inflation, why would the Fed continue to encourage banks not to lend or invest, by paying them interest to leave the money on deposit?

TC: If the Federal Reserve didn’t pay interest on those reserves, the result would be inflation rates far beyond anything the U.S. has ever experienced. The monetary base has more than doubled, and without the Federal Reserve paying interest on the recently created boatload of reserves that is essentially keeping them immobilized in accounts at the Federal Reserve Bank in New York, the M1 money supply would more than double and we would have inflation rates that would make the worst days of inflation in Brazil and Argentina look tame.

DG: I know you can't give a real number, but what general level of inflation are you talking about?

TC: Close to a doubling in the CPI in a year's time. Doubling the CPI over the course of a year would be an inflation rate of 100%.

DG: But on the other side of the equation, a deflationist would say that even if they stopped paying interest on those excess reserves, there is no loan demand, so the banks can't find anybody to loan to. If that’s the case, how does the money get out into the system?

TC: If a bank has excess reserves and the Federal Reserve stops paying interest on them, if the bank can't think of anything else, it will buy Treasury bills, even if the yields on those Treasury bills are only 0.5% a year. Then the seller of the Treasury bills has the cash.
Whoever the seller of the Treasury bills is, we can safely assume he sold his T-bills because the cash was more attractive to him. And if the cash is more attractive when it's earning zero, that means the person who sold the Treasury bills wants to use the cash to buy something else, and that's how the excess reserves would move from the banks to the general economy.

DG: What about the role the carry trade plays in all of this? If banks can’t get a return in the U.S., might they take the money and spend it elsewhere or invest it in countries where interest rates are higher? That seems to be going on today, in which case, wouldn’t we effectively export our inflation?

TC: It does have an inflationary effect all around the world, and it also puts the markets generally on a very fragile footing when you can borrow U.S. dollars at an artificially suppressed rate of 0.5% and buy New Zealand dollars and earn 2%. That has the effect of propping up the New Zealand dollar. And it promises a profit for the carry trader of 1.5%, but actually collecting that profit depends on exiting the trade at the right time.

The carry trade is in just about every market at this point. People are borrowing dollars at ultra-low interest rates in the hope of earning a higher return in something else and also hoping to exit at the right time. Virtually all markets have been propped up by the carry trade, and all the carry traders are telling themselves they are going to jump ship at just the right time. When the time comes, the rails of the ship are going to be crowded, and markets likely will move down very rapidly.

DG: Discuss the effect of the carry trade on the dollar. As you said, at this point in time there is a robust dollar carry trade, with people borrowing dollars and using them to buy, say, New Zealand bonds or whatever. So, what effect does this have on the dollar?

TC: The carry trade is the proximate cause of the decline in the dollar in foreign exchange markets. If you look at the whole process, it starts with printing by the Federal Reserve, but the step that occurs just before the price of the dollar goes down is the decision by traders to borrow dollars and buy other currencies. When the carry trade comes to an end, the process will go into reverse, and the dollar will rally.

DG: So this would again tie back to interest rates. If U.S. interest rates start moving up, then the carry trade begins to unwind.

TC: It wouldn’t even take that, just an expectation that interest rates on dollars are about to move up. That would do it.

DG: Yet, historically gold and interest rates and inflation all tend to move up together. Not to get all tangled up, but if interest rates in the U.S. move up and the dollar starts to strengthen, shouldn’t gold then start moving down? But again, that's not the historic case.

TC: It’s not as tangled as you think. The answer you are going to come to for gold depends on what is causing interest rates to move up. If interest rates are moving up because the expectation of inflation is moving up, then that won't hurt gold, it will help gold. On the other hand, if interest rates are moving up because the Federal Reserve is tightening, then that is bad for almost everything that people have been borrowing to buy, which includes gold and silver and stocks generally.

DG: And New Zealand dollars.

TC: Yes, foreign currencies as well.

DG: With the carry trade, the interest rate differential is an important thing to understand, and right now the U.S. is clearly behind the curve in terms of its interest rates. So the question is… could this situation continue for quite a while, with the dollar kept cheap by the carry trade? Can the dollar just keep going down until it evaporates, or are you seeing signs of an alternative outcome?

TC: The road to perdition has zigs and zags and loopbacks, and what causes the loopbacks is a shift in what the Federal Reserve currently perceives as its worst nightmare. For example, in 2008, 2009 and into 2010, the Federal Reserve was worried primarily about a deflationary depression, so it turned on the printing presses.

More recently, inflation has returned as a worry, and that can turn into worry number one on any given day, at which point the Federal Reserve will slow down the printing or just sit on its hands for a while. That's when interest rates will start moving up, and that's when the carry trade will get unwound, triggering a big downdraft in virtually all markets. But the prominence of inflation as a worry will eventually be replaced by renewed concern about the economy contracting, and then the Federal Reserve will shift its weight again from one foot to the other.

DG: Which brings us to the 8,000-pound gorilla in the room: the debt. Our readers, and pretty much everyone else, knows that the U.S. government is sitting on the largest pile of debt in history, and that much of this debt has been generated for no real useful purpose.
James Rickards made the point at our spring summit that the last time government debt was anything close to this as a percentage of GDP was in World War II. And he pointed out that the money spent back then essentially bought a victory in World War II, leaving the U.S. with a very strong economy and leverage over other economies. But those advantages have been squandered. Now in exchange for all the debt that has been rung up, Rickards points out that the country has little more than a lot of flat-screen TVs.

I think it was probably our very first meeting after you joined Casey Research, sitting around the table in San Francisco, that I asked, "Is there any way out?" This was back in 2004, and Doug Casey and Bud Conrad and you took turns answering, with the answer being essentially the same, "No, no way out and the situation is going to end badly."

And here we are seven years later, and the government’s debts have only grown. Obviously, inflation is the standard approach the government is likely to use to relieve itself of its debt over time, but I wouldn’t rule out an overt default of some sort. Regardless, it seems like the country’s economic future is going to be determined by the debt.

So, let me ask you the same question, do you see any way out? Are there any options left to the government that don’t lead to economic chaos?

TC: If by some miracle the people who run the government decided that Big Government was a bad idea and small government was a much better idea, and so they set about ending government programs and pushing the level of federal spending way down, along with the level of regulation over the economy, then there would be a way out.

But how likely is that to happen? The time horizon for people in politics is maybe one or two years, just about the same length of time there is before the next election. Their goal is always to survive the coming election. That means what is rational for the politicians looks irrational to everyone else, and I don’t see any reason to expect that to change. The purpose of a politician examining a problem is not to solve the problem but to find a way for someone else to get blamed for it.

DG: Doug and I have both written about the fact that we are living in a steadily degrading democracy at this point, with the public voting itself all manner of benefits from the public trough. Personally, I don’t see how we get to the point where politicians, where the voters, decide that a much smaller government is a much better way to go. At least not unless and until we're forced to. Do you think this situation can drag on, or will the size of the debt and deficits force a change sooner rather than later?

TC: That's a political question. At some point, the situation may become so catastrophic that people are forced to learn new habits and consider new ideas, but things have to get pretty bad before that happens.

DG: And how would you rate the odds of it getting pretty bad before this is over?

TC: Very high.

DG: And the time frame? You typically say these things are variable and unknowable, but can you be a bit more specific?

TC: It takes a long time. It's not going to happen this year. It's probably not going to happen next year.

DG: But hasn’t this been a long time coming?

TC: Yes, it has, and that should tell you that the process is a slow one.

DG: So in your view, what are the one or two most important things that readers need to be doing to protect themselves at this point?
TC: I think the most important thing someone can do is to understand what's going on. That's what will give the individual staying power when the markets are temporarily moving against them. The worst thing you can do is to just pick a leader and do whatever he advises without thinking it through and understanding it. What makes that a bad approach is that no matter which intellectual leader you might choose, there are going to be periods when he is wrong and when his advice is not working for you. And even if he is right in the long run, you may not stick with him for the long run if you don’t understand why his advice makes sense. So I think job number one is to understand what's going on, so that you’re not blindly relying on anyone's advice.

DG: What's job number two?

TC: Job number two, if you see the world as I see it, is to make sure that a substantial share of your wealth is in precious metals and perhaps in foreign currencies, but without any leverage.

DG: Thank you very much.

Contributing Editor Terry Coxon is the author of Keep What You Earn and Using Warrantsand the co-author (with Harry Browne) of Inflation-Proofing Your Investments. He edited Harry Browne’s Special Reports for its 23 years of publication and all of Harry Browne’s investment books since 1974.Terry was the founder and for 22 years the president of the Permanent Portfolio Fund, a mutual fund that invests in precious metals as well as stocks and bonds. He is currently president of Passport Financial, Inc., and for over 30 years has advised clients on legal ways to internationalize their assets to optimize tax, wealth protection and estate planning goals.

[If you aren’t worried about inflation yet, you should be. Because this insidious parasite keeps eating away at your assets and portfolio gains – probably without you noticing. Read on to find out how to beat inflation and come out ahead of the game. Free report here.]



Regarding www.skoptionstrading.com. We currently have a number of trades on the drawing board, two of which have been placed and are now showing a profit.



Our model portfolio is up 338.11% since inception

An annualized return of 117.00%

Average return per trade of 40.41%

81 closed trades, 78 closed at a profit

Average trade open for 46.27days


sk chart 22 May 2011.JPG



The above progress chart shows our performance when profits are re-invested, however, to see exactly how it is going, please click this link.

So, the question is: Are you going to make the decision to join us today.

Stay on your toes and have a good one.

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.


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. (Winners of the GoldDrivers Stock Picking Competition 2007)

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.

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