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Tuesday
Oct122010

How to Make, or Lose, a Fortune in Junior Exploration Stocks

XAU.TO 13 October 2010.JPG

By David Galland, Managing Director, Casey Research

The first thing to know about junior resource exploration stocks is that they are volatile. You can make 50% in a day, and you can lose 50% in a day.

This is due largely to the fact that they tend to be thinly traded. Thus, a whiff of good news, or bad, can overwhelm opposing trades. In the absence of a countervailing bid, the stock can move sharply until it reaches the point that someone is willing to step up and take the other side of the trade. If the news is bad and there’s no bid, things get ugly really quickly. Conversely, if the news is good – for example, the recent case of the AuEx buy-out – the volume of buyers rushing to get a hold of stock can blow the proverbial doors off.

The chart from AuEx, above, makes the point in a way that words just can’t.



Is volatility bad? Not hardly. If you play these stocks intelligently, that volatility can act like a portfolio rocket booster. The alternative: a widely followed stock has little chance of surprising the market on the upside and so can tie up your capital for a long period of time – plodding along while you remain exposed to general market risk with almost no hope of serious appreciation.

By contrast, a junior exploration company punching holes into interesting geology is all about the potential for surprise. If the surprise is good, your stock is headed for the moon. But a poor drill hole is not necessarily a ticket to the basement – not if the company has not overinflated expectations by aggressive promotion and is following a methodical process in its exploration program.

The topic of aggressive promotion brings me to the second thing to know about junior resource stocks –  namely, that most of them are borderline frauds. That’s right – the vast majority of the companies involved in the junior resource sector are headed up by management teams that have no special expertise in finding or developing economic deposits. Rather, what they’re good at is telling a really good story based on the loosest of “facts” in order to get investors to pay their overhead and, hopefully, allow them to trade out of their free or low-cost shares at a big profit. 

While there are a number of signs you can look for that will give you some sense of the management’s abilities and ethics, one is that the bad apples will tend to shift their stated focus between breakfast and dinner, depending on the flavor of the day. One minute, they are a junior gold company, the next they are on to the world’s hottest lithium find – then sometime after lunch, they morph into being a uranium explorer. 

That’s not to say that there aren’t times when competent management teams are faced with the reality that their primary resource target is going to draw a blank, and move on – it happens all the time. The trick is to be able to discern the difference between a strategic retreat and an opportunistic bunny hop into another area where the management has no real expertise or value to bring to the game.

To help our subscribers understand the difference between a competent explorer and a paper tiger, years ago we started the Explorers’ League. In order to be inducted into the league, you have to have been responsible for a minimum of three economic mineral discoveries – but most of our honorees have a lot more than that. This is no small feat when you consider that probably 98% of the folks in the mining business will retire without a single economic discovery to their name.

Ron Parratt was among the first of our Explorers’ League Honorees – the subsequent success he had with AuEx has only once again confirmed the importance of backing winners.

The next thing to focus on is the size, and the general set-up, of the targeted resource. I saw an exploration company advertising on a major financial web site that was breathlessly talking about the 30,000 ounces of gold it had discovered.

While I suspect a borderline or even overt fraud, in the best-case scenario, building expensive advertising campaigns around 30,000 ounces of gold – a truly inconsequential amount – would indicate that management is hopelessly ignorant of the realities of the business. And the reality today is that, depending on a number of variables – location, geology, local politics, metallurgy, infrastructure, etc. – the minimum resource required for a company to have any chance at success is in excess of 1 million ounces of gold. But, really, you should only be focusing on companies with the very real potential to prove up 2 million or more ounces.

In exploration plays, size counts. 

And don’t confuse gross metal value with anything remotely resembling reality. In fact, any company that would even mention the gross metal value of its resource is sending you a very strong signal that something fishy is afoot. For those of you new to the game, gross metal value is derived by doing the simple math of multiplying the companies’ ounces (or pounds, depending on the metal) in the ground by the current price of the commodity.

Thus, a company with a market cap of, say, $50 million and a resource in the ground of one million ounces of gold might tout a gross metal value, based on today’s price of $1,250 per ounce, of $1.25 billion. The implication being that the market cap of the company will soon rocket in the direction of the gross metal value… wink, wink, get it while it’s hot and all that.

Now, I don’t have time to list all the ways that the gross metal value gets hammered down to a net that is a fraction of the total… and, more likely than not, even to the point where the deposit is uneconomic. But I’ll give it a quick try anyway. 

For starters, there’s the cost of the infrastructure required to actually extract the mineral. While even the cost of building an open pit mine is huge, if the deposit is too deep for that, then you’re talking about going underground, which can be much, much more expensive. Depending on where the resource is located – and most new discoveries are very remote (Congo, anyone?) – and the depth and structure of the mineral resource, building out the mine infrastructure can cost in the hundreds of millions of dollars, and even billions.

Then there are local politics. For instance, how much of the mine will the government want to keep for itself? How high will the taxes and royalties be? Is the area secure? There are projects I’m aware of that, in order to be built, will require essentially maintaining a private army to keep local revolutionaries and thugs at bay.

How’s the metallurgy? Extracting metal from close to surface, oxidized deposits can be relatively easy and effective, with recoveries in the 90% area. But if the target mineral is bound up with all sorts of detrimental minerals, the processing costs will soar and recoveries plummet… often to the point where the overall costs, and the challenges of disposing of the toxic waste, can torpedo even a very large project.

Mining requires a huge amount of power… where’s it going to come from? Can you imagine the cost and hassle of having to build, say, 60 miles of power lines? How about if the deposit is located in a remote corner of the Yukon?

I could go on and on… but you get the idea. There’s a reason that well over 90% of even legitimate resource discoveries never become economic mines. That doesn’t mean you can’t make money off a discovery play – but if it has little chance of becoming a mine, then you need to be clear on why you own it and when it’s time to sell.
So, how do you sort out the difference between the good guys and the bad? And the good projects and the doomed?

First and foremost, you have to live and breathe the industry. Then you have to have a deep network to use as a sounding board for your analysis. Our network includes the Explorers’ League Honorees and now the Casey NexTen – up-and-coming young professionals under 40 years old who have already proven their ability to find mines. It also includes leading brokers, financiers, mining executives, field geologists, and numerous others… around the world.

In addition to putting boots on the ground in the typically faraway places where new discoveries are found – so we can fully understand the geology, the local infrastructure, relations with the local community, and the political environment, etc. – our due diligence process invariably requires in-depth discussions with individuals in our network who know the people and the geology involved in the new play. 

That allows us to quickly identify the good guys who are known to use good process (and virtually all real discoveries emanate from good process) and are working on targets with the right geological address. It also helps us to do a quick knock-out of something like 90 out of a 100 plays that are brought to our attention… leaving us free to focus on the 10% with a real chance of success.

I know a number of individuals who have made fortunes in the sector by taking the time to do the homework necessary to build a solid understanding of the industry and the key players.   

The bottom line on how to make serious money as a speculator in anything – the junior resource exploration business merely provides a convenient example – is to identify a volatile, high-risk/high-return investment sector, and then get to know the sector intimately. By doing so, you can eliminate much of the risk… leaving you mostly with the huge upside. And what risk is left is very manageable.

And don’t forget – I’m talking about investing only a relatively small part of your portfolio… 10% to 20%. You can tuck the balance of your portfolio into assets with a much lower risk profile. These days, that might include gold and, for the time being, cash.
----

There is, of course, much more to understand about the junior resource sector, but if you’re interested in the sector – and you should be – then the best way to proceed is take us up on a risk-free trial to the International Speculator. Click here for the simple details.   

As you’ll see when you click on that link, at $199 per quarter, we’re not giving the International Speculator service away. That said, given the upside potential of the companies it follows, and the fact that you can try it for three full months and still get 100% of your money back if it doesn’t provide far more value than it costs – you have nothing to lose by giving it a try.


Back to our latest venture which was the launch of an Options trading service we are pleased to report that it is going very well so its a big thanks to all those who have signed up for it and the supportive emails that you have sent us.

SK Chart 11 October 2010.JPG


The above progress chart is being updated constantly. However, to see exactly how it is going, please click this link.


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.


Monday
Oct112010

Securitized Mortgage Debt becomes more murky by the minute

Jim Sinclair Foreclosures 12 October 2010.JPG

We have just received this missive from Jim Sinclair which we think will be interest to you as it will bring you right up to speed on the sub prime mess. Its consists of a few notes and a video that is well worth watching, as scary as it is.



I am asking for your attention again because of the depth of the fraud and now the size of the securitized mortgage debt OTC derivative pile of garbage that is in the trillions. This entire mountain of weapons of mass financial and social destruction is now in question. I have been telling you this for more than 2 years since the manufacturers and distributors of this crap were called by the NY Fed due to the loss of control over the paperwork.
 
I had dinner with my former partner, then lead director of and CEO of Bear Stearns. I could not contain myself so I asked him why he did so much business in OTC derivatives which were certain to bankrupt them. The answer I got was it was more than 50% of their profit. The right answer should have been it was more than 80% of their earnings.
 
Securitized mortgage debt is going to be the final shot that kills all kinds of financial entities in the Western world. The biggest holder of this putrid junk is pension funds.
 
Please! If you have not listened to all of the following video, do.
Please forward this to your friends.
 
The fellow with the sign that says the world is going to end is WRONG. Financially, it ended with the flushing of Lehman
 
Father, before you forgive them, please consider that they knew exactly what they were doing.
 
This is the largest fraud in the history of capital markets with the facts outlined with humor.
 
Click here to watch the video...


From first impressions it looks as though the pension funds are about to take a financial bath, which we could well do without just now.

It also raises the question of just why did a pension fund buy a package without being fully familiar with what was in the package. If they are that silly we have to question the wisdom of all of their investment decisions. It doesnt look to clever does it?


Back to our latest venture which was the launch of an Options trading service we are pleased to report that it is going very well so its a big thanks to all those who have signed up for it and the supportive emails that you have sent us.

SK Chart 11 October 2010.JPG

The above progress chart is being updated constantly. However, to see exactly how it is going, please click this link.


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.





Sunday
Oct102010

Finance Ministers Fail to Resolve Currency problems

G20 Logo 11 October2010.JPG


The meeting of the Group of 20 has failed to find some common ground on the subject currency problems, resulting in a request to the IMF to lend a hand. Despite the race to the bottom being conducted by most of the governments involved, as evidenced by Japan's intervention this week, the blame appears to be laid at China's door for the woeful state that Finance Ministers find themselves in.

The following is a snippet from Bloomberg:


Leaders of the world economy failed to narrow differences over currencies as they turned to the International Monetary Fund to calm frictions that are already sparking protectionism.

Exchange rates dominated the IMF’s annual meeting in Washington on concern that officials are relying on cheaper currencies to aid growth, risking retaliatory devaluations and trade barriers. China was accused of undervaluing the yuan, while low interest rates in the U.S. and other rich nations were blamed for flooding emerging markets with capital.

Finance ministers and central bankers pledged to improve cooperation, yet did little to show how they would alter their ways beyond agreeing to let the IMF to study the matter. With the dollar down 11 percent against the yen since mid-June, compared with less than 3 percent versus the Chinese yuan, the focus turns to Group of 20 talks in South Korea in coming weeks to prove international policymaking isn’t in tatters.

“Policy makers seemed to be trying to diminish concerns about currency wars,” said Steven Englander, head of Group of 10 currency strategy at Citigroup Inc. in New York. “There did not seem any commitment to change behavior, however. There is little to suggest that the dollar’s direction is anything but down.”

So there we have it, just as we imagined, the dollar will continue to head south which in turn is good for gold prices when compared to the dollar. However, it is hard to see how this issue will resolve itself as each individual Finance Minister has his own future on the line and so needs the perceived short term boost of a devalued currency for the country he or she represents.

The danger now is the imposition of import taxes and tariffs in order to level the playing field.

Protectionism does a lot more than that and is something to be fearful of.


Back to our latest venture which was the launch of an Options trading service we are pleased to report that it is going very well so its a big thanks to all those who have signed up for it and the supportive emails that you have sent us.


SK Chart 11 October 2010.JPG

The above progress chart is being updated constantly. However, to see exactly how it is going, please click this link.


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.




Saturday
Oct092010

Whilst Gold Prices Rise, OptionTrader Recommendations Soar!

Gold prices continue to make decent gains providing most gold bulls with substantial returns. However buying effectively using call options, our premium options trading service OptionTrader has banked gains ten times higher than holding gold itself or being invested in the HUI index.

optiontrader example trade gld calls

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optiontrader profits 2

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Friday
Oct082010

Gold, Get it While You Can

By Jeff Clark, Casey's Gold & Resource Report
 
We've got it easy right now. Click or call, and you can quickly and conveniently own a gold coin or bar. But if global concerns cause another panic or the dollar breaks down, you could find yourself standing in a line at the local coin shop or getting a busy signal. Simply, for reasons I’ll discuss here, you may find it very difficult to get your hands on physical gold when that time comes.

It's happened before. Though there were no precious metal ETFs in 1980, the demand for physical gold was so great that you literally had to wait in line at a coin shop to buy, with plenty of occasions when you would have been turned away due to lack of inventory. And you'll recall we saw serious shortages, unexpected delays, and soaring premiums in late 2008.

Given the fragile state of global affairs and the waiting-in-the-wings crisis for the U.S. dollar, I'll be surprised if we don't see another panic into physical gold. And the question is, will there be enough metal to go around when the public – 95% of which own none – wakes up and wants to buy it?

Answer: No.

Contrary to some claims, it isn't because we're about to run out of supply. While global mine production peaked in 1999 at 82.1 million ounces and has trended down since, take a look at the second largest source of supply – scrap. As you would expect, bad economic times and the surge in gold prices have triggered an increase in supplies from that source.

Mine Production down  09 October 2010.JPG

In fact, since 1999, as the price of gold climbed, the scrap supply nearly doubled. (Scrap comes mostly from jewelry, 75% of which derives from India, East/Southeast Asia, and the Middle East.)

So when you examine the total supply of gold coming to the market, it’s actually nudged up for three consecutive years, hitting 116.6 million ounces in 2009, a modest 8% increase over 1999. In the greater scheme of things, the total supply of gold to market has changed very little.

So what’s the problem?

First, you’d think a higher gold price would lead to rising mine production – but that’s not happening. From 1999 through 2009, the average annual gold price rose 248%, yet gold production fell 6.6%.

This means that as gold continues higher, we cannot count on miners producing more yellow metal for us to buy. This concern will become increasingly obvious as more buyers enter the market.

Second, although scrap has more than supplemented the fall in mine production, as I’ll show you in a moment, it’s still not enough to fully satisfy current demand, let alone any increase in buying.

Meanwhile, the third major source of gold supply is reversing trend. Until last year, central banks around the world had been selling gold, adding a reliable tributary to the flow of metal year after year. This has stopped. As recently as 2007, 17 million ounces came to market from central banks; last year they acquired 7 million ounces. The era of central banks as large net gold sellers has likely ended.

The conclusion we can draw from these signals is clear: known gold supply conduits will not deliver any significant new supply in the future. This will have serious repercussions. While it’s certainly bullish for the price, I think many investors have overlooked a critical angle:

If more and more people want to buy gold and the supply doesn’t increase, what happens to your ability to get it?

You can’t turn a profit if you can’t own it.

Realistically, though, how much more demand can we expect?

One way to estimate this is to compare today’s percentage of global assets in gold to the last great bull market.

Gold as a Percentage of Global Financial Assets 09 October 2010.JPG

While gold’s share of the global financial landscape has grown since 2001, a whopping 385% leap is needed to equal its 1980 peak.

Certainly some of that percentage could result from a decrease in the value of other assets. For example, residential and commercial real estate values will continue to fall as bad loans are unwound, and stock markets will adjust lower as global economies slow from cutbacks in government spending. But the gap is so enormous that investment in gold could easily increase significantly before this bull market is over.

Another way to measure potential future demand for gold is to look at today’s investment and coin demand compared to the last bull market. The following chart first looks at what portion investment in gold comprises of the total uses for gold (i.e., including jewelry and industrial uses). Then we look at the percentage coin buying represents today vs. the peak in 1979. The point is to see if we’ve already reached high investment levels in gold similar to the last bull market peak – or if there’s room for more.

Investment and Coin Demand 09 October 2010.JPG

When investment demand for gold (physical metal, ETFs, bank buying, etc.) peaked in 1979, it represented 54% of all uses for gold that year, a far cry from last year’s 32%. Of course, this is just arithmetic; lower jewelry demand could make investment demand look bigger as a share of total demand. But this data makes clear that an increase in investors wanting more gold could rise dramatically.

The picture is more striking when we look at coin demand. Coin buyers represented 36% of all gold investments in 1979; today it’s barely 14%. Coin demand would have to grow by 157% to match the last bull market peak. Yes, gold ETFs have and will continue to replace some of the demand for physical metal, but this shows there remains tremendous room for growth for investors wanting more gold coins.

Based on this data, I believe that despite the strong demand for gold investments we see today, it can go much, much higher in the coming years.

Here are some examples of coin demand straining current supply that you may find surprising....
The Rand Refinery in South Africa, the world’s largest, forecasts it’ll sell 1 million Krugerrands this year. Sounds like a lot – until you consider that from 1974 to 1984, they sold 2.6 millionounces per year. And that was when the world’s population was roughly 35% lower than today.
The U.S. Mint has had difficulty meeting heightened demand when annual sales are only slightly above historical averages.
So far this year, gold production in China is up 5%, but demand for physical gold is up 30%.
During two tense weeks of the Greek crisis in April/May, the Austrian Mint, one of the world’s five largest, sold a quarter-million ounces, an amount that exceeded all of first-quarter sales. And Pro-Aurum, one of Europe’s largest online precious metals traders, had to temporarily suspend sales due to a backlog of orders and insufficient supply. If Greek-style sovereign debt fears spread to other nations – something looking all but assured – rolling bullion shortages could resurface.

While all this is bullish for the price of gold, it’s alarming what it suggests might happen to the availability of physical gold.

So my question is this: if the dollar is collapsing and gold is screaming to $5,000 an ounce, will you feel like you own enough?

Better get some now while you still can.
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At the just-concluded Casey’s Gold & Resource Summit, dozens of resource experts and seasoned investment pros talked about gold and gold investments as an integral part of any crisis-proof portfolio. Listen to the in-depth advice of John Hathaway… Eric Sprott… Richard Russell… Doug Casey… Ross Beaty… Rick Rule… including their top stock picks of the year. Learn more here.


Over in our options trading den they were stopped out of one trade last night for a profit of 33%, having closed a trade the night before with a profit of 82% which follows the recent success of closing a trade which generated a profit of 50% in 30 days on GLD Call Options, so they now need update their progress chart, yet again, which will probably be done this weekend as things are a little hectic at the moment. However, to see exactly how it is going, please click this link.






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.

On Friday, 27th August 2010, we closed another successful trade banking a profit of 79.46% on Call Options on Silver Wheaton.

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, with more positions opened yesterday. Drop by and take a look.


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.







Thursday
Oct072010

No Way Out

By Doug Casey, Casey Research

I really dislike sounding inflammatory. Saying that things are going to go terribly wrong runs a risk of being classed with those who think the world will end in December 2012 because of something Nostradamus or the Bible says, or because that’s what the Mayan calendar predicts.

This is different. In the real world, cause has effect. Nobody has a crystal ball, but a good economist (there are some, though very few, in existence) can definitely pinpoint causes and estimate not only what their immediate and direct effects are likely to be (that’s not hard; a smart kid can usually do that) but the indirect and delayed effects.

In the first half of this year, people were looking at the U.S. economy and seeing that some things were better. Auto sales were up – because of the wasteful Cash for Clunkers program. Home sales were up – because of the $8,000 credit and distressed pricing. Employment was up – partly because of Census hiring, and partly because hundreds of billions have been thrown at the economy. The recovery impresses me as a charade.

Let’s get beyond what the popular media parrots are telling us and attempt to derive some reasonable assumptions about how things really are and where they’re headed.


A Brief Summary of Our Story So Far….

Before we get to where things stand at the moment, let’s briefly look at where we‘ve come from.

That a depression was in the cards has been foreseeable for decades. The distortions cranked into the system in the ‘60s – the era of “guns and butter” spending by the government – resulted in the tumult of the ‘70s. Things could, and one could argue should, have come unglued then. But they didn’t, for a number of reasons that have only become clear in retrospect: 
 
Interest rates were allowed to rise to curative levels;
The markets were non-manipulated and so, as they became quite depressed, were left to send out real distress signals;
The U.S. was still running a trade surplus;
The dollar had only come off the gold standard in 1971 and was still relatively sound.

Then, starting with Reagan and Thatcher, the world’s governments started cutting taxes and deregulating. The USSR collapsed peaceably. China, then India, made a shift toward free markets. And on top of it all, the computer revolution got seriously underway. All told, a good formula for recovery and a sound foundation for a boom.

But sadly, taxes, government spending, and deficits soon started heading much higher. Despite the collapse of its only conceivable enemy, U.S. military spending continued to skyrocket. Monetary policy encouraged everyone to take on huge amounts of debt, much more than ever in the past, and everyone soon found they could live way above their means. The stock, real estate, and bond markets got pumped up to ridiculous levels. The main U.S. export became trillions of paper dollars. Worst of all, the U.S. devolved into just another country, undistinguished by anything other than a legacy of a high standard of living.           

The standard of living in the U.S. is now going down for these reasons, and others. But most disturbing to the average American is the falling position of the U.S. relative to the rest of the world. In brief, Americans won’t take kindly to the notion that they can’t continue earning, say, $10-40 an hour, for doing exactly the same thing a Chinese will do for $1-4 an hour.

What’s going to happen is that the Americans’ earnings are going to drop, while those of the Chinese are going to rise, meeting someplace in the middle. Especially when the Chinese works harder, longer, saves his money, and doesn’t burden his employer with all kinds of legacy benefits, topped off with lawsuits. This is a new threat, one that can’t be countered with B-2 bombers. It’s also something as big and as inevitable as a glacier coming down a valley during an Ice Age.

This, along with other problems presented by the business cycle have ushered in the Greater Depression. 


How Long Will the Greater Depression Last?        

Let’s briefly recap two definitions of a depression, along with a couple of examples, with an eye to seeing how things may evolve from here.

One definition is that a depression is a period of time when most people’s standard of living drops significantly. Russia had this kind of depression from roughly 1917 to 1990, so more than 70 years. A second definition is that it is a period of time when economic distortions and misallocations of capital are liquidated. Russia had this kind of depression from 1990 up to about 2000. It was very sharp but relatively brief.

The difference between these two examples is that, during the first, the state was in total – or even increasing – control. By the time of the second, the country had greatly liberalized. As a result, the depression was a period of necessary and tumultuous change, rather than drawn-out agony. A depression can be a bad thing or a good thing, partly depending on which definition applies.

Today, things are problematic in Russia for a number of reasons that aren’t germane to this article. But people can own property, entrepreneurs can start businesses, and the top tax rate is 11%. The depression of 1990-2000 resulted in greatly improved conditions in Russia.

Let’s look at a couple of other examples: Haiti and Mozambique.

Haiti has been a disaster since Day One and has no current prospect of improvement. The billions of dollars Obama is idiotically about to send them will evaporate like a quart of water poured into the Sahara – just like the billions of aid and charity that have gone before it. Worse, it will eliminate the necessity of Haiti making meaningful reforms. Additional aid actually precludes the possibility of liquidating distortions, misallocations of capital, and unsustainable patterns of life. It’s counterproductive.

Mozambique went through a long and nasty civil war from about 1970 to the early ‘90s. The war made conditions worse than anything even Haiti has seen. But when it came to an end, the Mozambicans changed things simply in order to survive. The place is hardly a beacon of the free market today, but duties and taxes have been reduced, most parastatals have been privatized, and entrepreneurs can operate. It’s a good sign that the country is drawing foreign investment but very little foreign aid, which always just cements people in their bad habits while ensuring government officials stay in office.  

Why do I bring up these examples? Because it’s clear to me the U.S. is heading in the direction of Russia before 1990, or Haiti today. Not in absolute terms, of course. But everything the U.S. government is doing – raising taxes, increasing regulations, and inflating the currency – is not only the wrong thing to do, but exactly the opposite of the right thing.

This is really serious, because the government is the 800-pound gorilla in the room. What governments do makes all the difference – actually the only difference – in how countries perform. How else to explain that Haiti and Singapore were on pretty much the same level after World War 2, and look where they are now.

To my thinking, the U.S. is now clearly on the path Argentina started down with the Peron regime. Cause has effect. Actions have consequences, and the result will be much the same. Except I believe the descent of the U.S. will be  much faster, much scarier, and will end in a much harder landing than that experienced by Argentina.               

I say this because there’s no realistic possibility the Obama regime is going to change course. To the contrary, they’re likely to accelerate in the present direction. They believe the government should direct society – as do most Americans at this point. They feel government is a magic cure-all and not only can but should “do something” in response to any problem. Most complaints aren’t that they’re doing too much, but that they’re doing too little. Everything on the political front, therefore, is a disaster. There’s absolutely no prospect I can see that it will get better, and every indication it will get worse.

I’m not going to try to predict what will happen in the 2012 elections, but it’s fair to say the last several elections are indicators of the degraded state of the average American. What are the chances they’ll make a 180-degree turn, in the direction of someone like Ron Paul? I’d say close to zero, and libertarianism will remain a fringe movement, at best. Will Boobus americanus vote for someone who says the government should actually do less – much less – in the middle of a crisis? Especially if the current wars expand, which is quite likely in this kind of environment? No way.

Simply, the chances of a reversal in what passes for the philosophical attitude of this country are slim and none. And Slim’s left town. While there are some who hope for an improvement on the political front, I think that’s very naïve.

The Tea Party movement? Its ruling ethos appears to be a kind of inchoate rage. I sympathize with the fact that many seem to be honest middle to lower middle-class Americans who see their standards of living slipping away and don’t know why, or how to stop it. They feel bad that it’s no longer the America portrayed in Jimmy Stewart and John Wayne movies, but many are quick to blame the changes on swarthy immigrants. They’re desperately looking for a political solution. These folks tend to be highly nationalistic and atavistic, with a tendency to worship their preachers and the military. I just hope some popular general doesn’t get political ambitions…

The only bright spots – but these are very major bright spots – are in the areas of individual savings and technology.

As things get worse, the productive members of society will redouble their efforts to save themselves by producing more while consuming less; the excess will be savings. Those savings create a pool of capital that can be used to fund new businesses and technologies.
The problem here is that with the dollar losing value quickly, the savers will be punished for doing the only thing that can really improve the situation. And they’ll be discouraged by wrongheaded propaganda telling people to consume more, not to save. Funding new business and technologies will be harder with more regulations. But still, people will find a way to set aside a surplus. And that is a factor of overwhelming importance.

As are breakthroughs in science and technology. Don’t forget that there are more scientists and engineers alive today than have lived, altogether, in all of previous human history. These are the people that will wind the main stem of human progress. And their numbers are going to grow. So there’s real cause for optimism.

The problem is that most young Americans now go in for things like sociology and gender studies, whereas the up-and-coming scientists and engineers are primarily Chinese and Indians who, even if they get advanced training in the U.S., tend to go back home afterwards. Partly because the U.S. discourages hiring non-Americans for “good” jobs, but mostly because they can see more opportunity abroad.

So, how long will the Greater Depression last? Quite a while, at least for the U.S.

But wait. Aren’t there other bright spots? How about the dollar?


The Dollar

Over the years I’ve been agnostic as to whether this depression would be inflationary or deflationary. Or both in sequence, with inflation first, followed by a credit collapse deflation; or a deflation followed by a runaway inflation. Or perhaps both at the same time, just in different sectors of the economy – e.g., prices of McMansions collapse because people can’t afford to live in them, while the prices of rice and beans skyrocket because that’s all people can afford.

At the moment I’m leaning towards a deflation in most areas. Why? Because the purchasing media in the U.S. is primarily credit based. If a mortgage defaults, what happens to the dollars it represents? They literally disappear, which is deflationary. If a bond defaults, the same thing happens. If stocks and property prices crash, the dollars they represent vanish. If people or businesses don’t borrow, the money supply fails to expand; in fact, many are trying to pay back loans, which is deflationary. Even so, contrary to popular opinion, deflation is much better than inflation.

Because today’s dollar is just paper and credit, and because deflationary conditions will create a clamor for many more of them, the government will eventually succeed in its inflationary efforts. It’s true, as Bernanke has said in a moment of wry wit, that they can dump $100 bills from helicopters to prevent deflation. But it’s not likely since, in our fractional reserve banking system, the primary way the money supply is expanded is through the granting of loans, not the printing of paper, the way it was done in Weimar Germany and Zimbabwe.
One problem with credit-based inflation is that at some point, banks become afraid to lend, and people afraid to borrow – a time like right now. In fact, people may even become too afraid to leave their dollars in banks. They’re coming to realize the FDIC is thoroughly bankrupt.

Here’s a speculative scenario. To solve these deflationary problems and resolve Ben’s helicopter conundrum, maybe the Fed will go into the retail banking business by directly taking over the hundreds of institutions that are now failing. The average American would feel safe depositing directly with the Federal Reserve. And the Fed could lend as much as they want, without the restrictions imposed by actual capital or pesky shareholders.

Ridiculous? I think not, certainly not after GM, Fannie, and the rest. Certainly not when you consider that this depression is still in only the second inning. It would be one way to head off deflation.

Be that as it may, or may not, at some point after the deflationary waters have receded as far as possible, an inflationary tsunami is going to wash ashore, to the surprise of all.

Everybody knows how bad things were in Weimar Germany, and what a catastrophe hyperinflation has been in Zimbabwe. But those were agrarian economies, with people still quite close to the land. If it hits in the U.S., as highly specialized and urbanized as it is, it will be an unparalleled disaster. And not just for the U.S., because the reserves of almost all governments are mostly U.S. dollars. And dollars are used as the de facto currency by the average man in about 50 countries. All told, there may be as many as seven trillion of the things held outside of the U.S., and, at some point, everybody will be trying to unload them at once. At which time they’ll lose value very, very quickly.

So, far from being something to rely on, and very far from being as good as gold, the dollar is going to be a lead player in the catastrophe called the Greater Depression. And all the other paper currencies are going down with it. Pity the fool who doesn’t see this coming.
Or, for that matter, what’s going to happen to interest rates.


Interest Rates

The government is doing everything in its power to keep interest rates as low as possible. There are many reasons for this. Low rates make it easier for people to support their debt burdens and borrow more. Low rates inflate the value of stocks, bonds, and real estate – and the last thing the government wants to see is a meltdown of the markets. But, perhaps even more important, it’s a lot easier for the government to service $12 trillion of official debt at 2% than at 12%. That much of a rise in rates alone will add over a trillion to what they need to borrow to keep the giant Ponzi scheme going.

Of course it’s a fool’s game. Eventually (I’ll guess between six and 24 months), when their creation of dollars eventually overcomes the credit markets’ destruction of dollars, consumer prices will go up. That evidence of inflation will cause interest rates to rise, with all the short-term negative effects the government so fears. But higher rates are absolutely necessary to get out of the depression. Remember, it was the high rates of the early ‘80s that set the stage for the boom that followed.

Rates – the price of money – shouldn’t be controlled by the state, up or down, any more than the state should control the price of oil, or bread, or toothpaste. One of the major reasons the USSR collapsed was an inability to make correct economic calculations, and much of that was due to their arbitrarily fixed interest rates. One reason why Japan has been fading into the economic background over the last two decades is that the government has artificially suppressed rates, in the vain hope of stimulating the economy. All they’ve gotten is excessive levels of government debt, which will result in the destruction of the yen. And what will be tens of millions of impoverished, and very angry, Japanese savers.

The same thing is in process of happening in the West due to suppressed interest rates.


The Next Steps Down in the Markets

With interest rates depressed to near zero, stocks, bonds, and property in the Western countries are as good as they’re going to get – especially after a very long boom in all three. When rates inevitably go higher, stocks, property – absolutely bonds – are likely to head much lower. That’s entirely apart from the fundamentals under them, which are truly ugly. In turn, that will bankrupt pension funds across the economy, many of which are already severely underfunded.

These pension funds are likely to be the centerpieces of the next leg down of the evolving crisis. Will the government bail them out? Perhaps, although after the misadventure of poor taxpayers throwing money at rich traders at Goldman and AIG, the public doesn’t like the ring of that term. More likely it will nationalize them, assuming their assets in exchange for a special class of its paper. In the interest of “fairness,” that will happen to small and solvent funds as well as large and bankrupt ones.

After that, the next problem area will be insurance companies. And not necessarily because they’ll suffer from the same problems, like derivative trading, that sunk AIG. Even the well-managed ones have their assets invested primarily in commercial loans, commercial property, bonds, and stocks.


How This Will End

Nassim Taleb has popularized the concept of the Black Swan: an event that no one thought was possible, actually happening. Naturally, it takes everyone by surprise. To that lesson from zoology, let me suggest one from astronomy. Let’s call it the Financial Asteroid Strike theory.

It’s well known that there are millions of pieces of sizable space debris floating around the solar system. It’s just a matter of time before something crosses our path at an inopportune moment, as has happened so many times in the past. Unlike the Black Swan, it’s well known that Financial Asteroids exist. It’s just that really serious ones appear so rarely that people conduct their lives as if they never will. It’s been such a long time since the last depression that people see it as something distant and academic – like the Chicxulub or Tunguska asteroid strikes. Until the actual moment it hits, everything is completely normal. Then everything changes radically.

I’d sum it up by saying that a Financial Asteroid Strike takes much longer to happen than you might expect, but once it actually gets underway, it happens much more quickly than you could have imagined. We had a strike in 2008. But they tend to come in clusters. I expect more to enter the atmosphere fairly soon.

The question is whether the next one is going to wipe out all the economic and financial dinosaurs or just flatten the trees for some miles around.

Either way, it’s far from being all gloom and doom.


How This Could Be a Good Thing

Everyone, certainly including myself, prefers good times to bad times. But much of the good times of the last two decades were a result of an entire civilization living above its means. It was great fun while it lasted, but the party is over. The result will be massive unemployment, lots of business failures, and huge investment losses. These things are most unpleasant, but inevitable. That said, I always like to look at the bright side.

And what might that be?

Let’s restrict ourselves to just one of the lead actors in this drama: the United States of America.

The bankruptcy of the U.S. government will, at least at some point, lead to a big drop in the number of government employees. This is a good thing, since little of what they do serves a useful purpose; most are an actual impediment to production.

With some luck it could result in the sale of agencies that have some value, e.g., NASA, the Smithsonian, and the National Parks – to private enterprise. It will also force a vast retrenchment of the military, although only after more costly wars make that necessity very obvious. It will force a decentralization of power, with more devolving to the states and municipalities. It will mean much less regulation, since there won’t be the personnel or money to enforce it. It will also mean much less taxation for the same reasons, even though the state will try desperately to collect more, and will absolutely succeed in the near term.     

Internationally, it seems to me a sure thing that organizations like the UN, the IMF, the OECD, and so many more, will be totally hollowed out or even disappear. At a time when governments are straining to maintain themselves, they’re unlikely to ship scarce capital abroad. So the people who are worried about the UN taking over the U.S., One World Government and such, will have to find something different to fret about.

As domestic currencies the world over are inflated away, some medium of exchange and store of value will have to be agreed on. I don’t see any realistic alternative to gold. China is going to be a focus of change in this regard (among many others). The stupidity of the Chinese government buying U.S. government paper in order to enable Americans to continue consuming the things Chinese factories produce will come to an end. That will be an impetus to demands for an alternative medium of exchange.

But if the U.S. and governments of other advanced countries lose power, governments in places like Africa (in particular) will collapse; Somalia is a model of things to come there. That may sound like a horrible thing, but – notwithstanding teething pains – it’s a big step forward. Deprived of free money, free weapons, and lots of free bad advice that have entrenched kleptocracies, the Africans are likely to make real progress after the Greater Depression plays itself out.

The transition period, however, is likely to be messy almost everywhere.

Can we prevent the status quo from falling apart, and preclude these messy changes? Further, should we, if we could?

Entirely apart from the fact that change is an essential part of life – and I think the status quo is in dire need of some real change (although absolutely not the kind Obama and his posse might have in mind) – I actually don’t think there’s a realistic solution to the problems the world is facing in this decade.

Yes, there are solutions that the government could proactively bring about – almost entirely by doing less, rather than more. But the odds of the U.S. voluntarily defaulting on its debt, abolishing the Fed, using gold as money, abolishing all agencies not specifically designated in the Constitution, eliminating the income tax, and cutting back on military expenditures by about 90% -- among other things – are so small as to be considered a fantasy.

In fact, the concept of invoking changes of that scale are too scary for most to even contemplate. But they’ll happen anyway. Which means these things aren’t going to happen voluntarily, under some kind of control, and in a more or less orderly manner. Even so, because anything that must happen will happen – all these things and more will actually happen and, in the happening, will be most unpleasant and dangerous.

It seems to me that the upset we’re looking at could be the biggest thing since the Industrial Revolution. Or perhaps the French Revolution is a better analogy, although I expect it’s going to be a bit of both. It seems entirely possible to me that we could have another American Revolution, as unlikely as that seems among a nation of commuters and suburbs-dwelling reality TV watchers.

But it’s hard to see how it could be anything like the first one, which was led by thoughtful, rich, free market-oriented farmers and merchants. More likely this one will center on people like Sarah Palin and Sean Hannity on the one side, and Michael Moore and Nancy Pelosi on the other – strident, antagonistic, and bent, but also full of charisma and certainty. I don’t see much chance of collegial and reasonable compromise.

The best advice is not to be around the watering hole when two antagonistic groups of chimpanzees are hooting and panting at each other, getting ready to fight for control of it.

I’m afraid the current state of affairs is corrupt through and through. From the top of the financial world in New York, to the top of the political world in DC, right down to the average man on the street, 50% of whom aren’t obligated to pay income taxes but feel entitled to be net recipients of government largesse at the expense of others. Even among those that have assets, there’s no feeling of shame in gaming the system any way possible. There’s no longer any onus to being one of the 40 million people on electronic food stamps, or defaulting on one’s mortgage and continuing to live in the house, and collecting indefinitely extended unemployment benefits. Bankruptcy is just something you do when needed.

Frankly, it’s a mystery to me how the U.S. in particular, but most of the developed world, is going to escape from the very unpleasant consequences of its very stupid past – and current – actions. 

I’ve just scratched the surface of the possibilities for the next ten years here. What’s clear is that some patterns of production and consumption are unsustainable; they will stop. What’s not clear is what new patterns will replace them. But that’s not so worrisome; what’s a matter of more concern is what forms of political and social organization will appear.

But let me leave you with a final bit of good news. Most of the real wealth – science, technologies, capital and consumer goods – will still be here. There’s just going to be a change in ownership. And it’s possible to position yourself to get more than your share.
Based on the above, what looks good to me – on a long-term basis – over the years to come? In general, stocks, bonds, and property are dead ducks, and headed much lower. But when a real bottom arrives, perhaps even in this decade, fortunes will be made buying back into them. Gold and silver, even though they’re no longer cheap, are going much higher; they’ll be what you’ll trade for things that are cheap. Agricultural commodities are going to do well. The trillions of currency units being printed all over the world will definitely ignite more bubbles, which should present fantastic speculative opportunities. And because the political situation will be hairy, diversify your assets outside of your home country.
----

What you just read is the content of Doug Casey’s speech at the just-concluded Casey’s Gold & Resource Summit. Doug and dozens of other experts on gold and resource investments gathered to share in-depth analysis, economic forecasts, and their top stock picks with a captive audience. You can hear this priceless advice – from John Hathaway, Eric Sprott, Richard Russell, Robert Prechter, Ross Beaty, Rick Rule, and many more – on more than 17 hours of audio, from the comfort of your home. Details here.





Talking of profits, over in our options trading den they closed a trade last night with a profit of 82% which follows their recent success of closing a trade which generated a profit of 50% in 30 days on GLD Call Options, so they now need update their progress chart, yet again, which will probably be done this weekend as things are a little hectic at the moment. However, to see exactly how it is going, please click this link.







OptionTrader Profits





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.

On Friday, 27th August 2010, we closed another successful trade banking a profit of 79.46% on Call Options on Silver Wheaton.

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, with more positions opened yesterday. Drop by and take a look.


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.







Tuesday
Oct052010

Gold Prices Trend Ever Higher

Gold Chart 06 October 2010.JPG

Gold prices moved higher today to trade at around $1340.00/oz, hitting another new all time high, which, hopefully puts a smile on the faces of all of our readership. Silver prices also came to the party with a gain of around $1.00/oz, to trade at around $22.87/oz.

Taking a quick look at the above chart we can see that gold prices have made a new high today once again putting more heat on the short sellers, some of whom may cover their positions and take a small loss now, while others will hang on a little longer before capitulating with a greater loss later on.

The chart shows that the moving averages are moving upwards in support of gold prices which bodes well for future increases as we do not want to see gold opening a large gap between its price and the 200dma thus tempting a sharp correction.

The technical indicators, the STO, RSI and the MACD suggest that gold is overbought, so we would normally prepare for gold to take a rest at this point and this may well happen. However, as we keep banging on about it, the world of pretend money is in turmoil with one country after another devaluing their own currency rather face the truth about their own economic mess, for which they are largely responsible.

Just take a quick look at what is going on across the globe at the moment and the following important factors pop up:

Australia decided to hold rates for now. Helicopter Ben sells us the virtues of Quantitative Easing. Across the pond the EU worries about a strong euro stifling the recovery, so I guess we can expect some sort of action there in order to prevent it going higher. Japan moves again by cutting its official lending rates.

No-one wants to be holding the strong currency baby when the music stops, so the spiral down continues for most currencies, hence silver and gold prices will also continue to spiral upwards. This current state of affairs leads us towards thinking that the fundamentals will override the technical analysis, at least for now. Thus we arrived at the conclusion that we must focus and invest aggressively in the physical metals, along with the associated mining stocks, boosting profits with some well timed options plays.

Talking of profits, over in our options trading den they closed a trade last night with a profit of 82% which follows their recent success of closing a trade which generated a profit of 50% in 30 days on GLD Call Options, so they now need update their progress chart, yet again, which will probably be done this weekend as things are a little hectic at the moment. However, to see exactly how it is going, please click this link.



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.

On Friday, 27th August 2010, we closed another successful trade banking a profit of 79.46% on Call Options on Silver Wheaton.

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, with more positions opened yesterday. Drop by and take a look.


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.







Sunday
Oct032010

Day 2 - Casey’s Gold & Resource Summit

October 3, 2010


Day2
Gather three hundred average American investors in a room, ask how many own physical gold and how many own physical silver - and you might see one or two hands raised.
 
Clearly... we’re not dealing with average investors here in Carlsbad. Because when those two questions were put to this audience by Eric Sprott, CEO of Sprott Asset Management, which manages over US$3 billion in assets, every hand in the room shot up. Eric chuckled, “I see I’m preaching to the choir here.”
 
What, then, brings us out to Casey summits?
 
One thing is the opportunity to exchange ideas with investment legends like Eric Sprott - and other folks not available to us in our daily lives.
 
But another is to find out what they’re investing in. Gold we know. But what are the ways to play the gold bull market other than buying coins and bars? What are the junior mining companies whose stocks are headed moonward as gold itself rockets ahead?
 
Here Sprott did not disappoint, as he named three of his favorites, walked everyone through their fundamentals, and told why they’re buys at present prices. Pens scrolled frantically and you could almost see the disappointment that it’s Saturday and the markets are closed.
 
Eric didn’t get to be one of the wealthiest men in Canada through consistent misreadings of the economic situation, so when he says we’re in a depression, not a recession, it might be a good idea to pay attention. Nor are we anywhere near the end of the downturn. “Banks,” he said, “are so broke it’s beyond belief.” Want to bet on a recovery in the financial sector?
 
Eric’s presentation was fascinating in itself, and reason enough to be here. But it’s a good thing Sprott was on his game, because he had to follow Casey Research’s own resident economic genius Bud Conrad, the nonpareil whirling dervish of data points.
 
Bud never fails to energize a crowd, and today was no exception, as he unveiled a mind-boggling sequence of charts and graphs covering virtually every aspect of the economy.
 
Though it was hard to keep up with the numbers, he succinctly spelled out the overall message for us: we are in the eye of the storm. That little bit of blue sky Washington is pumping up is no different from the patch of blue at the eye of a hurricane. The next arm of the storm is on the way.
 
Not that the blowhards of DC are the only problem, either. All fiat currencies are toilet paper, Bud said. They’re engaged in a race to the bottom, and the only question is who will get there the quickest. Don’t believe governments actually know this? Take a look at the list of countries that have intervened on behalf of their currencies in recent months. Bud showed it. It’s long. Very long.
 
How important is it that we take remedial action, right now? Bud showed us. If the running up of deficits keeps on at current rates, the interest on the national debt will hit $1 trillion. By mid-century? Uh uh... in just four years. Which means that, at that point, every cent collected in personal income taxes in this country will be spent on interest payments alone. Think about that.
 
After talks by Bud Conrad and Eric Sprott, it was almost comic relief to hear Doug Casey speak on “Stupidity, Evil and the Decline of the U.S.”
 
Doug began by making a distinction between America, which came into being as a wonderful, liberating idea, and the United States, which is just another country - formerly known as the land of the free. But now there are regulations on everything. So much so that, as Doug puts it, “everything not obligatory is prohibited.”
 
To help make the point visually, and to the enormous delight of the attendees, Doug calmly extracted a cigarette from his pocket and lit up. In public! You can guess whether anyone dared tell him to put it out.
 
He boiled the serious side to his presentation down to this: Planet America is being circled by the twin moons of evil and stupidity and neither is conducive to healthy politics or economics.
 
The reasons for such a state of affairs are threefold, in Doug’s opinion:
 
1.
We’ve lost our philosophical anchor. We no longer exhibit courage and initiative, nor are capable of producing more than we consume.
 
2.
Concurrently, we’ve developed a reflexive belief in the power of government to solve all our problems.
 
3.
Fear is the driving emotion among our middle class, which is shrinking, desperate to hang onto what it still has, and prey for any demagogue who comes along and speaks in the right kind of code.
 

There is no quick fix for this.
 
But the market cares nothing for fixes, quick or otherwise. It imposes consequences on the actions people take. Party for decades like there’s no tomorrow and there will be a hangover when tomorrow finally comes, as it must.
 
Just ask another investment legend, Richard Russell, who also spoke today. Richard began publishing his top-ranked newsletter in 1958. Since then, he’s seen it all. And he described our collective tomorrow with a single word: austerity.
 
“Get used to it,” Richard advised. ”And if you want to survive it, get some gold.”
 
Order our complete audio collection - click now to learn more.
But don’t take long, on Monday the price goes up $100.
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Talking of profits over in our options trading den they have closed their latest trade which generated a profit of 50% in 30 days on "target=_blank">GLD Call Options, so they have updated their progress chart, yet again, to show all the closed trades as of today, so you can see exactly how it is going, please click this link.



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.

On Friday, 27th August 2010, we closed another successful trade banking a profit of 79.46% on Call Options on Silver Wheaton.

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, with more positions opened yesterday. Drop by and take a look.


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.







Sunday
Oct032010

GLD Calls Return 50% in 30 Days for OptionTrader Subscribers

With gold hitting new all time highs above $1300, many gold bulls are reaping the financial benefits in their portfolios. However the question is not only are you making money from this run up in gold prices, but are you making the most money you can?

Most importantly, are you maximising your reward/risk ratio and enjoying fantastic profits without taking extortionate risks?

Our OptionTrader service is aimed at maximising the reward and minimising the risk in every trade we recommend.

GLD Calls Return 50% in 30 Days for OptionTrader Subscribers

As you can see in the chart above our strategy enabled us, and any OptionTrader subscribers fortunate enough to follow us in this trade, to bank a 50% profit in 30 days.

Over the same period gold, or the gold ETF GLD only gained 5.5%, meaning our call options outperformed gold by nearly tenfold.

Gold stocks such as AEM, KGC and AUY have only gained about 9-11% and double leveraged gold ETN’s are up about 10%.

We think this demonstrates that the best way to make the most money in this gold rally is by using options.

Whats more is that this example trade detailed above it not a highly speculative option. When purchased it was already well in the money, since the strike price of the option was $115 and gold was trading around $122. It also it didn’t expire until January 2011, meaning we had four months for gold to make its move.

As for how far we needed gold to move, well since we paid $10.00 for this option and it was already $7.00 in the money, which means we were paying a $3.00 time premium. This $3.00 of value would gradually decay as January 2011 comes closer and the options gets closer to its expiration date. Therefore so long as GLD gained $3, equivalent to gold prices increasing by $30 or 2.5%, over the next four months, we would break even and anything better than that would result in a profit.

We were very confident that gold would rise substantially more that 2.5% in a lot less than four months, so not only was the reward for this trade excellent, the downside risk in our opinion was minimal.

Successful trading and investing hinges on effectively managing risk and potential reward of every move you make. At SK Option Trading this is our one of our most central philosophies and it is instilled in the trading practices of our premium options trading service OptionTrader, which delivers options trading signals and updates via email in real time to subscribers.

Evidence of our success can be seen in our trading record, which is published in full here, with no trades omitted.

We are averaging a return of over 28% per trade investing just $1000 in just one of our trades would pay for your subscription.

Furthermore, if you had invested $1000 in each of our recommended trades to date, you would have $7077 in profits
.

In terms of risk versus reward, at $199 for 6 months with over $7000 in profits to be had, this is an investment that you should seriously consider.



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Saturday
Oct022010

LIVE from Casey’s Gold & Resource Summit

Friday kicked off the Casey’s Gold & Resource Summit in sunny – scratch that – rainy, Carlsbad, California. With gold hitting $1,320/ounce today, the energy here is incredible. Friday's agenda was corporate presentations, where attendees listened to representatives of twenty of the premier junior mining companies in the world – the best of the best, with operations in the U.S., Canada, Central and South America, Africa, and Papua New Guinea - exploring for or mining, gold, silver, uranium and the industrial metals.
 
And how better to kick things off at the summit, than to ask: how do companies find potential deposits, anyway?
 
Truth is, big nuggets of gold aren’t lying around on the ground or the bottom of creek beds any more. If you could see them, they’ve been picked up by somebody. Yet there is a way to detect the potential presence of a gold deposit just by viewing the ground.
 
You look for a kill zone.
 
Today we learned what a kill zone is. It’s the product of a sulphide deposit that’s been exposed to the air, oxidizing the sulphur, and then to water, which converts it to sulphuric acid. Which proceeds to kill all the vegetation in the area.
 
Thus you can fly over a given area and, if you see a sudden patch of naked ground, you can land the chopper for further investigation. Might be a kill zone, might not be. Big if maybe… but it’s a start.
 
One clear standout of all today's presenters was Ross Beaty, a serially-successful miner who has made fortunes for many an investor during nearly four decades in the business. In fact, if any of the young company execs on hand earns the title of the next Ross Beaty, that’ll be quite an accomplishment.
 
Ross was introduced by Casey Research’s Louis James as “the broken slot machine.” Louis hastened to add that that may sound like an insult, until you realize what it means. This is a guy whose ventures have proven to be like a one-armed bandit that continually coughs up coin.
 
His topic was The Five Commodities I Love Best: gold, silver, copper, nickel and, perhaps surprisingly, geothermal energy. Of gold, the metal attendees particularly came to hear about, Beaty predicted that the bull market (which has already run nearly twice as long as the average one) still has ways to go.
 
Primarily, he explained, because of a heightened demand, especially from the developing nations of Asia, where gold is revered and more people can now afford it; and on rapidly-tightening supply, due to the exhaustion of existing mines and few big replacement mines coming on line.
 
While Ross is a man who loves gold and gold mining, he saved some of his most optimistic words for geothermal energy. It’s the greenest energy source in the world, as well as the cheapest, and it’s renewable. Generating plants can last, essentially, forever.
 
The only thing not to like is that analysts tend to value geothermal projects at a small fraction of the multiple assigned to more well-known energy sources, including petroleum, gas and coal. But once the market catches on to what geothermal is all about, Beaty predicts, that will change dramatically.
 
Over the course of the day, there were hours of presentations by some of the sharpest young men and women in the business. It was a lot to keep track of. But judging by the amount of writing going on at the tables in the conference ballroom, participants were making plenty of notes about their future investments.
 
This is intel you don’t want to miss. And best of all, you don’t have to...
 
You can hear all the priceless advice and suggestions about what the future holds – from the best minds in the industry - like Ross Beaty. The crucial information you must have to take advantage of the metals bull market – and to protect yourself from economic turmoil on our complete audio collection.

CD Set Casey 03 October 2010.JPG
 
If you order before the end of the summit (Sunday), you’ll get all three days of Casey’s Gold & Resource Summit – every session, every panel discussion, and dozens of stock picks from the best in the business, for only $295 - a $100 discount.
 
Click here to get more information about the complete audio recordings.
 
Or click here for priority ordering right now.



Over in our options trading den they have updated the chart to show all the closed trades as of today, so you can see exactly how it is going, please click this link.



OptionTrader Profits





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.

On Friday, 27th August 2010, we closed another successful trade banking a profit of 79.46% on Call Options on Silver Wheaton.

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, with more positions opened yesterday. Drop by and take a look.


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.