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Tuesday
Feb222011

A few newsy snippets from China, America and Africa

China Inflation 23 Feb 2011.JPG



First stop is China where we have this snippet about inflation and gold in china.

Although it's rarely mentioned in the Western media, the Chinese government is encouraging their citizens to buy physical gold bullion as part of an effort to cool further investment in the red-hot real estate and housing sectors.

"Unlike the property market, investment in the gold sector is something the government is encouraging," ICBC's Zhou told Reuters.

China actually banned its citizens from owning gold from 1950-2003.

ICBC, the world's largest bank by market value, sold about seven tons of physical gold in January this year, nearly half the 15 tons of bullion sold in all of 2010, Zhou said.

ICBC is also coming up with other creative ways for Chinese citizens to invest in the shiny metal.

In an initiative with the WGC, ICBC started offering physical-gold linked savings accounts in December. Over one million such accounts have already been opened, and the bank is now storing over 12 tons of gold on behalf of investors. 

"There is frantic demand for non-physical gold investments. We issued 1 billion yuan ($151 million) worth of gold-price-linked term deposits in 2010, but we managed to sell the same amount over just a few days in January this year," Zhou said, adding that investors will deposit more than 5 billion yuan ($759 million) in gold-linked accounts this year.

Last week, the bank launched its second physical gold investment product, which sells gold bars to investors. They can then be resold for cash through ICBC based on real-time gold prices.

Zhou said that the huge increase in Chinese demand would continue in 2011 due to a "choppy stock market" and concerns about how rising interest rates will affect property markets. 

Fitz-Gerald says insatiable Chinese demand can do nothing but continue to drive gold prices higher. 

"For global gold buyers [this will have] a huge impact because Chinese buying programs are going to drive prices a lot higher before this is done...especially if the dollar gets worse," he said.

Fitz-Gerald believes gold prices will hit $2,500 in the near future.



Now for a quick 'take' from the United States on inflation and gold prices:

The stakes have seldom been higher.  With the unemployment rate still above 9%, and federal debt at record levels, this latest error by the monetary authorities is likely to be the most costly since the Great Inflation of the 1970s.  Monetary instability will slow employment growth and further erode confidence in government at the same time that higher interest rates will add billions of dollars to the interest cost on the national debt.  Yet, failure to act in a timely basis will lead to an even greater crisis.

When it arrives, the Federal Reserve and its defenders will call it “cost-push” inflation and blame it on economic growth, the weather, Arab sheiks, China, and perhaps greedy companies and labor unions.

The actual cause of the looming crisis is the same as the cause of the Great Inflation of the 1970’s:  a too easy monetary policy that has devalued the dollar by 40% against gold during the past two years.

I choose gold as the reference point for the dollar’s value because it has the remarkable characteristic of maintaining its buying power in terms of other goods and services over long periods of time.  As a consequence, the dollar price of gold is the best, though imprecise, real-time measure of the price level.  Other, more traditional measures, such as the consumer price index (CPI) are merely lagging indicators of inflation or deflation that has occurred already.
I also choose gold because I remember what happened after President Richard Nixon in August 1971 severed the link between the dollar and gold.   At the time, those who warned that the rising price of gold was signaling higher inflation ahead were widely dismissed as “gold bugs.” The conventional wisdom then, as now, is that economic slack would protect the U.S. economy from inflation regardless of what happened to the value of the dollar in terms of gold.
But it didn’t work out that way.


Out of Africa we have this snippet:

The JSE shaved off in excess of 360 points at its close on Tuesday amid profit taking, while political unrest in north Africa continues to plague the oil price.
In Asia, markets also suffered sharp losses, hurt by a major earthquake in New Zealand and a move by Moody's Investor Service to cut the outlook on Japan's Aa2 rating to negative from stable.

On the JSE, Anglo American (AGL) gave up 2.55 rand to 371 rand, and BHP Billiton (BIL) lost 60 cents to 278.60 rand. Sasol (SOL) declined 2.33 rand to 372.50 rand. 

Among gold miners, Anglogold Ashanti (ANG) lost 5.19 rand or 1.48 percent to 346.55 rand, Gold Fields (GFI) was down 2.40 rand or 1.87 percent at 126 rand and Harmony (HAR) shipped 1.50 rand or 1.78 percent to 82.99 rand. Junior gold miner Simmers & Jack Mines (SIM) on Tuesday reported a 34 percent rise in gold production from its Tau Lekoa and Buffelsfontein Gold Mine to 49,170 ounces for the quarter ended December 2010 from 36,608oz in the September quarter. 

Gold revenue increased from 327 million rand for the quarter ended September 2010 to 463 million rand, with nearly half of the increase due to increased volumes, while 17.9 million rand was due to a 5 percent increase in the rand gold price per kilogram. Simmers moved up a cent at 93 cents.


Hang on its going to be white knuckle bumpy ride from here on in. Hold onto to your core position unless you are a terrific market timer and increase your physical holdings as and when you can.


Over in the options pit another profitable trade was closed on Friday so we now have 65 winners out of 67 options trades, or a 97.00% success rate If you have any questions regarding these trades please address them through their site where they will be handled quickly and I hope efficiently.

sk chart 19 Feb 2011.JPG



The above progress chart is being updated constantly. 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, before we decide to cap membership.

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
Feb212011

Unrest In Libya boosts Oil, Gold and Silver Prices

Muammar Gaddafi.JPG
Muammar Gaddafi


As unrest escalated today in Libya the pressure was felt in the oil world with WTI up $2.17 to $97.50, Brent Crude up $2.26 to $108.00. Gold prices gained $17.50 to close in London at $1406.60/oz, with silver prices adding a huge $1.25 to close at $33.91.

Libya is one of the worlds major oil exporters so the concern about the outcome of the current civil unrest is most certainly warranted. As the news comes in a number of oil companies operating in Libya are starting to evacuate some of their staff as a safety precaution. We can only imagine that essential services will be maintained and that the ability to load oil tankers can continue, however, this is not a given. Libya produces about 2 per cent of the world's oil production with exports running at approximately 1.1 million barrels per day and has reserves estimated to be 44 billion barrels.

From what we can gather from various news reports it looks as though the days of Muammar Gaddafi ruling Libya are about to come to a close.

Now, as the stock markets in north America are closed for holidays the only action has been in Asia and Europe, especially on the London Stock Exchange which was down today by 68 points. A guide as to how the mining stocks reacted to today’s price rises, we can see that for gold, Randgold Resources which was up 3.97% and for silver we have Fresnillo which was up 2.85%.

As we write all eyes are on the Sydney Stock Exchange and then the Singapore Stock Exchange to see if this upward move has any momentum, after we have published this article we will try and add any changes to the 'norm' via the comments section as we go through the day and into London once again.

In the mean time you can sleep tight!

Now we pop over to King World News where Eric King has, as per usual, a couple of cracking interviews, this is a taster for you:


With silver trading at a new multi-decade high trading above $34 and gold up almost $20 breaking above $1,400, King World News today interviewed John Hathaway, Senior Managing Director of the Tocqueville Gold Fund.  Hathaway stated, 

“What I strongly believe is that the amount of paper we are seeing traded in both gold and silver on the Comex and in the derivatives market is nonsense.  It has to be something in the order of 100 to 1.  The fact that the market is moving today when the Comex is closed tells me it is not New York that is doing this, it is physical demand.”   

For those interested in silver they have this from James Turk:

“The backwardation that we have been talking about has now blown out to 73 cents, that is unprecedented.  I find that number to be completely astounding!  Where are the arbitrageurs?  They could make a fortune.  This suggests to me that the arbitrageurs are out of the market because they don’t have the physical metal to sell to deal with the imbalance.”  


These recent events could be the ignition that drives both gold to a new record high and silver prices to yet more triple decade highs. If you are short please tread very carefully indeed as the outcome of this current destabilization is still unknown, casting a dark cloud of uncertainty over all us.

We can only hope and pray that these conflicts are resolved with the minimum of violence and that peace returns in short order.

Over in the options pit another profitable trade was closed on Friday so we now have 65 winners out of 67 options trades, or a 97.00% success rate If you have any questions regarding these trades please address them through their site where they will be handled quickly and I hope efficiently.


The above progress chart is being updated constantly. 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, before we decide to cap membership.

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
Feb202011

Gold and Silver prices strengthen as the USD weakens

Gold chart 21 Feb 2011.JPG


We kick off with a quick look at the chart for gold and as we can see both the 50dma and the 200dma are moving up nicely in support of gold prices. The recent correction could have taken gold to have tea with the 200dma, however, strong buying came in and pushed the price through resistance in preparation for the next leg up. The technical indicators, the RSI and the STO, are on the high side suggesting that a breather could be on the cards, but dont count on it, indicators can remain distant from the 'norm' for extended periods of time.




By comparison the US Dollar is struggling to gain any sort of traction as two attempts by the USD to get above the 200dma since December have failed, along with the recent attempt to break out above the 50dma just recently. The RSI, MACD and the STO have struggled to rally and are now heading south which does not bode well for the USD in the short term. Maybe it will make a stronger stand at much levels say around the '72' level as there does not appear to be much in the way of support at the moment.

US Dollar Chat 21 Feb 2011.JPG


Friday was another super day for silver prices with a 3.66% jump to hit a new three decade high. The pull back was less severe than it could have been as shortages continue to dominate the news. The technical indicators are in the overbought zone with the RSI just above the ‘70′ level sitting at 70.59, however it can stay there when its in the mood. On the negative side watch the yawning gap that is developing between the 200dma and silver prices. The chart suggests that we could now be in for a breather but don’t count on a breather just yet as the physical market is struggling to meet demand.

silver chart 18 Feb 2011.JPG

In a piece found on Jesse's Cafe American relating to an original article carried by the Financial Times we have the following snippet regarding silver prices:


The short squeeze in silver is fairly remarkable and obvious to all but the most pig-headed or willfully misdirecting.  Looking at the Comex warehouse, SUPPLY is consistently and smoothly decreasing even while PRICES are increasing sharply.

Silver does appear to have hit a bit of a 'high note' here perhaps, and has once again come far and fast. A consolidation or a pullback might not be unexpected, depending on what US equities might do. For now many things are riding on the dollar liquidity bubble, including those who are merely fleeing it and seeking safer stores of wealth, particularly in Asia.  Silver is outperforming gold as demonstrated by the decreasing gold to silver price ratio, no doubt influenced by the fact that the central bankers have access to gold in their national treasuries, but few have any silver. Silver is in a short squeeze, and so volatility and upside surprises are to be expected.

All it needs now is for you to ensure that you are positioned in this market via a holding of the physical metal, the gold and silver producers or a few long dated call options.


Over in the options pit another profitable trade was closed on Friday so we now have 65 winners out of 67 options trades, or a 97.00% success rate If you have any questions regarding these trades please address them through their site where they will be handled quickly and I hope efficiently.

sk chart 19 Feb 2011.JPG

The above progress chart is being updated constantly. 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, before we decide to cap membership.

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.
Thursday
Feb172011

Bottleneck or Supply Deficit?

gold bars 18 feb 2011.JPG

By Jeff Clark, BIG GOLD

There have been numerous reports of bullion shortages in many parts around the world, along with rising premiums. And the two explanations – we’re running out of gold! and, it’s just a manufacturing bottleneck – are at odds with one another. So, who’s right?

First, the data. The following has been reported since New Year’s eve horn-blowers were put away:
 
1. Report from China: “…premiums for gold bars jumped to their highest level in two years.”
2. A director at Cheong Gold Dealers in Hong Kong: "I don't have any gold. Premiums are very high. Some say they have no stocks on hand."
3. A dealer in Singapore: "There's a sudden surge in demand. Demand from China is very strong and they are paying very high premiums. Refiners can't meet the demand.”
4. World Gold Council report: “…gold imports by India likely reached a record last year due to increased investment demand. Imports will probably be the highest for India in its history.”
5. Nigel Moffatt, treasurer of the Perth Mint: “…demand for gold bullion has been unrelenting since gold dropped below $1,400 an ounce. At the moment demand is such that we cannot meet all the enquiries we are getting. Demand for our coins and medallions is strong, but the biggest demand is coming from banks and traders looking for kilo bars.”
6. Eric Sprott, chief investment officer of Sprott Asset Management, after having difficulty locating enough bullion for their new silver fund: "Frankly, we are concerned about the illiquidity in the physical silver market. We believe the delays involved in the delivery of physical silver to the Trust highlight the disconnect that exists between the paper and physical markets for silver."
7. 2010 gold Buffalo coins are largely unavailable from dealers.
8. Sales of silver Eagles set a new record in January – by the 19th of the month. Already, 4.6 million coins have been sold, an all-time monthly high since the coin's release in 1986.
Based on this data alone, you might come to the conclusion that yes, we’re running low on bullion supply. But most industry execs I spoke to insist this is a “bottleneck” issue: current demand is greater than current stock on hand, or is coming in faster than mints can produce. In other words, it’s a fabrication issue, not a supply deficit. A Treasury rep said as much.

You’ll recall from 2008 how supply was difficult to come by and premiums were roughly double what they are now. Some think it will be “lesson learned” this time around; mints now know how to prepare for another spike in demand. Many have added workers, shifts, and facilities. The U.S. Mint stopped producing the less popular coins and now focuses on those that are most in demand.

To a large extent, I believe the bottleneck argument is exactly what’s happening. It’s no different than the store that sells old-fashioned wooden rocking chairs suddenly getting swamped with customers when an antique dealer declares they’ll be valuable collectibles in the future. Collectors rush to buy, and the store doesn’t have enough rocking chairs in its warehouse. But they’re not running out of wood. And they’ll likely be better prepared when they hear the dealer is coming out with a book.

It’s true there’s only so much gold coming to market every year (total 2010 supply is estimated to have been about 115 million ounces), but in the big picture, there’s been enough. It’s also true that orders from the 2008 rush were eventually filled. However, I think the “bottleneck” and “we’re running out” arguments miss the point, because they both focus on supply.

Demand is what I’m concerned about. Now try this data:
 
1. According to International Strategy and Investment Group, gold ownership currently represents 0.6% of total financial assets. If it rose to just 1.2% – still less than half its 1980 level – it would require an additional 917.1 million ounces, or 16% of aggregate gold worldwide. This amount is equal to about 10 years of current global production.
2. Investment demand represented 53% of all gold demand in 1979; today, it represents just 32%. Coin demand represented 37% of all demand in 1979; today it’s less than 14%.
3. Gold and gold mining stocks represented 26% of all global assets in 1981 (high inflation), and 20% in 1932 (high deflation). Today, gold and gold mining shares represent about 1% of global assets.
4. The market cap of the entire gold industry is about the size of Microsoft, is less than Exxon Mobil, and is 10 times smaller than the banking industry. The whole of the silver industry is smaller than Starbucks.
5. Silver mine production is insufficient to meet current demand. The only way silver needs are fulfilled is from scrap coming to market. Miners don’t produce enough on their own.
6. There are approximately 40% more earthlings right now than there are ounces of gold that have ever been mined. That includes every ounce used in jewelry, electronics, and dental. Further, if every ounce of supply last year were made into coins and bars for investment purchase, it would amount to less than two one-hundredths of an ounce, or about half a gram, for every man, woman, and child on earth. This means 0.018% of the global population – about one in every 55 people – could buy a one-ounce gold coin this year.

Yes, there is a bottleneck. But with this recent spike in demand, it appears some mints still aren’t equipped to keep up. Are we nearing a tipping point where in spite of the increased efficiency and preparedness, requests from buyers will outweigh available supply? Imagine demand continuing to accelerate, and you can see where this might be headed. I think this is the side of the equation to watch.

Andy Schectman of bullion dealer Miles Franklin told me last summer that, “Based on what I know, it’s my opinion that if 5% of this country put 5% of their money into gold, there would be nothing left tomorrow morning.” In other words, even if supply is sufficient at present, what happens if demand, say, doubles, as the above data show is possible?

Right now in North America you can still get bullion, but we’re clearly on a path where demand could overwhelm the system, making purchases very difficult. When that point arrives, many investors will wish they hadn’t worried so much about price.

Imagine Doug Casey is right about the future value of the dollar: zero. Imagine how high inflation would rocket in such a scenario. 

Bottleneck, meet desperation.

[The Chinese and other governments are gobbling up gold as fast as they can, adding vast amounts to their already large holdings. Because they know something many mainstream investors don’t: the U.S. dollar is on its last leg. To find out how to protect yourself – and to profit – watch this free video.]





Over in the options pit we now have 64 winners out of 66 options trades, or a 96.96% success rate If you have any questions regarding these trades please address them through their site where they will be handled quickly and I hope efficiently.


sk chart 10 Dec 2010.JPG

The above progress chart is being updated constantly. 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, before we decide to cap membership.

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.





Thursday
Feb172011

Kinross Gold Corporation declares a $0.05 dividend

KGC Chart 17 Feb 2011.JPG

We cant say that we are overwhelmed with this dividend payout from Kinross Gold Corporation (KGC) and we are even less impressed with the performance of the stock price over recent years. As the above chart shows the stock price was $25.00 plus in 2008 and since then has steadily plodded south to close yesterday at $16.99. KGC now has a huge market capitalization which is close to $20 billion and a low P/E ratio of 15.73, however the stock price is still in decline.


The President and CEO, Tye Burt, made the following comments in relation to fourth quarter and year-end 2010 results:


"In 2010, Kinross' proven and probable gold reserves increased by 23%. Our production reached a new record with strong performance from our mines, and for the first time, annual revenue exceeded $3 billion while adjusted operating cash flow4 exceeded $1 billion. Margins averaged $683 per ounce in 2010, an increase of 29% year-over-year, compared with a 23% year-over-year increase in the average realized gold price per ounce.

"In 2011, with a full year of output from our West African mines, we forecast production will increase to 2.5-2.6 million gold equivalent ounces, while we also expect higher costs as a result of increased energy and labour costs, and lower average grades.

We also draw your attention to the expectation of higher costs! This gives us cause for concern as there other producers out there who appear to be getting their costs down, granted they are not the giant that Kinross is, but our focus in on return on capital. This may be a case of big not being beautiful.

The highlights of the companies results are as follows:

Production1 in the fourth quarter of 2010 was 676,635 gold equivalent ounces, a 10% increase over Q4 2009. For full-year 2010, gold equivalent production was 2,334,104 ounces, in line with previously announced guidance.

Revenue for the quarter was a record $920.4 million, compared with $699.0 million in the fourth quarter of 2009, an increase of 32%, with an average realized gold price of $1,333 per ounce sold compared with $1,094 per ounce sold in Q4 2009. Revenue for the full-year 2010 was a record $3,010.1 million, a 25% increase over full-year 2009.

Cost of sales2 per gold equivalent ounce was $551 for Q4, which includes a Red Back Mining purchase accounting increase of $13, compared with $437 for Q4 2009. Cost of sales per ounce sold for full-year 2010 was $508, inclusive of a full year Red Back purchase accounting increase of $5, compared with $437 for full-year 2009. Full-year cost of sales per ounce was in line with previously stated guidance. Kinross' attributable margin per ounce sold3 was a record $782 in Q4, a year-over-year increase of 19%. The attributable margin per ounce sold for full-year 2010 was $683, a 29% increase over 2009.

Adjusted operating cash flow4 for Q4 was $332.7 million, a 14% increase over Q4 2009, and $1,091.2 million for the full year, a 16% increase over full-year 2009. Adjusted operating cash flow per share was $0.29 in Q4, versus $0.42 Q4 2009, and $1.32 per share for full-year 2010, compared with $1.36 for full-year 2009.

Adjusted net earnings4 were $144.7 million, or $0.13 per share, in Q4, compared with $148.6 million, or $0.21 per share, for Q4 2009. Adjusted net earnings for full-year 2010 were $478.8 million, or $0.58 per share, compared with $304.9 million, or $0.44 per share, for full-year 2009. Reported net earnings were $210.3 million, or $0.19 per share in Q4, compared with $235.6 million, or $0.34 per share, for Q4 2009. Full year reported net earnings were $771.6 million, or $0.94 per share, compared with $309.9 million, or $0.45 per share for full-year 2009. Earnings were reduced by additional exploration expenditures of approximately $23 million at Tasiast, and by the timing of year-end metal shipments, which deferred sales of approximately 30,000 ounces of Q4 2010 gold production to Q1 2011.

Kinross forecasts 2011 production of 2.5-2.6 million gold equivalent ounces at an average cost of sales per gold equivalent ounce of $565 – 610.

Proven and probable mineral reserves as of December 31, 2010 were 62.4 million gold ounces, an 11.5 million ounce, or 23% increase year-over-year.

Proven and probable mineral reserves at Tasiast increased to 7.6 million gold ounces, measured and indicated mineral resources were 2.1 million gold ounces and inferred mineral resources increased to 8.6 million gold ounces. The Company has completed a scoping study for the Tasiast expansion project based on a 16-year life for the expanded project with average annual production of approximately 1.5 million ounces at an average gold grade of approximately 2 g/t for the first eight full years of the expanded project.

Kinross has declared its first proven and probable gold reserves of 6.8 million ounces at Fruta del Norte (FDN). The Company has prepared a pre-feasibility study and technical report for FDN that estimates average annual production of 410,000 gold ounces over the 16-year life-of-mine. FDN permitting is on schedule to support the project development timeline.

The Company has completed a scoping study for Dvoinoye that contemplates processing higher-grade Dvoinoye ore at the Kupol mill, and an increase in Kupol throughput from 3,000 to 4,000 tonnes per day.

The Board of Directors declared a dividend of $0.05 per share payable on March 31, 2011 to shareholders of record on March 24, 2011.


So there we have it and as you know we sold our share holding on 11th November 2010 for $18.69, when we wrote: Our patience has come to an end so we must bid farewell to the Kinross Gold Corporation, today we sold all of our shares taking the cash back to the side lines where we hope to deploy it in such a manner as to enjoy a good return it.



The question we must ask ourselves is can our capital be better deployed elsewhere?

And the short answer is yes, we'll continue to observe for now and keep our wallet tightly closed.

Kinross Gold trades on the TSX under the symbol of 'K' and on the NYSE under the symbol of KGC and the 52 week trading is range is $14.84 - $19.90, a very modest P/E ratio of 15.73 and an EPS of $1.08.


In yesterdays trading session we closed another trade so we now have 64 winners out of 66 options trades, or a 96.96% success rate If you have any questions regarding these trades please address them through their site where they will be handled quickly and I hope efficiently.


sk chart 10 Dec 2010.JPG

The above progress chart is being updated constantly. 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, before we decide to cap membership.

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.



Tuesday
Feb152011

Agnico-Eagle Mines Limited Up 2.82% Today

AEM Chart 16 Feb 2011.JPG


Having taken tea with the 200dma AEM has bounced and moved up to close today just above the 50dma. The RSI is sitting at 60.75 and is heading north along with the MACD. We now need gold prices, currently standing at $1373.00/oz, to push on and break through $1400.00/oz.

The index of un-hedged gold producers, the HUI, is currently standing at 540, up 9.85 today. Although this is good progress we are still looking in anticipation for the HUI to get its skates on and blast through the 600 level and show us all that they mean business. Still some progress is better than no progress so we will continue to look for bargains in this sector and take it from there.




Agnico-Eagle is a long established Canadian gold producer with operations located in Canada, Finland and Mexico and exploration and development activities in Canada, Finland, Mexico and the United States.  Agnico-Eagle's LaRonde mine is Canada's largest operating gold mine in terms of reserves.  The Company has full exposure to higher gold prices consistent with its policy of no forward gold sales.  It has declared a cash dividend for 29 consecutive years.




Agnico-Eagle Mines Limited trades on the NYSE under the ticker symbol of AEM and on the Toronto Stock Exchange under the symbol of AEM.TO.
Agnico-Eagle has a market capitalization of $12.67 billion, a 52 week trading range of $54.07 - $88.20, a rather high P/E ratio of 42.45 on volume of 2-3 million shares traded per day and closed yesterday at $75.53.




In today's trading session we closed another trade so we now have 64 winners out of 66 options trades, or a 96.96% success rate If you have any questions regarding these trades please address them through their site where they will be handled quickly and I hope efficiently.


sk chart 10 Dec 2010.JPG

The above progress chart is being updated constantly. 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, before we decide to cap membership.

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.



Tuesday
Feb152011

SK OptionTrader Extends Winning Streak To 46 Consecutive Trades

By taking a modest profit on some SLW calls in todays trading, our premium options trading service SK OptionTrader has extended its winning streak to 46 consecutive winning trades in a row.

Our average return per trade including losses is 41.35%, with our model portfolio being up 136.75% since inception, or an annualised return of 74.84% assuming profits are not reinvested.

SK OptionTrader has now banked profits on 64 of its 66 closed trades.

Below is a summary of the closed trade:

Bought SLW Jun 18 '11 $40 Call @ $2.57 on 7th January 2011
Sold at $2.75 on 15th February 2011
7% Profit in 39 days

Recently we also closed three trades on GLD, banking gains of 13%, 17% and 13% despite gold falling during the period that we held the trade.

One of the biggest advantages of options trading is that one can profit from movements up, down or even sideways. We are currently designing strategies for our subscribers that will allow us to profit from gold’s consolidation, so if this interests you then you may wish to consider subscribing now for only $99.

We would like to take this opportunity to say thank you very much indeed for your support in this new venture that we launched about 18 months ago. The response has been terrific, so the small team here are ever so grateful to you for helping to make it a success.

In a recent knock about session we discussed the topic of membership and although we have yet to finalize anything we thought that it would be worth giving you a heads up about what we discussed.

In order for the service to remain manageable, effective and to some extent exclusive, we are looking at ways of limiting the numbers of members that we can work with. There are a number of possibilities here as you can well imagine. We could decide on a number that we deem to be suitable and implement a straight forward cut off at that point and then organize a waiting list in order to replace those who do not re-subscribe. However, the attrition rate is very low so it would be a slow moving process and investors would lose interest after a short while. Another possibility is to have a cut off point and those who still wish to join us would be required to pay a much higher subscription fee of say, $999.00. It sounds a lot but when you consider that just one trade of $3000.00 at our average profit of 41.88% and the fee is covered, then it is still a good deal. If we take this route then we are keeping the door open for those of our readers who are really keen to join us, but we also limiting the number of subscribers, thus achieving our objective. For those who are already subscribers then the old price structure would be maintained for their benefit.

We will do some more work on this in the near future but thought that you would like to be kept in the loop as to how we are thinking.


Feel free to check out our full trading record or contact us if you have any questions.

Alternatively you can subscribe below, for just $199 per 6 months or $349 for a year.

Subscribe for 6 months - $499

 

Subscribe for 12 months - $799

 

Saturday
Feb122011

High River Gold Update 13 February 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.

February 12, 2011        
 
High River Gold Investors,
 
Severstal's Nord Gold was trying to get a $4-5B valuation (830,688,360 shares at US$4.70-$6.20/share) in its IPO. In a show of confidence in the future operations, they did not lower their IPO price range, but instead decided to postpone it. Nord owns 72.64% of High River Gold's 840,218,962 shares. HRG, a decades old Canadian company trading on the TSX (HRG.TO), has market cap of $932M. Based upon the information below, I believe HRG makes up 50% of Nord's value - yet it is only trading at 6.6 times annualized projected 2010 cash flow (extrapolating 9 months actual to full year) versus Nord Gold's IPO attempt at up to 22 times (same extrapolation). I am projecting HRG's Q4 cash flow to be $60M. If so, then HRG is actually trading at 3.9 times estimated annualized Q4 cash flow. I would hope that Nord now realizes that promoting the HRG story and stock price is fundamental to its next IPO attempt. Why risk another IPO delay?
 
The Nord Gold Prospectus presents consolidated data as a Group (including HRG), but when compared to HRG's info alone for the same periods, HRG's true significance is revealed. HRG makes up the following percentages of Nord Gold:
 
- 57% of Nord's gold production in 2010
- 37% & 35% of JORC Compliant Reserves and Resources respectively
- 64% of revenues 9 Months 2010 (9/30)
- 61% of cash flow from operations 9 Months 2010
- 102% of Net Income 9 Months 2010
- 69% of Normalized EBITDA 9 Months 2010
- 8% of net debt a 9/30/2010
- 77% of cash & equivalents at Sept.30, 2010
- 92% of Trading Securities (Third party stock) at Sept. 30, 2010
- 83% of liquidity at Sept. 30, 2010*
* Liquidity = cash & equivalents plus trading securities.
 
Per the Prospectus, Nord Gold is also investing heavily in HRG's properties this year. $178M or 61% of the 2011 Capital Expenditures budget of $290M is being spent on HRG properties - broken down as follows:
 
- 56% of exploration and evaluation.
- 91% of capital expenditure on expansion.
- 24% of 'other'(safety, facilities balancing, replacement of equipment).
 
Although HRG's Reserves & Resources only make up 37% and 35% respectively, HRG has been carrying out further research, exploration and/or drilling at its Irokinda, Zun-Holba, Prognoz and Bissa properties that will likely result in a significant increase in HRG's resource base. We are expecting exploration and drill results in H1 2011 for Irokinda and Zun-Holba - the two depleting mines. The comments in the Nord Gold Prospectus show confidence in these mines. Also, Bissa could have an additional 2M oz from further exploration and 50% owned Prognoz could have an additional 5M oz additional (gold equivalent). Linked below are highlights from the Nord Gold Prospectus that show Nord's confidence in the future of HRG's resources and mine production rates.
 
By deduction, the Nord Gold Prospectus shows that HRG produced 88.3k oz of gold in Q4 at an average sell price of $1382/oz - up from $1195/oz in Q2. There have been some cost increases over the 6 months since Q2 when HRG produced $48.8M cash flow on 87k oz of production. Therefore, I am estimating Q4 cash flow at $60M. If so, then, HRG is trading at 3.9 times annualized Q4 cash flow. We are expecting Q4 and year end results by March 31.
 
HRG has finally announced that Royal Gold has released HRG's third party stock as collateral for its loan. This means $109M worth of third party stock is now free to sell and add to HRG's cash position. With $125M cash at end of Q3, plus Q4 cash flow of $60M, plus $109M third party stock, minus $45M exploration costs ($178M/4 quarters), HRG should now have approximately $249M ($.30/share) in cash, equivalents and stocks.
 
With HRG's resource base likely expanding in 2011 coupled with the financial ratios at over 50% (above), I believe HRG makes up 50% of Nord Gold's value. If they try again and ultimately achieve $5B value in an IPO (or company sale), then HRG should be worth $2.5B or $2.98/share. Add to this the $.30/share in cash, equivalents & liquid stock and you get to $3.28/share. Since Nord - a Russian controlled entity - is the likely buyer of the HRG minority shares, there should be no share price discount for risk of them investing further in Russian assets they already control.
 
Another option to an LSE listing would be for HRG to buy Nord Gold. The TSX is known for raising significant funds for mining companies. If Phillip Baum, the new Chairman of Nord, was willing to get to know some of the Canadian institutional investors and brokerages, financings and research coverage would soon follow. Also, with the announced merger of the TSX and LSE, perhaps synergies would allow for easier dual listings. Of course, an HRG/Nord TSX proposal only works if HRG shareholders are given fair value to obtain their vote. 
 
References:
 
Nord Gold IPO delay
http://en.rian.ru/business/20110211/162552619.html
 
HRG/Nord Gold calculations
http://freepdfhosting.com/e97f966ca2.pdf       
 
Excerpts Nord Gold Prospectus 
http://freepdfhosting.com/34abb0b0ce.pdf
 
HRG's Royal Gold collateral released
http://finance.yahoo.com/news/High-River-Announces-Release-ccn-1151200979.html?x=0&.v=1
 
HRG's Third Party Stock
http://freepdfhosting.com/519a494e4f.pdf 
 
Prognoz 43-101 report
http://www.hrg.ca/i/pdf/TechRpt_Micon_Prognoz_080627.pdf
 
Disclaimer: All numbers approximate. Info from Nord Gold Prospectus may have been misunderstood resulting in calculation errors.
 
Disclosure: I own 5M shares of HRG.
     
Chris Charlwood
Investor
604-718-2668
Rainerc7@gmail.com - e-mail me to be added or taken off my communication list
www.stockhouse.com - ongoing forum for HRG investor communication
 
.......................................................................

Over in the options trading pit, we now have 63 winners out of 65 trades, or a 96.72% success rate If you have any questions regarding these trades please address them through their site where they will be handled quickly and I hope efficiently.


sk chart 13 feb 2011.JPG

The above progress chart is being updated constantly. 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, before we decide to cap membership.

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.
Friday
Feb112011

Later Is Now: Profiting from Rising Interest Rates

Int Rates 12 feb 2011.JPG

By Terry Coxon, The Casey Report

In the fall of 2008, the Federal Reserve responded to the Lehman bankruptcy by igniting a rapid expansion in the U.S. money supply. It did so because, by its lights, the immediate and obvious menace to the economy was a deflationary collapse, with one giant bankruptcy breeding another. And it went about the task without compromise; the monetary base more than doubled in less than a year, and the public's M1 money supply (checkable deposits plus hand-to-hand currency) jumped by 20%.

To some investors, including many of the editors at Casey Research, this policy seemed to guarantee price inflation sooner or later – which, when it came, would mean higher interest rates and falling prices for long-term bonds, including Treasuries. Or, as a speculator would put it, when the time comes, a lot of money can made by shorting T-bonds.

But "sooner or later" is a nearly useless foresight. So far, as Treasury bonds were concerned, the fear brought on by the bursting of the housing bubble, tumbling stock prices, the near-death experiences of large financial institutions, and the well-publicized bailouts of public companies trumped any concerns about inflation somewhere in the future. The compelling desire, especially among institutional investors, was to escape default risk, and that meant buying Treasuries. Inflation was a hypothetical event that could be dealt with later.

For investors who've followed the inflation-vs.-deflation debate and who've come down on the side of inflation, shorting Treasuries looks like a sure thing – and has looked that way for the last two and one-quarter years. But for investors who acted sooner rather than later, results have been disappointing. Every time rates started to rise, bad news from somewhere would revive fears of everlasting recession, a new wave of defaults, or a tumble into the deflationary abyss. Housing prices would take another step down. The reported unemployment rate would stall or rise. The specter of a default in the sovereign debt of a European country would reappear. And every time, whatever the problem, it would stimulate flight-to-safety demand for U.S. Treasury securities. So there was no sustained rise in T-bond yields.

Shorting an investment has costs. In the case of a bond, even if the price stands still, the cost of maintaining a simple short position is the difference between the yield on the bond (which the short-seller must pay) and the yield on the cash that is credited to the short-seller's account. You can't dodge that cost by using futures, options, or an exchange-traded fund. Regardless of how the instrument is put together, the performance will reflect the cost of a simple short sale. So while the investor who bet on rising T-bond rates as soon as the Fed turned on the printing press didn't get whacked by the behavior of bond prices, he did suffer a substantial, ongoing leakage.

Stacking the Deck

If you were one of the earlier investors, you may have already thrown in the towel. With the meter running, being early doesn't feel much better than being wrong. But I believe that the mere passage of time plus the accumulation of inflationary forces (also known as "stimulus") has stacked the deck in favor of shorting Treasury bonds as a timely move. Later is now. Here are the reasons.
1. The government has actually done what it said it would do. It has run trillion-dollar-plus annual deficits, and it has bloated the M1 money supply. (That's the accumulation of inflationary forces.)

2. With QE2 (the second round of money creation and attempted interest-rate suppression), the Federal Reserve will be doing more of the same at least into the middle of 2011. And with the current federal budget plans, the Treasury also will be continuing on the path it set upon late in 2008.

3. Inflation is starting to look overdue, which increases the chance that it's not too far away. The effects of money creation don't follow a tight schedule – moving more like a jitney than a metronome. But on average, a burst of money creation will have its peak effect on economic activity 9 to 18 months later, and the peak effect on price inflation may not show up until a year after that. It's now two and one-quarter years since the monetary burst began.

4. The stock market has been doing what it usually does before economic activity starts picking up – it's been rising.

Does this add up to a sure thing of rising yields and falling prices for Treasuries in 2011? No. But it does stack the deck, which is all a speculator can ask for.

How It Might Look

If a rise in T-bond rates is what lies in the near future, there are three ways it might play out.

The first is a gradual but persistent rise. As the economy recovers, so does the demand for loans, so interest rates on all types of credit instruments, including T-bonds, also rise. And as the fears of 2008 and 2009 become more distant, the public leans more and more toward spending the excess cash the Federal Reserve has created, so inflation picks up. And keeps picking up. So interest rates keep rising.

The second possible pattern is a sudden jump in interest rates as investors seek to dump dollar-denominated bonds. The triggering event might be a new war that guarantees even bigger federal deficits or an announcement from the Federal Reserve that it is considering QE3. As we've seen with the serial sovereign debt crises in Europe, a flutter from any not-so-white swan can set things off.

And, of course, the rise in interest rates could begin with the first pattern and then jump into the second.

How It Might Be Interrupted

The dollar is still the world's currency, the U.S. Treasury still looks like the world's most reliable sovereign borrower, and by the standards of most of the world, the U.S. still looks like a haven of stability. So any troubles outside the U.S. that didn't directly threaten the U.S. would bring flight-to-safety buying, which would temporarily depress T-bond rates. Or an actual default by Greece or any of the other popular candidates for sovereign bankruptcy would, for a while, reverse the rise in Treasury bond yields. A major war that the U.S. stayed out of (if you can imagine such a thing) would have the same effect.

Any such setback for short-sellers of Treasury bonds would be short-lived. The reason for expecting a rise in rates isn't the events that lie ahead. It is the money creation and the deficits that have already occurred.

How to Place Your Bet

The most efficient and reliable way to speculate on rising interest rates is something most investors don't want to do – use the futures market. If you do take that route, I suggest shorting the 10-year T-bond. That's the maturity the Federal Reserve is targeting with QE2. There is no better way to boost your odds than to short the bond whose price the government is trying to support. The fire-and-forget strategy would be to deposit sufficient margin (as required by the particular broker you trade through) to keep your position open even if the rate on the 10-year bond falls back to 2.4% – which is the low since 2007. That's the simple and cautious approach. It would limit your leverage, but it also might improve your sleep patterns.

The more convenient way to speculate on rising interest rates is to use the Rising Rates Opportunity 10 ProFund, which is a mutual fund that tries to emulate a non-leveraged short position in Treasury bonds. Such funds have an unavoidable shortcoming: maintaining a 100% short position in anything isn't easy when capital is flowing into or out of the fund every day. This may make an investment in fund shares more profitable or less profitable than a short position in the futures market that you establish for yourself. It adds another element of uncertainty, like play in a steering system. That's a flaw, but for an unleveraged fund, I wouldn't rate it as a disqualifying flaw since, as I want to make unmistakable, we're talking about a speculation.
----
[Terry Coxon is a contributing editor to The Casey Report, Casey Research’s flagship advisory for big-picture investing. For a very limited time, you can now get one full year of The Casey Report for only $98 – that’s 72% off the regular price. Sign up risk-free, with our 3-month money-back guarantee. But hurry, this offer ends soon… details here.]




Over in the options trading pit, we now have 63 winners out of 65 trades, or a 96.72% success rate If you have any questions regarding these trades please address them through their site where they will be handled quickly and I hope efficiently.

sk chart jan 2011.JPG


The above progress chart is being updated constantly. 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, before we decide to cap membership.

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.
Thursday
Feb102011

Escaping the Great Depression - and Extending the Greater Depression

By Doug Casey,  The Casey Report

Here at Casey Research, our view of the Great Depression of the 1930s is a little different from that of most people. In our eyes, Franklin Roosevelt wasn’t a hero, he was a villain. Nearly everything he did served to extend and deepen the economic downturn.

With the exception of supporting the 21st Amendment for the repeal of Prohibition, Roosevelt’s involvement in the economy was an unmitigated disaster. But in popular memory, that failure is obscured by U.S. success in WW2, over which Roosevelt presided. 

Today, unfortunately, Obama and his minions are taking Roosevelt as a model and are straining to repeat his mistakes. Because the distortions in today’s economy are far greater than those in the 1920s and 1930s, and since the public now relies upon government far more than it did in those days, I don’t see any way around a more serious depression – the Greater Depression. It’s been going on since 2008, will get much worse, and has years left to run.

FDR himself was extraordinarily lucky. His performance looks successful because when he entered office, both the economy and the stock market were overdue for a cyclical recovery (nothing goes straight down forever). He was elected when the depression had already been going on for four years and the stock market had already fallen 90%. That fortunate timing was partly a gift from Hoover, whose large-scale interference in the economy had kept the depression going. (It’s odd how people believe Hoover was the free-marketeer and Roosevelt was the interventionist. Roosevelt really just continued and extended Hoover’s policies, but with more enthusiasm and far better PR.)

Roosevelt had more good luck (for him) with the arrival of WW2; the victories in Europe and the Pacific forever idealized every aspect of his administration. In many ways, the cult of FDR resembles that of Russia’s Joseph Stalin, who is still worshipped there as a demigod.

Although Obama seems bright enough, there’s little reason to believe he’s a student of history and no reason to believe he’s a student of economics. It’s more likely that he’s just a student of power politics, so he’s inclined to follow the conventional wisdom, which is that a combination of Roosevelt’s “bold action” in the New Deal plus World War 2 brought the country out of the Great Depression. What we hope to show here is that those notions are nonsense.   

The Last Depression

How, in fact, did America recover from the Great Depression? The stock answer is: “World War 2.” But a closer look at the data reveals a different answer.

Standard mythology claims that war production – beginning in 1939 – ended our economic troubles. But the American economy didn’t truly recover until two years after the fighting stopped in 1945. In point of fact, the last depression ran from 1929 to 1947, about 18 years.


 
c1.JPG
 
 
And it wasn’t a single terrible decline. As the chart above shows, GDP growth was falling in 1930, recovered from 1932 to 1936, and then began a second collapse in 1937, a down-leg due mostly to Roosevelt’s policies. 

Then, in 1939, industrial production began a tremendous expansion. The unemployed were put to work either fighting or manufacturing armaments. But neither activity contributed to the general standard of living. And even if it had, the growth in production wasn’t and couldn’t have been self-sustaining, since it was in fact a growth in the squandering of resources.
 
The conventions for measuring GDP include government expenditures, so GDP is a poor measure of underlying economic health. The government might, for instance, hire 10 million people to dig ditches during the day, 10 million more to fill them in at night, and 5 million bureaucrats to monitor the work. That would pump up GDP and reduce unemployment, but it wouldn’t increase society’s wealth. It would decrease it.

In any event, as soon as the government’s large wartime expenditures started dropping in 1945, GDP resumed the shrinking that had begun in 1930. 


 
c2
 
The GDP growth of the war years was a prosperity mirage that dissipated when government spending stopped, unlike the wealth-creating expansion from 1932 to 1936 that had been fueled by private investment. In 1936, GDP rose $10.5 billion while government spending rose just $2.2 billion. In 1942, GDP rose $35.2 billion while government spending rose $36.1 billion. The apparent growth during the war was all government spending.

Roosevelt’s Second Act

What caused the recovery to collapse in 1936?

One element was Roosevelt’s attack on the rich. In 1935, he launched a barrage of new taxes, including a corporate income tax of 15%, a dividend tax, higher estate and gift taxes, and additional taxes on those earning more than $50,000. The top rate on individual income taxes rose to 79% in 1936, a large jump from 63% just the previous year.

On top of this, Roosevelt’s rhetoric and actions turned increasingly anti-business. Roosevelt began to strongly support organized labor – which was nice for those who had union cards, but no help for those who didn’t have the connections or skin color to get one, and great harm for the economy as a whole. His support got results. In 1935, there were only 3.8 million union members in the U.S. By 1941, there were about 10 million, approximately a quarter of the workforce.

The 1936 elections gave the country de facto one-party rule – 76 Democrats in the Senate and 331 Democrats in the House of Representatives. Each new piece of legislation berated and punished business – such as the Wagner Act, the ever higher taxing Revenue Acts, and Undistributed Profits Tax. With the government growing larger while business lacked strong representation in the halls of power, it is no wonder that private investment stalled.

Government Versus Private Investment 

Government expenditure as a percentage of GDP drives the point home even more. Throughout World War 2, the private market remained in the dumps.


 
c3.JPG

 
War spending added to the GDP numbers. And there was real progress in areas like aviation, electronics, and atomic energy – albeit at a gigantic cost. But none of this jump-started the private economy, which focuses on the products and services people really want.   

 
c4.JPG
 
You don’t need a doctorate in economics to understand this chart. The only major peak during the war marks the end of hostilities – and FDR’s death. (We’ll get to that in a moment). Note that the 1932-1936 recovery was far more significant than the often-glorified war economy. 

Why didn’t FDR’s immense spending jolt the private market back to life? Remember that a wartime economy comes with strings attached; it’s not free money. Wartime regulations made operating any business almost impossible. Nearly everything required government permission. Taxes skyrocketed, leaving less capital for investment. Further, forget about competing for resources with the war industry; even if you had a good business idea, you wouldn’t be allowed to execute it. 

An economy can’t prosper when markets are being overruled by command-and-control rationing. During the war, companies found it easier and more profitable to produce for government than to produce for consumers. Even companies such as Eastman Kodak, the film and camera company, began manufacturing rifle scopes and hand grenades for the military. GM stopped making cars for civilians and made military vehicles instead. Tires, gasoline, shoes, beef, sugar, coffee and much else were rationed. The standard of living in the U.S. during the war collapsed; conditions for consumers were much worse than in the ‘30s. Remember that the best definition of a depression is: A period of time when most people’s standard of living falls significantly.

Without productive private investment, recovery is impossible. Near the end of the war, as government spending subsided, private investment did return to the U.S. But that never happened in the USSR, China, or Eastern Europe, which is why they never did recover. Lack of private investment is why Britain remained something of a dump right up to the election of Thatcher. Wartime spending didn’t help the recovery, it slowed it.

During the war, a majority of businessmen – typically over 75% – believed the U.S. would retain the fascist-style economic system that it had grown into during the ‘30s and that it seemed to be cemented into by the war. With that thought so widespread, the lack of private investment is no surprise. 

But with the closing of WWII, the fear of being locked into a command-and-control economy began to ease – an unintended consequence of FDR’s wiliness. FDR knew that the business world would cooperate in wartime production only if business leaders were running the show. He slowly began replacing New Dealers in his administration with the businessmen who had been squashed by New Deal policies. The new recruits worked behind the scenes in Washington to undo what the early New Dealers had accomplished. Necessity had overcome ideology.

On top of that, the Democrats were losing their grip on Congress. By 1944, they had only 56 senators and 242 representatives. In 1946, the Republicans regained both houses of Congress.  

And FDR himself died, which left businessmen feeling a lot safer. The long dark night of anti-business tirades and crusades had ended. The Dow made a significant jump, and so did the daily volume on his death.



 
c5.JPG
 
Sure, Truman was still around, but he didn’t have Roosevelt’s dangerous popularity. As a result, private investment flooded the post-war market, and a boom followed. Where did the capital to fuel the post-war boom come from? In a way, it was an accident of wartime policies. 

During the war, the personal savings rate skyrocketed. There were plenty of reasons for that. For one, quality durable goods exempt from wartime rationing were difficult to find even if one wanted to buy them. Second, a big war creates uncertainty. If you’re not sure whether a husband or father will return alive, saving makes sense. The importance of savings in the 1940s is a reason for pessimism about our prospects today: unlike during WW2, today’s savings rate is still negligible. And the artificially low interest rates the government has engineered continue to discourage saving and to encourage consumption, debt, and speculation.



 
c6.JPG

When the war ended, the accumulated savings supported both investing and consumer spending. It’s an experience that refutes the Keynesian notion that consumer spending stimulates the economy and saving suppresses it.

You can’t solve today’s problem of overconsumption and debt with more overconsumption and debt. The conditions that pulled America out of the Great Depression underscore that point. Once savings rates increased and made capital available for the economy, private investment soared, and shortly afterward, so did the rest of the economy.

Although history doesn’t repeat, this time it definitely rhymes. The Obama administration is trying to replay all of Roosevelt’s moves, and it’s making all of FDR’s mistakes in spades and more. The Obama bailouts of public companies are a new twist – even FDR didn’t go that far. The U.S. is already in a war economy. Will Obama ramp up the wars, thinking that what’s been done so far isn’t enough?

The bottom line is that, based on everything we know about the Great Depression, the Greater Depression, which is still in its early stages, is going to be nasty indeed.
----
[Learning from history is only one of the many ways the editors of The Casey Report use to glean what’s in store for the economy – and to discover the best profit opportunities for smart investors. Today is your last chance to get one full year of The Casey Report at our lowest price ever: Only $98… a 72% savings over the regular price. But hurry, this offer ends today at midnight. Details here.]

......................................


Over in the options trading pit we have just closed another winning trade, so we now have 63 winners out of 65 trades, or a 96.92% success rate.


If you have any questions regarding these trades please address them through their site where they will be handled quickly and I hope efficiently.


sk chart Jan 2011.JPG


The above progress chart is being updated constantly. 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, before we decide to cap membership.

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.