By The Gold Report, on December 22nd, 2011
  Junior explorers may be underperforming the gold price this year, but Macquarie Capital Markets Equity Analyst Michael Gray is finding opportunities for mergers and acquisitions within the precious metals space. In this exclusive interview with The Gold Report, Gray and Research Associate Shawn Campbell talk about the technical aspects that are making a number of juniors attractive targets.
The Gold Report: Michael, the companies you cover read like a who’s who of junior precious metals explorers. But with the junior explorers vastly underperforming the gold price this year, how are you pitching these equities to your institutional clients?
Michael Gray: Other than the strong mergers and acquisitions (M&A) thesis for the majority of our coverage list, we’ve also highlighted to clients what we would call game-changing exploration upside that a number of our stocks are exposed to. One example would be Extorre Gold Mines Ltd. (XG:TSX; XG:NYSE.A; E1R:Fkft), an explorer in Santa Cruz, Argentina, which we initiated coverage on in March 2011. At that point, it was trading at $5.09/share. We had a $9.50/share target. It ran to $14/share during the summertime based on its April 2011 Zoe vein discovery at Cerro Moro. Currently, it trades around $7.50/share.
We also believe there’s a strong investor appetite for high-grade, high-margin situations with relatively near-term production associated with low capital costs and short permitting timelines. That’s really reflected in Goldcorp Inc. (G:TSX; GG:NYSE) acquisition of Andean Resources Inc. last year.
Finally, there is significant optionality associated with a number of our stocks that have large gold resources in this gold price environment.
TGR: Your target prices for precious metals explorers are predicated on prevailing forward-curve prices. That is a less than an ideal method given that it doesn’t take into account tightness or weakness in the market, interest rates or inflation-adjusted values. What are your thoughts on that?
MG: It is difficult to accurately predict gold price over the next year, let alone the next five years. We use the forward curve for precious metals adjusted about every quarter on an as-needed basis for our valuations. For the past seven years, we have found it to be a very good predictor of realized future spot prices for gold.
TGR: You recently revised your long-term gold metal price assumptions for five years. In 2017, you’re projecting a gold price of $1,837/ounce (oz) up from $1,714/oz, while your long-term price for silver is $33.42/oz up from $28.97/oz. Do you believe your price projections are aggressive in comparison with other brokerage houses?
MG: Our valuation philosophy is to use a flat 5% discount rate and the prevailing forward curve for long-term prices for gold, silver and foreign exchange. We then apply an operating multiple to the net asset value (NAV) that is less than one times NAV, whereas some banks may use a lower price deck and a different discount rate, but a multiple to NAV that is greater than one times. In the end, the entire valuation picture needs to be looked at to assess aggressiveness. We believe we’re middle of the road.
TGR: What’s your typical multiple to NAV?
MG: Among our explorers, we have a range of 0.35 to 0.85x NAV. Our high-end NAV multiples are associated with companies with high-quality assets that we see as potential takeover candidates like Extorre.
TGR: Extorre and ATAC Resources Ltd. (ATC:TSX.V) have solid potential to be involved in M&A activity in 2012, according to your reports.
MG: Extorre’s Cerro Moro project has Measured, Indicated and Inferred resources of 2.4 million ounces (Moz) gold equivalent (Au eq) that, according to its recent scoping study, are both mineable via open-pit and underground methods. We model Cerro Moro’s high-grade silver resources to have -$1,045 cash operating costs on a silver byproduct basis. This is one of the best high-grade projects out there in our view.
TGR: The Argentinean government recently issued a decree requiring the repatriation of sales proceeds for mining companies in Argentina that could impact a project like Cerro Moro. Has the way that you valued the company changed as a result of those government measures?
Shawn Campbell: We looked at that decree when it came out and the stocks definitely had an initial reaction to it. The explorers and producers, such as Barrick Gold Corp. (ABX:TSX; ABX:NYSE), have all been consistent in saying that they believe the effect of this is an additional cost of 1–2% based on revenue. The mechanics are that companies will have to convert, or repatriate, sales into pesos, but the current system allows them to transfer it back into the U.S. and then send the money abroad. We did a sensitivity study on Extorre and it had minimal effect on our target price and net asset value.
TGR: How big can Extorre’s Cerro Moro get in terms of total ounces in the ground?
MG: The analogy we draw is to AngloGold Ashanti Ltd. (AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE) vein field at its Cerro Vanguardia gold-silver mine, which has been operating since the late ’90s. Currently, it’s 9 Moz gold in past-production current resources. We hosted a conference in Toronto recently where one of the representatives from Formicruz, who formerly worked with AngloGold Ashanti, suggested that he wouldn’t be surprised if that district will ultimately see more than 12 Moz of gold produced. Extorre’s Cerro Moro project is basically an array of veins in the early stages of exploration that have a number of similarities with Cerro Vanguardia. It already has 2.4 Moz Au eq in resources. We feel comfortable that Cerro Moro could ultimately grow to a +5 Moz number in its life. We currently value Cerro Moro based on 2.7 Moz Au eq.
TGR: Who are the likely suitors?
MG: Companies that have expressed interest in that region certainly are potential suitors. If the production profile can reach the right critical mass, companies such as Eldorado Gold Corp. (ELD:TSX; EGO:NYSE) would be interested, given it had bid for Andean before. Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE) and Goldcorp, companies with operations down in Argentina that are interested in a high-grade production of a certain size, could also be interested. We also think given that it has high silver content—roughly 50% of the value—some of the midtier silver producers could also be interested.
TGR: Why is ATAC amongst the top group of Macquarie’s list of M&A candidates given that you just cut the 12-month target price to $8.50/share from $11/share?
MG: ATAC is an early call. This is a sediment-hosted gold geological setting similar to Nevada’s Carlin trend. It has all the right signs and signals in terms of geological environment and early success in drill holes from September 2010 documented ore-grade gold mineralization over significant thicknesses. Although our Carlin thesis is intact as far as we’re concerned, it’s clear that the geological risk for defining large resources in the short term has increased due to the high degree of structural control versus lithological controls. We moved our target price down to reflect this geological risk.
We have a strong conviction that the geology associated with the Rackla gold belt is the type of hunting grounds that the seniors have been looking for, but generally haven’t found on a worldwide basis outside of Nevada, and that given the strong geological similarities the Rackla gold belt has good potential for hosting such Carlin-type gold deposit. There are very few tier-one (+20 Moz) opportunities in the world and, with the right amount of success and given its enormous 100%-owned land position, ATAC could be an attractive takeover target.
TGR: Is it any closer to proving the theory that this is a Carlin-style mineralization?
MG: With the empirical evidence of the geological setting, the mineralization style, the signature of elements—antimony, arsenic, mercury, thallium, gold, low silver—and numerous characteristic alteration features, there are not too many people out there who necessarily would disagree with that deposit-type analog. The deposit type is important as it suggests that the potential endowment could be very large given the northern part of the Carlin trend alone has 100 Moz of gold. We’re not necessarily saying that would be the endowment within the Rackla gold belt; however, we certainly see evidence of a big system in place between the Osiris targets, where there’s been a significant amount of drilling, and out 26 kilometers (km) to the west to the Pyramid gold prospect, which also has a number of the indicative geological features. Again, ATAC is an early takeover candidate in our view partly because of the rarity of this type of geology and potential.
TGR: Is there a first-mover advantage in terms of a major coming in early and locking up this belt once it has proven there are significant amounts of gold there?
MG: Some of the senior mining companies have been spending up to $50 million (M)/year on their greenfield worldwide budgets, looking for another Carlin trend or similar tier-one asset. It doesn’t take too many years of spending that amount of money to justify moving early on an asset like this at the right price.
There is no question: ATAC’s Rackla gold belt is still at a very early exploration stage and no resources have been documented. There is also a very short field season in the Yukon to contend with, especially in this particular area, so it certainly would be early and aggressive for a senior to be doing anything right now. This said, it’s a very special situation as there’s just not very many of these Carlin-type environments, especially associated with a large land position, 100% ownership and no royalties, anywhere on a worldwide basis.
TGR: Strategic Metals Ltd. (SMD:TSX.V) is developing the Midas Touch project in the Yukon, south of ATAC Resources’ Osiris discovery. Why is ATAC a takeover target and not Strategic?
MG: Strategic is a potential takeover target. However, its Midas Touch project has not yet documented a discovery drill hole with significant gold grades over a significant length, so ATAC is more likely given that it has confirmed significant gold mineralization. That said, Strategic has documented a fairly extensive +400-meter (m) long zone of arsenic mineralization on its Crag property, which seems to be in the right type of trap rocks (as ATAC’s Osiris targets). Strategic also owns about 9% of ATAC, and its Midas Touch land position is very large and could be a compelling way to gain exposure to the Rackla gold belt in the Yukon.
TGR: International Tower Hill Mines Ltd.’s (ITH:TSX; THM:NYSE.A) Livengood project in Alaska, based on $1,400/oz gold and a cutout grade of 0.22 grams/ton (g/t), has 16.5 Moz of Measured and Indicated resources and 4.1 Moz of Inferred resources. Are we ever going to see a project of that scale developed in Alaska? There are certainly a couple there now that don’t seem to be much closer to development.
MG: Livengood is a tier-one, +20 Moz gold asset, owned 100% by a junior, which is relatively rare. We currently model Livengood using a 0.35 g/t cutoff, a little bit of a higher grade, with life-of-mine grades of 0.65 g/t gold and include a starter pit in the first four years of 0.82 g/t gold. In September 2011, International Tower Hill released a large mill preliminary economic assessment (PEA), which contemplates a 91,000 ton/day (tpd) milling operation with life-of-mine average gold production of 607,000 oz per year. It is a large, low-grade mine proposition in Alaska. Livengood’s key attractive feature compared to some of the other larger development projects is its good infrastructure as it is located on a highway 100km north of Fairbanks along with access to power and water.
TGR: Donlin Creek has 50 Moz and it’s not anywhere close to being developed. Northern Dynasty Minerals Ltd.’s (NDM:TSX; NAK:NYSE.A) Pebble project is about 100 Moz and that’s not very close to being developed either. It does seem that even though the ounces are there and the geology is prospective, they’re not being developed. What is the impediment?
MG: For some of the other projects, there are significant infrastructure challenges. There aren’t necessarily roads or any power infrastructure to these sites. Northern Dynasty also has some stakeholder groups not embracing the project.
Livengood is a brownfield site from former placer mining and it’s next to the Alaska pipeline. It doesn’t have a significant stakeholder group that would be opposing the project. There aren’t obvious challenges in our view when it comes to community relations, First Nations issues or competing interests.
TGR: Rainy River Resources Ltd. (RR:TSX.V) just made a nickel-copper-cobalt discovery at its Rainy River gold project in northwestern Ontario. What do you know about that project?
MG: The Rainy River gold project is part of a new Canadian gold belt. It has more than 6 Moz gold in its global Measured, Indicated and Inferred resources. It’s 100% owned and associated with a large land position—all attributes we like. A recent scoping study documented a combined open-pit/underground mine scenario that would produce 325,000 oz/year over about a 13-year mine life. The economic study estimated initial capital costs and sustaining capital of about $1.5 billion. It resulted in a pretax internal rate of return (IRR) of just less than 20% and a net present value (NPV) of $786,000 using a 5% discount rate. This project has come into greater visibility with this study.
It’s extremely well located near the U.S. border in northwestern Ontario. The capital expenditure estimated in the PEA at $1.4B for initial and sustaining capital is higher than we expected. It is modeled as a 30 t/d operation. It will have a higher than average strip ratio to deal with and have overburden and water management issues to deal with, but certainly is a project that can be permitted. As far as the nickel-copper-cobalt discovery, it’s not important to our valuation of Rainy River at this time as we interpret it to be relatively small with limited size potential.
TGR: It would just be a bonus at best. That IRR is fairly low and a lot can go wrong when bringing a project into production. What does Rainy River have to do to get that IRR up around the 30% range?
MG: It does have a pending resource announcement in January, which would include the majority of the drilling it conducted this year. Analysts are looking at that for visibility on conversion ratios to Measured and Indicated categories and if there is an improvement in the average grades. On a conference call in November when it released the study, it indicated a 10% change in grade had a +30% impact on project NPV. This is a grade-sensitive project and this is the first so-called economic snapshot of the deposit. That pretax IRR of 19%, given the capital costs, needs to be improved for this to become robust.
TGR: Brett Resources Inc. (BBR:TSX.V), which had about 5 Moz in the same area of northwestern Ontario, was bought by Osisko Mining a couple of years ago. Is that the thesis here, too?
MG: Rainy River is on a path where it has to derisk the project vis-à-vis permitting and economic studies to make it a compelling takeover target. It probably is in the gun sights given its size, but at this time, the economic visibility is really going to depend on that resource estimation that’s coming up and the ability to optimize a number of the parameters.
TGR: Heading further south still, Midas Gold Corp. (MAX:TSX) has a 100% interest in the Yellow Pine mining district in Valley County, Idaho, and already has outlined about 6 Moz there. Why haven’t more people heard of this story?
MG: The company just completed its initial public offering (IPO) in July, so it is still a new story. However, its Golden Meadows project, at 5.8 Moz Indicated and Inferred, is probably the largest gold resource in an IPO that we’re aware of.
TGR: What’s ahead for Midas?
MG: There are three resources on the property that have come in through the consolidation of this district. The relatively straightforward increase in resources will involve near-pit expansion, so sketching in the resources lateral and to depth of the existing three deposits, as well as the infill drilling to increase the confidence in the resource categories. Subsequent to that, there is very high potential to expand mineralization along strike of the three deposits. Following that, there are a number of new targets that have never been assessed to depth. A number of the targets on the property were assessed only for oxide gold mineralization. There’s great sulfide-associated gold potential to depth on a number of the targets throughout the property.
TGR: What’s the permitting regime like in Idaho?
MG: Idaho permitting has a bit of a reputation for taking a long time, but it’s a very clear and harmonized process between the state and the federal government. Given that there are a number of examples of successful mines having been permitted in Idaho over the last 15 years, including a number of expansions, if you propose the project effectively and it does not have fatal flaws, our understanding is that eventually the projects get permitted.
TGR: In Guatemala, Tahoe Resources Inc. (THO:TSX) is developing the massive Escobal silver project with roughly a 20-year mine life. But Tahoe needs to convert its exploration license into a mining exploitation license. Will that prove difficult?
MG: In October, Tahoe received its environmental impact statement approval and is able to proceed with construction of a mine. That is a major derisking milestone. It signals that it’s likely we’ll see conversion of its current exploration license to a mining exploitation license. The timing is really going to depend on when the new mining laws are passed by Congress. Guatemala has a new president who will be inaugurated in January. We’re likely looking at the new mining laws being passed after May 2012.
We model Tahoe’s +300 Moz Escobal silver-lead-zinc-gold project at 13 Moz silver/year over a 20-year mine life, including 19 Moz over the first five years, with cash operating costs of about $5.05/oz silver net of byproduct credits.
TGR: How do you account in your valuation for the risks associated with the new mining law coming into effect, and that this is a one-asset company developing a mine in a developing country over the long term?
MG: We try to reflect that as a balance between the world-class nature of Tahoe’s Escobal asset being rare, really part of an emerging silver vein district, and with the political risk. In this type of situation, we incorporate that political risk in our multiple to NAV until we see events unfold otherwise. Goldcorp has been operating the Marlin gold mine in northeast Guatemala for a number of years, which essentially gives us confidence that Escobal will become a mine. If the political situation doesn’t deteriorate, then we’re comfortable with our risk multiple. That said, we appreciate that Guatemala is a country that is moderate to high risk.
TGR: Would you say the management at Tahoe is the kind of management you would want in this situation?
MG: Chief Executive Officer Kevin McArthur and a number of the executives at Tahoe have extensive experience in Guatemala. It makes a difference having a team that’s operated in a country and has that type of development experience. Our understanding is that McArthur is focused on building Escobal, getting it into commercial production, and then may look to build a multi-asset silver company from there.
TGR: In Brazil, Colossus Minerals Inc. (CSI:TSX) plans to bring the high-grade Serra Pelada gold-platinum-palladium (Au-Pt-Pd) project into production and appears to have enough cash to do so. But there could be some problems with Serra Pelada’s metallurgy and some of the ground conditions in the past-producing pit there. Could you tell us about those issues?
MG: Colossus’ 75%-owned Serra Pelada Au-Pt-Pd project, in Para State, Brazil, is one of the highest-grade precious metal deposits on the planet. We conducted a site visit to Serra Pelada in mid-October. On metallurgy, the flow sheet for a conventional gravity recovery plant appears to be in place and would recover about 95% of the gold. Construction for that gravity plant is scheduled to start this quarter. For platinum and palladium metallurgy, the company has been working on the optimal flow sheet, which may involve calcining to burn off the carbon. This metallurgical work is still in progress and will rely on the evaluation of the bulk sample to be collected in the second half of 2012. We’re currently modeling 65% recovery of the platinum and palladium.
As for ground conditions, the decline development for exploration and ultimate extraction of the Central Mineralized zone at Serra Pelada is lateral to the historic pit and initially used road headers, but the poor ground conditions eventually dictated that conventional drill and blast would be required and be more effective. As of early November, the decline was at about 600m and it involved shotcreting the walls followed by rock bolting and screening, then shotcreting again and locally strapping with steel. If advance rates of 4m/day can be achieved, then bulk sample extraction location should be reached toward the middle of 2012. We also expect the ultra-high-grade Au-Pt-Pd mineralization to have challenging ground conditions given the carbonaceous host rocks.
TGR: There have been some changes in management there. Tell us about that.
MG: There have been a number of changes starting with, most recently, Ari Sussman becoming chairman of the board. He was the chief executive of two companies and now he’s focused just on Continental Gold Ltd. (CNL:TSX). Claudio Mancuso was the chief financial officer and now is the chief executive. He will be able to focus all his energies on leading the company. There were certainly a lot of other management changes between Q211 and Q311 when the chief operating officer left. Colossus has hired Paulo de Tarso Serpa Fagundes as its new COO, who previously worked with Yamana as the general manager for its Mercedes Mine in Mexico.
TGR: Doesn’t that make you raise an eyebrow or two at the same time?
MG: Having been on the ground in mid-October, it was a chance for us to meet the entire team and gain an appreciation for its skill set and ability to work together. We were satisfied that the current team is prepared for the challenges that lie ahead associated with the project. This said, the technical risks associated with the project are still not quantified at this time.
TGR: Do you have any parting thoughts on investing in the precious metals explorer space or words of wisdom?
MG: I like the expression Good people do good things with a good capital structure as it certainly applies to the precious metal exploration business where projects come and go. My main comment is that to be successful at picking the winners among the precious metal explorers, especially the early-stage ones, it’s really important to reduce geological risk by looking at the right geology and focusing on high-quality assets. More often than not, they tend to be associated with technically superior management teams that are extremely persistent.
TGR: Thanks for your time.
Michael Gray is a mining equity analyst with Macquarie Capital Markets and covers a range of precious metal explorers and producers with an emphasis on North and South America. He is an exploration geologist and holds a Bachelor of Science in geology from the University of British Columbia and a Master of Science in economic geology from Laurentian University. His career of over 25 years in the mineral exploration business started with senior mining companies including Falconbridge, Lac Minerals, Cominco and Minnova where he worked throughout Canada and the USA. He co-founded Rubicon Minerals in 1996 and helped navigate the company through a series of joint ventures and an asset portfolio build that was eventually centered on the Red Lake gold district, Canada. During this period, Gray was president of the 5,000 member B.C. & Yukon Chamber of Mines for one year and on the executive committee for six years. Gray then joined the mining analyst world in 2005 where he brought to bear his technical skills to identify new precious metal opportunities at an early stage with outstanding exploration potential; he has covered a number of these opportunities that were subsequently taken over by gold producers.
Shawn Campbell is a mining equity associate with Macquarie Capital Markets and supports the analyst covering a range of precious metal explorers and producers with an emphasis on North and South America. Prior to being an associate, Campbell was an auditor with Deloitte for six years where he held key roles in auditing large public mining companies. He has a Bachelor of Commerce degree from the University of Victoria and is a CFA charterholder.
By Simon Grey, on December 22nd, 2011
So what are the best bets when buying student debt? Technical schools. Students pay the least for their education with the potential to make good money after graduation in only a couple of years.
By that arithmetic, technical colleges come out on top, Mr. [Daniel] Ades said. “We’re in a skills based economy and what we need is more computer programmers, more [nurses],” he said. “It’s less glamorous but it’s what we need.”
Meanwhile the nation’s law schools continue to over-supply the nation with lawyers. Law students are borrowing an average of $68,827 at state schools and $106,249 a private schools only to add to the glut of barristers.
In what must undoubtedly be a shock to humanities majors, people who are actually know how to do useful things are in position to make money after they graduate. Imagine that.
Of course nurses and programmers are going to be in a position to make good money, mostly because people want to not be sick, maim, or injured, and they also like to be able to use electronic gadgets. Hence the reason why students who graduate from technical schools with degrees in nursing and programming are in a better position to be employed than, say, an English major. As fascinating as Faulkner undoubtedly is, being able to expound upon his work at length is not something many consumers really want to pay for.
As such, it should no surprise that people who learn actual, useful skills in college are in a better to make money than those who majored in something that is considerably less practical.
By Bron Suchecki, on December 22nd, 2011
Digital Gold Currency Magazine is reporting that GoldMoney is suspending the ability to make and receive payments in precious metals to or from other GoldMoney customers due to the “global increase of compliance requirements for payment service providers.”
This capability was the key differentiator of GoldMoney to other online precious metal storage businesses. It is an unfortunate development for gold standard advocates.
The decision was not entirely driven by increased regulations as GoldMoney also indicate that “our customers’ use of the metal payments and currency exchange services is not significant.” Looks like a case of disporportionate compliance effort for GoldMoney on something that didn’t drive business.
Interesting then that customers have voted and said they aren’t really interested in gold as money. Possibly this may change if those customers are faced with high inflation or banking system instability, but it will be hard for GoldMoney to restart the functionality and catch up with any regulatory requirements in place at the time (assuming there is any regulatory tolerance for alternative payment systems at that time).
Freegold anyone? 
By B.P.T., on December 22nd, 2011
At 8:30 AM Eastern time, the U.S. government will release its weekly Jobless Claims report. The consensus is that there were 380,000 new jobless claims last week, which would would be 14,000 more than the previous week.
Also at 8:30 AM Eastern time, the final GDP report for the third quarter of 2011 will be announced. The consensus is an increase of 2.0% in real GDP and an increase of 2.5% in the GDP price index. The real GDP estimate is the same as the preliminary value for the third quarter of 2011, and the GDP price index is the same.
Also at 8:30 AM Eastern time, the Chicago Fed National Activity Index for November will be released, providing an update on economic activity and inflationary pressure in the United States.
Also at 8:30 AM Eastern time, the monthly Corporate Profits report from the Bureau of Economic Analysis will be released.
At 9:45 AM Eastern time, the weekly Bloomberg Consumer Comfort Index will be released, providing an update on Americans’ views of the U.S. economy, their personal finances and the buying climate.
At 9:55 AM Eastern time, Consumer Sentiment for the second half of December will be announced. The consensus is that the index will be at 68.0, which would be an increase of 0.3 points from the level reported in the first half of the month.
At 10:00 AM Eastern time, the FHFA House Price Index for October will be released, providing more information about the direction of the housing market.
Also at 10:00 AM Eastern time, the Leading Indicators for November will be released, and the consensus is that there was an increase of 0.3% from the previous month.
At 10:30 AM Eastern time, the weekly Energy Information Administration Natural Gas Report will be released, giving an update on natural gas inventories in the United States.
At 4:30 PM Eastern time, the Federal Reserve will release its Money Supply report, showing the amount of liquidity available in the U.S. economy.
Also at 4:30 PM Eastern time, the Federal Reserve will release its Balance Sheet report, showing the amount of liquidity the Fed has injected into the economy by adding or removing reserves.
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By Bron Suchecki, on December 21st, 2011
A couple of weeks ago FOFOA made the following statement:
Do you remember the stories about HSBC clearing out space in their vaults, or JP Morgan building new vaults? What could be the explanation for this if the aggregate gold stock is so stable? Then it occurred to me that unallocated storage is much more space-efficient because the gold sits stacked on pallets. Allocated gold often gets put into cubby holes to assist in recordkeeping. That takes up much more space. So the process of allocation after many decades of non-allocation requires an expansion of vault space. This is how I now interpret these stories.
I left a comment suggesting other reasons for new vaults:
1. Investment’s share of demand vs jewellery/industry is much higher now compared to past, thus more going into vaults rather than around necks.
2. ETFs and others (eg Goldmoney) share of investment demand vs coin/bar is greater compared to past, thus more going into vaults rather than backyards.
3. Industry consolidation during gold bear market meant vault closures and thus increase in utilisation of remaining vaults, leaving less spare capacity to absorb above factors before new vaults were needed.
Just to clarify that last point, say there were 10 vaults with capacity of 100oz but each was only holding 60oz. Total spare capacity is 400oz. Then you have 3 vaults close during gold’s bear market and metal is moved into the remaining 7 vaults. You now have 600oz in 7 vaults, leaving only spare capacity of 100oz.
Another point is that allocated metal is not “often gets put into cubby holes”. Allocated does not rely on physical segregation by client. For example, you can have a pallet of 32 x 400oz bars with 32 owners of each specific bar number on that pallet. My guess is that except for all but the most paranoid client (mostly likely central banks), most allocated at bullion banks is held this way, rather than piles segregated by client.
I also forgot to mention that my guess is that the amount of physical supporting unallocated metal accounts with bullion banks has increased, that is the fractionalisation has declined. This puts further pressure on vault capacity.
Evidence for this is that whereas unallocated accounts were free a number of years ago, there is now a small fee on unallocated. My guess is that the physical turnover/redemptions have increased in line with a more busy gold market and thus bullion banks have needed to hold more physical to back their unallocated to deal with day to day fluctuations.
Of course it could just be the banks going for a fee grab if they felt their clients would just accept it.
And while I’m doing posts on my comments on FOFOA’s blog, here is another for those who don’t follow the FOFOA blog comments closely – and I can understand that considering some posts get 400+ comments (link here):
Re 1) [major refiners would start posting their own price for physical gold, having their own auctions, making the trading volume public], that is what the Perth Mint already does. The 5 tonne or so per week we refine is currently auctioned. Settlement can be full cash, but mostly is done in London paper gold plus a cash premium. I just watch this premium, it will tell me when paper gold has really disconnected.
BTW, miners sell their metal to us either for cash or swap for paper gold (which they then on trade).
The system will break when miners find few willing to take their paper gold or the price offered is much lower than what we will pay. And in that situation we will always be after to better the offers they get because we are getting better prices for the real physical at the other end.
Because the Perth Mint stands as intermediary between physical buyer and physical seller, the miner is always informed as to the real price of gold.
We are not reliant on the London market to tell us the price, we make a Perth price every day. However currently London is a convenient settlement mechanism for us the miners and the buyers, but it is just to help the flow. 
By The Energy Report, on December 21st, 2011
 With resource stocks extraordinarily cheap, 321energy.com Founder Bob Moriarty calls them “an opportunity of a lifetime,” in this exclusive interview with The Energy Report. However, investors need to steer clear of the dangers of derivatives. Moriarty explains how the hypothecation hobgoblins associated with these instruments can sneak up on investors and zero out accounts in a flash.
The Energy Report: Peak oil has returned as a popular topic of conversation, and you’ve been talking about it for some time. Are we really in the era of peak oil, with oil production diminishing? Or do we just lack cheap oil?
Bob Moriarty: It’s both. We’ve reached the peak of oil production, which doesn’t mean we’re going to run out of oil, but we’ve run out of cheap oil. When the Saudi oil fields opened in the 1940s and 1950s, their return on investment was $350 per barrel. When OPEC formed in 1959, they were profitable selling Saudi oil at $0.10 a barrel. The cheap, high-grade, high-quality oil is all gone now, and the days of finding giant oil fields with high-grade oil that was relatively inexpensive —such as Ghawar in Saudi Arabia and the Cantarell off Mexico—are gone. They’re history.
With the resources in the tar sands of Canada, we’re going to have oil for another 100 years of production, but it’s very expensive. It’s very dirty, with a number of political issues in focus, such as the Keystone XL pipeline to the United States. Production will be problematic.
TER: Besides the tar sands, oil appears to be available offshore both in North and South America.
BM: Yes, but these projects carry ferociously expensive costs. Some of the wells BP was drilling a year and a half ago, going 25,000 feet (ft) deep, cost hundreds of millions of dollars each.
TER: You mentioned that the Canadian tar sands probably hold enough oil—albeit expensive to extract and dirty—to last 100 years. Meanwhile, the U.S. sits atop some major natural gas fields, and natural gas is unbelievably cheap right now. Why aren’t oil-powered vehicles and other machines being converted to run on natural gas?
BM: Natural gas is handy for some things. It’s used in a lot of power generation. It’s very valuable to replace heat or coal or diesel. But you couldn’t power an aircraft with natural gas under any circumstances; it simply wouldn’t work.
Gasoline and oil are very portable and very cheap. You can go to the hardware store, buy an inexpensive container and carry around five gallons of oil or gasoline. To get the same amount of energy from natural gas probably would cost $1,000 for a container. All kinds of technical and temperature issues make natural gas ineffective as a portable energy source.
TER: So if natural gas is not the solution, we’re stuck with the more expensive alternatives. And if it’s dirty and expensive, what are the economic implications of getting oil from the Canadian tar sands to the U.S.?
BM: Dirty is expensive. And when you start talking about getting the oils from the tar sands to the United States, which is the major market, you run into all kinds of issues. Politicians and lobbyists will spend years delaying the pipeline until their personal agendas are satisfied.
TER: Senator Mitch McConnell called the Keystone XL Pipeline, which is proposed to carry tar sands oil from Canada down through the U.S. to Texas for processing, the single greatest “shovel-ready” project in America. He said it’s ready to go, but Obama doesn’t want to deal with it until after the 2012 elections. In an era when we need oil and people need jobs so badly, why the political slowdown?
BM: Every organization and every government official has an agenda, and not necessarily your agenda. You and I may want the tar sands oil as soon as possible and as cheap as possible. Obama has his own agenda—to get reelected.
TER: There also have been discussions about building a pipeline across Canada to bring it to Vancouver and potentially ship it to China. In terms of an investment opportunity, what does that mean for the tar sands oil producers?
BM: There will be a lot of investment opportunities. The question is when. The longer the transportation issue—a pipeline—is delayed, the more expensive it will be to operate and lower the return on the investment will be. Ultimately, though, I think there’s a good chance that Canada will decide that China and Japan and Asia are better, more dependable markets than the United States.
TER: Over what timeframe do you suppose that pipeline will be built?
BM: We are facing some pretty serious economic issues right now. Should we go into a depression soon, which is my belief, the decrease in energy demand could kill this project and others for years.
TER: But your writings suggest that you’re interested in some Canada-based energy companies based on what you consider their good potential for return. Don’t these companies face the same margin squeeze with the prospect of higher transportation costs?
BM: Not at all. The tar sands are in a pretty inaccessible part of Canada. The junior companies I deal with have access to pipelines, refineries and major markets, so it’ won’t affect them.
TER: Would demand come to them first as lower-cost producers, and help their profit pictures?
BM: Of course. It would be a very good thing for them. Everything that’s bad for one group is good for another.
TER: What are some other companies with good prospects?
BM: Two juniors I’d like to talk about are doing a really excellent job. A few months ago the stock of Aroway Energy Inc. (ARW:CVE) was $0.32 a share. It’s doubled since then, and it’s another easy double from here. It “should” probably be worth $1–$1.20 a share right now. These guys have done a bang-up job. They’re producing 669 barrels a day at Peace River in Alberta.
TER: Is your analysis of what the stock should be worth just based on Aroway’s current production times the barrel of oil equivalent (boe) price in the marketplace?
BM: Yes. Oil fields are actually relatively homogeneous, so people can know on a daily basis what a barrel in the ground or barrel of production is worth.
TER: What’s the other company you wanted to mention?
BM: Blackdog Resources Ltd. (DOG:TSX.V) just finished a well within the past couple of weeks. Its stock is at $0.40 a share and the company has about 26 million shares, so market cap of about $10 million (M). Based in Calgary, Blackdog could be $1 a share easily.
TER: Aroway has projections to increase production over the next 12-months. Is Blackdog producing yet or just drilling and exploring?
BM: Blackdog is doing exactly the same thing as Aroway, producing and exploring. It’s just a little bit earlier stage. The company is producing something like 150 barrels a day now, but literally has wells coming into production as we speak.
Production is critical, because the world’s financial system is blowing up and counterparty risk is enormous. If you’re not invested in something real, you’re going to wake up and find yourself poor.
TER: Could you expand on that counterparty risk and the concept of investing in something real to minimize investors’ chances of waking up poor?
BM: With the collapse of the major global commodities broker MF Global at the end of October, up to $2.5 billion worth of its customers’ money evaporated. Investors as financially sophisticated as Trends Journal Publisher Gerald Celente went to bed rich and woke up to worthless accounts.
Some very important concepts, hypothecation and re-hypothecation, are involved when it comes to derivatives, which are financial instruments that gain their value from something else. Suppose that you open a commodities account because you expect the price of gold, silver or oil will go up. You deposit $100,000 margin and buy a contract for gold, silver or oil. Let’s say things go wrong because of hypothecation, re-hypothecation and counterparty risk.
Here’s what happens with hypothecation. The broker-dealer usually goes to a bank and borrows money to loan you. But in this scenario you put up twice as much as the margin required, so he doesn’t even loan money to you. Regardless, you are required to sign a statement saying you will allow the broker-dealer to hypothecate the account. This pledges everything in your account to the bank. Broker-dealers borrow money from the bank at, say, 3% and loan it to customers at maybe 6%. That’s how they make money. In this scenario, the problem is that the broker-dealer created a risk for you that never occurred to you. If the broker dealer reneges on the loan, the bank can demand all the assets you have deposited even if they are in your account and you don’t owe anyone anything.
With re-hypothecation, the broker-dealer can take money from a number of customers—let’s say $1B from 10,000 customers—and buy something like Greek one-year bonds that are paying 352% today. The broker-dealer pledges your assets against that bet. That gets really slick, because if the Greek bonds actually pay 352%, he or she pockets that money. But if the bonds blow up—which some people have been predicting for years—you lose all your money.
TER: Is this true on any bank account?
BM: It’s true of any margin account. If you open a margin account with Schwab, put up $1M and buy $500,000 worth of securities, you’re not using margin but you’ve still signed that agreement. You can wake up one morning and find all your money gone.
For years and years I’ve been saying that derivatives of this magnitude are not sustainable in a rational economic system. We have a $64 trillion (T) world economy, and we’re basically up to $708T in derivatives. You cannot have $708T in derivatives unless most of it is fraud.
MF Global was defrauding its customers and its customers didn’t even know it. There could be another 100 MF Globals out there. At the end of the day, a lot of brokerage accounts will blow up and people are going to go to bed rich and wake up poor. The danger today is not buying Aroway or Blackdog and seeing the value of your stock cut in half. The danger is that your broker will blow up.
TER: Is it fraud because investors don’t know about the hypothecation and re-hypothecation? That they don’t know what’s being done with their money?
BM: That’s correct. Literally until weeks before MF Global’s collapse, I think on the books they were showing $70M being used for re-hypothecation when in fact it was $6.5B.
TER: Why such a big gap?
BM: The way they do the books creates that gap. Greece and Italy and Spain got into the EU because JP Morgan and Sachs cooked the books by leaving their assets on the books and moving their liabilities off the books. Jon Corzine moved $6.5B in liabilities off the books and nobody realized they had enormous exposure, and when the financial system in the EU blew up it took $6.5B of MF Globals’ money with it. What’s really scary is that nobody’s in jail is because all of this is perfectly legal—a scam, but a legal scam. If they make money, they keep it; if they lose money, you pay.
TER: This is easy money with no risk for brokers.
BM: Exactly. And the danger is somebody at Schwab or E-Trade or Merrill Lynch or 100 other institutions can go out and do the same thing tomorrow. It’s just as legal. They can speculate on something like Greek bonds paying 352% and some fool will think that’s a good deal.
TER: Wow. That’s a very compelling argument and it certainly underscores your point of buying real assets.
BM: But if you go out and buy shares of Aroway or Blackdog, you may want to get a share certificate in your name in your hands because you can count on some stock brokerage accounts to disappear in the same way the Gerald Celente’s hundreds of thousands of dollars disappeared. You’re at enormous risk if you have a margin account with any kind of a broker.
TER: Do you run the same risk in a non-margined account?
BM: In theory, no; in practice, yes.
TER: And what’s the practice?
BM: The practice is that $708T in derivatives, probably 80% of which is fraud, and nobody but me, Jim Sinclair and maybe Jim Rogers understands the potential risk. In theory, there’s $210T in debt in the world and $150T in assets. I think in practice there’s up to $400T worth of debt and the system is going to blow sky-high. Our financial system is on the precipice of an absolute, total collapse. And it’s going to be catastrophic to the wealth of most people. This is the most serious I have ever been about anything. Derivatives are a giant casino. It’s a crap game. It’s all fraud.
Back in 1997 the head of the U.S. Commodity Futures Trading Commission (CFTC) was extremely concerned at the size of the derivatives market and battled to get regulations in place to control it. The head of JP Morgan, as well as Robert Rubin, who was Treasury Secretary and the head of Goldman Sachs, and Alan Greenspan, chairman of the Federal Reserve, all fought her. She lost. By 2002 derivatives had grown to $100T, and clearly were going to blow the system sky-high. Now—and these numbers are really staggering—the Bank for International Settlements reports that derivatives grew $107T between January and July of this year. That’s 18% in a six-month period, which means derivatives are growing about 40% a year.
TER: Now that you have everybody shaking in their boots, let’s shift gears a bit. One of your articles equated peak energy to peak food. Earlier you reminded us that we’re not about to run out of oil, but cheap oil is a different story. Is it the same with food? That we aren’t going to run out of food, but the days of cheap food are history?
BM: Exactly. And when the cost of food goes up the costs of the additives literally goes down in relative terms. Let me give you a perfect example. It takes 81,000 calories of energy to produce 75,000 calories of energy in the form of ethanol—for a net loss. It has to be subsidized. Regardless of the conditions, production of ethanol is a net loser. The U.S. government has literally been bribed by corn producers and big food companies, doling out subsidies for the production of ethanol that drove corn prices up literally all over the world.
I went to a vegetable market in Guyana, for instance, that was selling four really scrawny ears of corn for $5. That’s a result of these silly practices in the United States. Increases in the prices of corn and wheat throughout the Middle East triggered the Arab Spring. I think three billion people in the world survive on less than $2 a day, so when the cost of food goes up 50%—as it has in the last year—many of those who were marginal before are starving now. That leads to revolutions.
TER: You’ve been big on potash. Because potash in fertilizers helps increase food production per acre, do you think potash is due for another run-up in price?
BM: Potash is a form of energy. Food is a form of energy. To make more food you need more energy and you need more potash. There are enormous potash deposits, basins of sedimentary deposits—basically a variation of salt—that date back tens of millions of years. We know where they are. They’re easy to drill. A lot of people are going to make a lot of money in potash.
You can bet on some things in the short term and others in the long term. I don’t think anyone would conclude the cost of energy is going to go down over the long term, because there are no cheap energy sources. There is no magic bullet. So the cost of food is going to go up.
Real safe investments for 5, 10 or 15 years would be food, potash, water, oil and natural gas. Good shorter-term investments would be anything real—gold, silver, platinum and anything that you can actually hold in your hand.
TER: According to John Williams of ShadowStats, inflation is running around 11% if fuel and food are included. Where’s the upside if you’re looking at investments in potash, oil and such that could play out in five to 10 years and you’re dealing with double-digit inflation?
BM: I love it when something goes down in price. I love it when shoes or socks or coats or boats or airplanes go down in price. I don’t have any particular problem with it when a stock I really like goes down in price, either, because it makes it possible to buy more. So I think the fact that potash is down now in relative terms is wonderful.
TER: So suppose you buy potash on sale at today’s prices. It’s not worth anything unless you can sell it, so when would you expect a return on that investment? Five years?
BM: No, no, soon—three months, six months, a year.
TER: Because your underlying assumption is that the costs of energy and food will go up in the near term, how do you recommend playing the potash market dynamic?
BM: I think any potash company would be a good investment right now.
TER: When we chatted at the Hard Assets Conference in San Francisco you mentioned being intrigued by another potash company in addition to those you’ve been following for some time.
BM: Yes, North American Potash Developments Inc. (NPD:TSX.V; RNGTF:OTCQX; 3OZ:Fkft) just released drilling results this month. It had a 3,450-foot rotary drill and core hole on its Lisbon Valley property in Utah, and reported 15 ft total thickness and 10.4% potash at 2,600 ft deep, which is very good. There were two potash beds; one was 19 ft and one was 24 ft. Two different holes, one was 5 ft at 13%. Those are good results. That’s going to be an interesting story. Because the potash was laid down as water evaporated, it doesn’t take many holes of it to be good.
TER: So this company is basically going after a deep-shaft type of potash versus an open pit?
BM: No. Actually it’s in-situ leaching. The right kind of potash can be leached in place by pumping hot water down, bringing the brine to the surface, spreading it out in big pads to air-dry, and then just harvesting it with scoop loaders. It’s a very cheap way of doing it.
TER: How does that compare to the other companies?
BM: Well, Passport Potash Inc. (PPI:TSX.V; PPRTF:OTCQX) has been doing a lot of drilling and is finally coming out with some results. The issue there is not technical; it’s management and communications. They simply have to release more information. Eventually they’ll start telling the story. I have discussions with management about what they do well and what they do poorly, and what Passport’s done poorly over the last year is communicate.
TER: You said that any potash company would be a good investment right now. What are some more names?
BM: They’re easy to find. Buy the potash companies because they’ve been hammered like gold stocks, silver stocks and other resource stocks. Buy resource stocks, anything in resources—water, energy, food and land. The resource stocks are cheaper in real terms now than they were at the bottoms of the market in both 2001 and 2008. They’re extraordinarily cheap. I think it’s an opportunity of a lifetime.
TER: You’re not the only one to say that. People are talking about precious metals and rare earth metal stocks all being on sale—large ones, juniors, pretty much the whole sector. Would you say the same thing of oil and gas?
BM: Yes. But here’s the deal in terms of the global economy: All these people are swinging at this giant piñata loaded with nitroglycerin. One day soon, somebody’s going to hit the piñata and when that happens, you want your finances under control. I would recommend against having a margin account with any broker under any circumstances right now unless you’re prepared to write off 100% of your investment.
TER: Any other thoughts you’d like to leave with our readers?
BM: We’re at the most dangerous time financially in the world’s history. There are enormous risks. A lot of people are going to lose a lot of money. This is not a time for speculation or borrowing. It’s time to head for the bunker. It’s time to be aware of what’s going on financially. And it’s time to be especially conservative.
Convinced that gold and silver were at their bottoms, and wanting to give others a foundation for investing in resource stocks, Bob and Barb Moriarty brought 321gold.com to the Internet 10 years ago, and later added 321energy.com to cover oil, natural gas, gasoline, coal, solar, wind and nuclear energy. Both sites feature articles, editorial opinions, pricing figures and updates on relevant current events. Before his Internet career, Moriarty was a Marine F 4B pilot and O 1C/G forward air controller with more than 820 missions in Vietnam. A captain at age 22, he was the youngest naval aviator in Vietnam and one of the war’s most highly decorated. He holds 14 international aviation records, and once flew an airplane through the Eiffel Tower’s pillars “just for fun.”
By Simon Grey, on December 21st, 2011
Those advocating a cut in the corporate tax rate today generally ignore the tax on dividends, as well as many other provisions of United States and foreign tax law that may reduce the effective tax rate well below the statutory rate.
A recent study found that only 25 percent of the largest American corporations pay anywhere close to the statutory corporate tax rate of 35 percent on their earnings, while 40 percent pay less than half that rate.
Indeed, General Electric, the nation’s largest corporation, paid no federal corporate taxes in the United States in 2010, according to a report in The New York Times.
The sheer diversity of effective tax rates binding corporations—even though there is only supposed to one rate—suggests that the corporate tax rate is being used as a political tool. This perception is certainly encouraged by GE facing an effective rate of zero. If, as the current evidence suggests, the corporate tax rate is used as a political tool for punishing and rewarding certain corporations, then perhaps abolishing the corporate tax rate would be a good step.
While abolishing the corporate tax would not lead to massive economic growth, it would certainly be a step in the right direction. In the first place, corporations could actually focus on producing things instead of playing pointless political games. Furthermore, government costs could be slightly reduced—the natural result of reduced compliance requirements and the corresponding enforcement costs.
While corporate taxes do not apply to the vast majority of businesses, nor do they account for anything but a minor amount of tax revenue. However, this is no reason to accept an incredibly stupid, highly politicized tax system.
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By B.P.T., on December 21st, 2011
The Mortgage Bankers’ Association purchase index will be released at 7:00 AM Eastern time, providing an update on the quantity of new mortgages and refinancings closed in the last week.
At 10:00 AM Eastern time, the Existing Home Sales report for November will be released. The consensus is that existing homes were sold at an annual rate of 5.08 million last month, which would be an increase of 90,000 from the previous month.
At 10:30 AM Eastern time, the weekly Energy Information Administration Petroleum Status Report will be released, giving investors an update on oil inventories in the United States.
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By Trace Mayer, on December 20th, 2011
Few assets are as volatile as BitCoins have been. Over the past 365 days they have ranged from about $0.05 to over $30. After a solid consolidation BitCoins have now broken out and the next upleg appears to have appeared with a 35% rise in the past 10 days.
BitCoin makes this payment efficiency possible because it is based on cryptographic protocol where its security is grounded in the laws of mathematics not laws of men which may or may not be enforced profitably.
THE BITCOIN RANGE
Back in June 2011 I wrote about how I supposedly missed the trade of the year where I could have “with a completely non-levered investment that would have turned [$5,000] into slightly over $550,000 in 8 months. $550,000 in a completely anonymous account with neither a paper or audit trail nor a 1099 and the asset would have been purchased with $5,000 of physical cash.”
Some say hindsight is 20/20, but I do not think so, because it still takes the gathering, analyzing and understanding of the data before one can get a picture and sense of what has happened. Before there were no data points to use in predicting the sustainability of the unsustainable BitCoin upleg. But this time around we can make slightly more grounded prognostications.
Filtering out the daily noise of the markets is essential if one is going to hone in on the signal. One of my favorite tools to accomplish this is the simple 200 day moving average. Taking into account almost seven months of data it is long enough to filter out daily noise, like the MF-Global or MyBitCoin fiascoes, but still close enough to capture the general trend of long-term secular markets, whether bullish or bearish. To derive a relative price I take the current price divided by the 200 day moving average.
In BitCoins case we now have a tremendous upleg and crash in the history books. An analysis of the data reveals the low end of the relative price is around 0.35x (cheap) while the high end was about 12x (expensive).
To create the organized cryptographic hash required energy which had value in the market.
BITCOINS PROVIDE UTILITY AND ARE VALUED
BitCoins are a decentralized peer to peer digital currency. They are the most efficient and safest form of currency I am aware of. Sure, they have neither the intrinsic value nor depth of volume like gold but they are still harmonious with the regression theorem. To create the organized cryptographic hash required energy which had value in the market just like gold had value in the market for jewelery before it acquired additional value from its utility from moneyness and currency applications.
For example, I was reading a blog which recommended the application Total Finder. Total Finder allows one to open multiple tabs in the Mac Finder which makes dragging, dropping or locating folders and files much easier. It is a feature that should be built into the OS but is not so a creative entrepreneur saw a market need and filled it.
I immediately recognized that this application would save me time and decided to purchase it. The price was $18 and it is available in the Apple store. Then I did a Google search for “Total Finder bitcoin” and found the author’s article Trade Total Finder for BitCoins. As expected there was a discount, 50%. Why is that?
Because the current payment systems are too expensive. Apple takes 30%, the credit cards and processors take 1-7% and require the identity of both the buyer and seller along with sales and income taxes which are much easier to enforce plus your accounts can be arbitrarily frozen like with the Wikileaks banking blockade. By removing all these middlemen moochers and looters from the transaction both parties are better off with a 50% discount in price.
BitCoin makes this payment efficiency possible because it is based on cryptographic protocol where its security is grounded in the laws of mathematics not laws of men which may or may not be enforced profitably.
I think everyone should hold some BitCoins, perhaps at least 0.1% of their net worth, in their portfolio.
BITCOIN VOLUME HAS INCREASED TREMENDOUSLY
The rise in BitCoin’s exchange rate has surprised me. First, BitCoins are currently being inflated at approximately 42% per year. That is quite the increase in the currency supply. Second, early adopters are sure to control tremendous amounts of BitCoins and I would think they would be divesting themselves as the market would bear without sinking the price too drastically and third the BitCoin economy is still in its infancy.
Over the last six months I have watched the average transactions in the public block explorer grow to about $1 million per day. The exchanges have increased their trading volume from about 40,000 coins per day to approximately 200,000 on 19 Dec 2011. With about 8 million BitCoins in circulation there is plenty of volume to provide a bid for any early adopters who decided to disgorge large amounts of coins.
BitCoin is an illusion like the FRN$, Euro or Yen. The market is deep enough that I would place it in the cash portion of your balance sheet. Additionally, if you take the proper steps it is the most portable money ever. For that element of safety and liquidity therefore I think everyone should hold some BitCoins, perhaps at least 0.1% of their net worth, in their portfolio.
CONCLUSION
Watching this breakout and ensuing upleg in BitCoins is going to be exciting. Since the last rally in June there have been real life applications developed from mobile payments to massive online stores with hundreds of thousands of items, entrepreneurs have stepped in to accept BitCoins as payment, the client has been greatly improved, exchange security has been enhanced, with proper privacy hygiene your cryptographic hash is more secure than even a gold coin and more people understand what BitCoins are, how they work and why they want some.
Taking the current price of $4.00, the 200 day moving average of about $8.50 and extrapolating this upleg with a 12x 200dma top we could see a price of around $80.00 per BitCoin. Is this speculative? Yes. Would I bet on seeing $80 per BitCoin by around June or July? Maybe if the odds are around 5%. But I would take a bet for BitCoins to hit $7.50 by June or July at around a 50-70% probability.
So, if you want to buy any Run To Gold products using BitCoins just contact me and we can make a deal with a substantial discount. If you need a place to get any BitCoins then I recommend the Tradehill exchange.
By Simon Grey, on December 20th, 2011
This is what happens when you drop out of econ 101 halfway through:
When you make a few hundred dollars an hour, it costs you more to mow your own lawn than it does just to pay someone to do it for you. Of course, this simple math is something that most of the 99% never get.
This tool has apparently never heard of opportunity costs. It only costs you more to mow your lawn if the alternative would cost more than doing it yourself. Basically, this will only happen if you take (non-paid) time off from work to mow your lawn. If you don’t work on weekends, you can mow your lawn then and your opportunity costs will be zero, in terms of foregone work/pay. Mowing your lawn is only a money-losing proposition if the only way to mow your lawn is foregoing earning a paycheck. This is not something most nine-to-fivers face.
This reminds me of another example that was cited in one of my college classes (econ 195, to be precise). My professor had apparently calculated the net wealth of Bill Gates and determined that he earned approximately $4.8 million per hour (approximately $1,333 per second) and, as such, it would be a waste of his time to pick up a one hundred dollar bill that he happened to pass by on the street. This analysis, like a lot of modern economic analysis, is too clever by half.
Actually, it’s not clever at all. Net wealth and income are not the same, and therefore Bill Gates does not earn $1,333 per second. He has (had) $42 billion dollars, period, and that simply exists; it is not earned. Not only that, if he’s walking down the street, he’s clearly not working (unless he’s getting paid to walk down the street). As such, his opportunity costs are zero, in terms of money earned because he is not currently engaged in money-earning activity. Thus, it is clearly within his best pecuniary interests to pick up a one hundred dollar bill, since doing so will increase his net wealth by one hundred dollars.
At any rate, both of these analyses are evidence of what I like to call eCONomics. Essentially, all you need to practice eCONomics is a poor grasp of opportunity costs and the ability to conflate terms and reason badly. Basically, be like Paul Krugman (zing!) and you can be a successful eCONomist.
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