|
||
|
At 8:30 AM Eastern time, the International Trade report for October will be released. The consensus is a deficit of $43.4 billion, which would be $0.3 billion more than the previous month. At 9:55 AM Eastern time, Consumer Sentiment for the first half of December will be announced. The consensus is that the index will be at 66.0, which would be an increase of 1.9 points from the level reported in the second half of last month. It’s the reason this happened:
The difference between prole shoppers on black Friday and the banksters is that one group is significantly better than the other at being greedy. Simply put, most, if not all humans are motivated by greed. Some may be motivated by the self-indulgent pursuit of vice, others may be motivated by enlightened self-interest, and some may be straightforwardly interested in certain things. Whatever the case may be, all humans are greedy. All humans want things for themselves. There are, of course, varying levels of self-restraint attached to the pursuit of those things one desires, but fundamentally all people act in pursuit of those things they desire. As such, it is ludicrous to simply blame greed as the root of all of society’s ills. Humans have always been greedy, but not all societies have been unceasingly dysfunctional. Why? Because there have been occasions when social rulers have found a way to mitigate the negative effects of greed. This usually comes by fostering a system of voluntary cooperation, generally exemplified in the free market. Therefore, social ills—such as people being trampled at a shopping center, or market collapses—should not be blamed on simple greed. Greed can be, and has been effectively channeled into productivity. If, therefore, that productivity lapses into destruction, the blame should be placed not on those who are greedy, but on those who make the incentives. It’s going to be a migration story week. Via the AP and the New Jersey Star Ledger is the story of the day. It says that more and more residents of New Jersey are fleeing…. to Pennsylvania? I thought we were a tax hell or something like that? Everyone should be fleeing Pennsylvania I thought. I know I read that somewhere??? Note that the New Jersey folks are probably not heading into the state for the shale gas jobs. Will have to look a bit more closely at this data myself to see if there is anything to be said about migration of shale workers into the state. The parsing has only begun actually. Pittsburgh (city, region or pick your county) has always ranked near the top in a metric of what percentage of householders have lived in their current place of residence the longest. I will have to look at the data the folks are reporting on to see if that is still generally true or if we have budged out of the top spots. and I have updated my regional migration report on the UCSUR publications page fwiw. 
The Gold Report: Since the last time we chatted in July, Bob, a lot has happened. Congress raised the debt ceiling, as you predicted. Bob Moriarty: Right. TGR:Then the Super Committee failed to produce an agreement so we can look forward to the automatic debt reduction of $2.2 trillion. BM: The Super Committee was totally illegal and unconstitutional in the first place and it was totally ineffective. They couldn’t reduce spending by $1.5 trillion over a 10-year period. Give me a break. TGR: Okay. Moving on. . .Unemployment remains at about 9%. BM: You say 9%? I don’t think so. How about 23%? TGR: The list goes on. Occupy Wall Street protests have sprouted up all over the country. And of course, Newt Gingrich is the leading Republican candidate. BM: That anyone could even consider Newt Gingrich for anything above the role of dog catcher is pretty terrifying. TGR: There’s more. We’ve seen riots in Europe, with the epicenter in Greece. We’ve got a weak German bond market. BM: Weak? It was a total failure; 39% coverage is a disaster. Germany is the bedrock of the EU, and if they can get bids for only 39% of bonds it’s over—over—for the EU. TGR: The Italian bonds coming up should test that theory. BM: Italian bonds are paying 8% or something like that. It can’t do it. The Greek two-year bond is paying 160%. The one-year bond is paying 270%. Greece has defaulted. Italy, Spain and France are going to default. It will be a series of cascading bank defaults. Dexia Bank failed a month ago. The banking system is under water. I’ve been saying that for years. It’s true. TGR: So looking at this whole developing picture, from the crisis in Europe to the U.S. debt debacle, from stubborn unemployment, protests and riots to the upcoming presidential election—what do you make of all of this? BM: The piece I wrote in early October captured it. I said things were about to get “fugly” and it’s time to head for the bunker. TGR: In your Nov. 11 article, you stated specifically that you’d climb out on a limb and suggest that 2012 will go down in history as the year of bank failures. How do you see that scenario playing out? BM: Okay. Here’s what’s important to understand and very few people understand this. If you start off with $1 million and loan it from one institution to another to another to another, you may have a net of $1 million. But if somebody defaults and that $1 million asset disappears, you get cascading defaults of every institution that had that $1 million asset. It’s really simple. The Greek default—and Greece has defaulted even though they won’t admit it—will cause a default in Spain and Italy, and that’s going to cause a default in France and that’s going to cause a default in the U.S. TGR: And what happens when they default? BM: The banks close. What can we do? We have more debt in the world than assets, so we have to write off the bad debt. Unfortunately, no government in the world is talking about that. The only people talking about it are Gerald Celente, Kyle Bass and me. TGR: But bank foreclosure is more than writing off bad debt. That creates catastrophic. . . BM: It’s a good thing if a business fails, because that means somebody who is efficient comes along and picks up the slack. We do not need to reward failure in the banking system. We need to reward success. TGR: Could the banking system write off a portion of the debt? BM: Nah, they are under water now. It’s a zombie banking system and has been since about the middle of September 2008. Just a while ago, at the end of November, the Federal Reserve disclosed $13 billion in profits to the banks from the trillions in loans they made back in 2008 that they’ve been lying about ever since. They were bailing out Barclays, Royal Bank of Scotland and lots of other banks that had nothing to do with the United States. TGR: Is there a banking system that will survive these cascading defaults? BM: The question should be: “Can you have a banking system that is sound and secure?” And the answer is yes. The Canadian banks are in a lot better shape than the U.S. banks. A sound, secure bank cannot have those zombie assets, such as the mortgages that we know people are not paying off. Half the mortgages in the United States are under water, with 25% in default. Those mortgages must be written off. TGR: Couldn’t a component of the banking system—some of the regional banks in the U.S., particularly those that have written off some of those mortgages and are really more about loaning to local businesses and local communities—survive a banking system failure? BM: The banking system in the United States is a network of giants and the regional banks really don’t exist anymore. I don’t have specific numbers but I think the big five banks probably represent 90% of the banking system. That leaves no fallback, really. TGR: When the U.S. banks close, you’re in the Cayman, but what happens to the rest of us? BM: Since Bretton Woods in 1944, governments have been spending money they don’t have and it’s time to pay the piper. A lot of people’s “assets”—Social Security, pensions, Medicare, Medicaid—will evaporate. They’ll disappear. We need to go back to a real world economy where people produce things of value. We need reasonable taxes. And we need a reasonably sized government that doesn’t spend beyond its means. This is true of individuals as well as governments. TGR: How do people waiting in line for pensions, Social Security, Medicaid, etc. . . BM: That money has to come from somewhere. Anything the government gives one group has to be taken from another group. The net is it costs you money to have the government provide healthcare, Medicare, Social Security. We would be far better off if the government didn’t provide these things. We didn’t have Social Security 100 years ago and people were fine. When I started working 40 years ago, people still had pensions from their employers. By and large they don’t have much of that anymore. TGR: Unless they’re government employees. BM: Yeah. Then you are going to get paid twice what the private sector is getting paid. TGR: Your November article also said what you have been suggesting for months that cash is the best investment people can hold. In fact, you concluded with these words: “It’s time to stay in cash and head for the bunker.” As you mentioned before, “times are about to get fugly.” BM: Right. TGR: Do you include cash equivalents such as gold or precious metals under that “cash” umbrella? BM: No, I mean cash. The best investment to be in for the last six months was cash, U.S. dollar cash. Even Gerald Celente had a six-figure account with MF Global and the money simply evaporated. Without cash, people who go to bed wealthy will wake up poor. TGR: All the goldbugs say that will happen if you keep your money in fiat currencies too. BM: That’s not necessarily true. At times, investing in fiat currencies is a good deal. If you were investing in U.S. dollars in March 2008, you would have been better off that fall than you would with any other single investment. Gold went from about $1,200/ounce (oz) to $700/oz, while silver went from $21/oz to $9/oz. The stock market crashed. The gold juniors crashed. Sometimes being in cash, U.S. dollars, is a good investment. It’s been a particularly good investment for the last three or four months. TGR: Because your analogy goes back to 2008, when we had a severe crash, is it fair to extrapolate that you’re predicting another severe crash? BM: We are going through a crash right now. TGR: If that’s the case, why should anyone be in equities? BM: You can’t ever invest 100% in anything. No one can guarantee the future. All you can do is hope you get it right 55% of the time. Cash, U.S. dollar cash, has been a good investment since this past April, and it’s still a good investment. Europe is about to blow up and the dollar is a safe haven. There is a lot of deleveraging going on. And, as in 2008, the U.S. dollar is a good place to be. And cash is better than having the money in T-bonds, with a negative interest rate. TGR: You are expecting the banking system to collapse, and banks typically hold cash. What value is the cash if the banks fold? BM: You can buy things with it. TGR: So you’re saying people should physically hold their cash in their homes? BM: I do. I have some money in the banks to pay bills, but mentally I have written off every cent in the bank. I accept the fact that I will go down to the bank one day and the ATM won’t work anymore and the bank will be closed. You can have cash sitting in the bank, too, but at the same time you have to understand the great danger with the banks. While I wouldn’t sit on a half million dollars in cash at home, if I had it in a bank I would be prepared. I think everybody should keep three to six months in liquid assets, and that certainly would involve cash and gold and silver. Cash and gold and silver will be very valuable when the banking system collapses. TGR: If the banking system collapses, how long will it be before new banks emerge to take over the fundamental role of banking? BM: It’s not “if” the banking system collapses; “when” would be more accurate. You simply cannot justify the banking system today. The sooner we get to whatever comes next, the better off we’ll be. My opinion is that all fiat currencies will crash, and when they do, we’ll go back to a gold standard. TGR: How quickly can we develop a gold standard from the annihilated banking system? BM: It depends on how big the riots are. Governments never act. They only react. If we have riots in every major city in the United States and hundreds or thousands of people a day are being killed, the government may actually take some action that would make sense. That would be to say, “We have a financial system that doesn’t work. We need to go to a financial system that does work.” Gold and silver work and they have worked for 5,000 years. TGR: Do you see a situation where the government would start a national bank? BM: God, I hope not. That would be adding fuel to the fire. I think that “unlimited stupidity” and “government” belong in the same sentence. But if the government started a national bank, that wouldn’t be unlimited stupidity―that would be infinite stupidity. TGR: Earlier you made a point about having to be right only 55% of the time to move forward with a balanced portfolio. Let’s assume that an investor has some hard assets now, in safe havens, with some at home. At that point, does this investor turn to the market? BM: Yes. I just bought 100,000 shares of a company that did a financing at $0.80 in April. It now has $0.46 per share in cash and its stock is selling at $0.23. If I can buy cash at $0.50 on the dollar, I’ll do it. TGR: So you are looking for opportunities with a company’s value below its cash balance. BM: Any time you can buy at a discount, that’s a good deal. If you can buy a dollar for $0.50, the upside is $0.50. We see this happening every 10 or 15 years. In the summer of 2001, a number of stocks that were selling for less than the cash they had on hand doubled or tripled or quadrupled when the market turned around. In September and October of 2008, something like 200 companies were selling for less than their cash on hand. A Russian silver company was selling for $0.20 on the dollar. You simply cannot get a more favorable environment than buying cash at a discount. Any time you have that opportunity, you should throw money at it. TGR: So, what companies are you finding that have cash at a discount? BM: People are going to have to look for them themselves. All the figures are available to everybody. I use Stockhouse and StockWatch and look at the ratios. TGR: We’re hearing that capital is so hard to come by, yet we found at the San Francisco Hard Assets Investment Conference at the end of last month quite a number who were getting capital. BM: Those deals had actually been set up for months. The last few weeks the financings literally just stopped. Everybody is in a total panic now. I watched stocks drop 25% and I have to tell you, it was pretty scary even though I was one of the guys forecasting it. When a company loses 25% of its value in a week and there is nothing wrong with the company, it’s scary. A lot of times I see things happening that scare me and I don’t want them to happen. I talk about them because I have an obligation to talk about them. TGR: Could you talk about the kinds of companies that are actually building their value? BM: In August 2008 the Philadelphia Gold and Silver Index, which is a measure of pure psychology, went to the lowest level it had ever been in history. Stocks were cheaper in August, September and October 2008 relative to gold than they had ever been. But gold was $700/oz. Silver was $9/oz. And they got clobbered. So it’s natural that big gold and silver shares got clobbered too. Now, we have $1,700/oz gold and $32/oz silver, and stocks are cheaper today than in 2008. That is totally irrational. Those kinds of circumstances do not continue for very long. In 2008 platinum came down to the same price as gold. Platinum is $210/oz cheaper than gold today and that has never before occurred in my lifetime. I don’t think it’s occurred in history. That’s an example of something that would be a very good opportunity. TGR: So if the juniors are on sale, are the majors also on sale? BM: Yes. TGR: How should investors begin looking at the whole plethora of mining companies to decide which ones really create the value? BM: My priority would be junior production stories. You’ve got Timmins Gold Corp. (TMM:TSX.V; TMM:NYSE.A), Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BLV), Endeavour Silver Corp. (EDR:TSX; EXK:NYSE; EJD:Fkft), First Majestic Silver Corp. (FR:TSX; AG:NYSE; FMV:Fkft; FRMSF:OTCQX), Great Panther Silver Ltd. (GPR:TSX; GPL:NYSE.A) and Rio Alto Mining Ltd. (RIO:TSX.V; RIO:BVL; RIOAF:OTCQX). There are dozens, dozens of good production stories. Nobody quite knows where the price of gold and silver will go, but anybody in production now is literally minting money. You would have to be profitable. You couldn’t possibly not be profitable. TGR: You wrote about Meadow Bay Gold Corp. (MAY:TSX.V; MAYGF:OTCQX) back in October. Is that still an interesting story to you? BM: It’s a really funny story. It totally screwed up its drill program. It was drilling for an epithermal vein system and hit a porphyry system. The significance of that is that porphyries are really big, so instead of having potentially 1–2 million ounces (Moz), literally overnight it went to having 3–4 Moz potential. When I made that same comment about screwing up the drill program with Meadow Bay’s chief geologist, he laughed, because if you’re going to screw up by finding a much bigger deposit than you thought you had, that’s a really good deal. TGR: You’d called it a no-lose drill program. Did you know it was going to come out the way it did? BM: It had announced one hole—a porphyry hole. As soon as I knew it was porphyry I understood the future was bright indeed. That’s a really good company and it is doing a really good job. TGR: Do you have a preference toward production of gold versus silver? BM: Silver has attracted a lot of attention with people who simply don’t know what they are writing about. And they attract all the nutcases. You can make a lot more money shorting silver than you can going long silver because people get totally irrational. There is no shortage of silver. We are not about to run out of it. The ratio over 100 years has been 47:1—47 ounces of silver per ounce of gold. In a financial collapse, the ratio actually goes higher. I could see silver going to 100:1 before it goes 30:1. But, the primary factor in the price of anything is the cost of production. Silver costs $6–8/oz to produce, so $32/oz silver is pretty expensive. TGR: So you would want to look at junior production companies that would still be profitable with silver at $10/oz? BM: The silver companies would still be extraordinarily cheap even if silver went to $15/oz. TGR: Do you have any other companies with no-lose drill programs or other nice surprises in store on your radar? BM: Dozens of companies have done exceptionally well. I just came back from two weeks in Colombia, where virtually everything is a slam-dunk. Sunward Resources Ltd. (SWD:TSX.V) is going to be announcing really extraordinary results. It already has about 8.6 Moz. That’s an extraordinary amount of resources for a company only two years old. TGR: If Sunward is still drilling, how big might that get? BM: A lot bigger. TGR: Double? BM: Could be. TGR: In what timeframe? BM: Two years. TGR: Any others you’d care to mention in Colombia? BM: Colombia Crest Gold Corp. (CLB:TSX.V; EAT:Fkft), Red Eagle Mining Corp. (RD:TSX.V), B2Gold Corp. (BTO:TSX; BGLPF:OTCQX), Bellhaven Copper and Gold Inc. (BHV:TSX.V), Solvista Gold Corp. (SVV:TSX.V) and Continental Gold Ltd. (CNL:TSX). But, there are 36 listed companies in Columbia, and I don’t think you could go wrong investing there. TGR: So Colombia as a region is a good play. BM: It’s a phenomenal play. TGR: You’re also big on Africa. BM: I used to be, but Africa is getting really stupid. Tanzania’s come up with suggestions and changes to the mining laws. Ghana’s started getting greedy. In every business cycle when the cost of the commodities goes up countries start thinking, “You know, we hate to see these guys making all this money so we need to make sure it won’t happen.” TGR: So Africa’s fallen out of favor. BM: Australia, Peru and Argentina are also getting stupid. TGR: Do you hold better hope for the U.S. on the mining front? BM: The U.S. has some really wonderful properties in Arizona, Nevada, Idaho and Oregon. The western part of the country was wealthy due to mining and we are going to go back to that. I think the U.S. will split up into a series of five or six nation states. Florida has nothing in common with California and California has nothing in common with New York. But again, the U.S. as we know it might not exist a year from now. Take a look at what I said a few years ago about riots in the United States. Occupy Wall Street started in September. It was a peaceful demonstration. There was no crime. There was no violence. The police started it by barricading young women behind the net and then spraying them in the face with pepper spray. Occupy Wall Street hit a nerve in Americans and spread all over the country. When it got to Oakland, the police decided they needed to up the ante, so they started firing teargas grenades in the face of an Iraqi War veteran from 10 feet away. If I did that, I’d be in jail for attempted murder. Since a policeman did it, he got away with it. They beat another protester so severely with batons they put him in the hospital in critical condition with a damaged spleen. They have pepper-sprayed priests, 84-year-old women and pregnant women. And these are all peaceful protesters. The key to understanding what is going on is the police continue to escalate the violence. The next thing will be something similar to Kent State, where they plant an agent provocateur who will fire a gun into the air and the police will take that as permission to start shooting protesters. When that happens, it will literally start a civil war—and it could happen any day. TGR: That’s not like citizens of one state going against citizens of another state because they have fundamental differences. BM: No, it would be a civil war of peaceful citizens against a violent, corrupt, out-of-control government. We have every bit of that now. The police are the ones doing the escalation, and sooner or later Americans will start defending themselves. If it had been my son or daughter who was shot in the face, I don’t know what my reaction would be. Those protestors all have parents and brothers and sisters and friends. I’m shocked at the willingness of police to escalate violence against people who are no threat to them at all. It could get really bloody really quickly. TGR: Why do you think this is Occupy Wall Street and not Occupy Pennsylvania Avenue? BM: The term should be AWA—Americans with an Attitude. I think that these protests are underway in 113 cities, so obviously a lot of Americans in a lot of locations are angry.
Everyone knows they have been raped by Wall Street and the government. The common theme is anger. We are angry at big business and we are angry at government. Big business owns government. You have to go after big business. Barack Obama and this administration are totally controlled by external forces. They are controlled by Israel, Wall Street and the media. But we do not have an activist government that’s actually doing anything. It’s totally corrupt, bought and paid for. Everyone in Congress, with the exception of Ron Paul, has turned into a pimp. TGR: That’s why congressional approval is as low as what―18%? BM: 7%. The devil does better than that. Someone did a survey a week or so ago comparing Congress to Satan and Satan came up with an 8% approval rate. 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.” At 8:30 AM Eastern time, the U.S. government will release its weekly Jobless Claims report. The consensus is that there were 395,000 new jobless claims last week, which would would be 7,000 less than the previous week. 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 10:00 AM Eastern time, the Wholesale Trade report will be released for October, showing inventory levels for wholesalers in the United States. The consensus is that wholesale inventories increased 0.4% . 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. ASI:
Government-funded news organizations are problematic not only because they have a strong tendency to kill off the competition, but because they often function as a propaganda arm of the government itself. Americans, of course, have a tendency to complain about how the fourth estate is in the pocket of Big Government, but it is the British for whom this is perhaps literally true. As such, the British run the (very large) risk of having the BBC be nothing more than a propaganda machine, assuming it isn’t already.
The Gold Report: In the Nov. 4 edition of Hotline, you note that America’s ratio of debt to gross domestic product (GDP) is north of 350%. Our total debt as a society is somewhere around $57 trillion (T). That’s worse than Greece. Is deflation America’s biggest economic threat? Jay Taylor: I believe it is, however, most of my goldbug friends wouldn’t agree. It is important to realize that the U.S. is not a third-world country. It still has the world’s reserve currency. The central bank, the Federal Reserve, doesn’t put money into the hands of the masses. It puts money in banks. It’s all about credit extension. That is very difficult to do now. With the debt-to-GDP ratio as it is, it’s unsustainable. The markets are telling us that—not only in the U.S., but clearly in Europe as well. We are undergoing one of the largest debt-deleveraging periods in a long time, which may be much larger than what we went through in the 1930s. TGR: You believe there should be no more bailouts, let this debt wrench itself out of the system and let bankruptcies occur. JT: Absolutely. Most people don’t understand the reason we’re in trouble is because the good times that we had were false. They weren’t based on savings and investment. They were based on money creation through credit extension. The nice homes, the big office buildings, fancy cars, everything—it wasn’t earned, it was based on debt. Now that the debt cannot be repaid, the expansion goes into a contraction. That process has a long way to go. TGR: Bob Prechter of the financial forecasting firm Elliott Wave International is predicting that gold and silver “should decline in conjunction with the stock market selloff. Gold should work down toward $1,300 an ounce (oz), while silver should fall into the low $20/oz area.” What’s your position? JT: If you believe that we’re in a deflationary environment, the nominal price of gold could go down and the purchasing power of it could go up a lot. The real price of gold is most important for gold mining companies. Before the Lehman Brothers failure in July 2008, an ounce of gold would have bought only 17% of the Rogers Raw Materials Fund. It rose to 44% by March 2009, but came back a bit to 30%. It was recently up to a new high of 47.5%. Gold’s purchasing power is rising much more dramatically than its nominal price. Gold has fallen off its highs and is around $1,700/oz. As Ian McAvity has said, an ounce of gold is an ounce of gold. A barrel of oil is a barrel of oil. What is a dollar? It’s a meaningless measure because Federal Reserve Chairman Ben Bernanke can create trillions of dollars out of thin air. TGR: Silver’s purchasing power on the Rogers Raw Materials Fund hasn’t experienced quite the same gain. In June 2008 it was just below 1%. Now it’s just below 3%. JT: Silver has done very well, but it’s much more volatile. It has outperformed gold in general since Lehman Brothers’ collapse, however. TGR: The International Monetary Fund (IMF) has agreed to throw the Eurozone countries a lifeline of about $0.5T. Will that be enough? JT: My view on Europe is the same as on the U.S.—the kindest, gentlest thing to do would be to allow the debt to implode immediately. We’re allowing sick entities to survive and eat up resources. It’s contrary to free market capitalism. It’s really fascism. Large corporate interests are being protected because of their cozy relationships with government. A half trillion is not going to be enough. Where does the IMF get its money? Is the U.S. going to be asked to pony up more money for Europe? Probably. Are they going to sell the rest of the gold they have? Perhaps. That’s what the Soviet Union did before it collapsed. TGR: You’re biased toward credit market deflation, but you continue to be partial toward gold and gold mining stocks. What are the reasons for that? JT: Margins are widening. There is an explosion of profits for major mining companies in production before 2008: Agnico-Eagle Mines Ltd. (AEM:TSX; AEM:NYSE), AngloGold Ashanti Ltd. (AU:NYSE; AU:JSE; AGG:ASX; AGD:LSE), Barrick Gold Corp. (ABX:TSX; ABX:NYSE), Goldcorp Inc. (G:TSX; GG:NYSE), Kinross Gold Corp. (K:TSX; KGC:NYSE), Newmont Mining Corp. (NEM:NYSE) and Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE). In 2008, those companies recorded $5.77 billion (B) of earnings collectively. In 2009, that jumped to $7.05B. In 2010, it jumped to $13.62B. The analyst consensus is that it’s going to go to $20.22B in 2011 and $28.28B for 2012. Margins have increased in this deflationary environment because the real price of gold has risen relative to the cost of mining it. Bob Hoy, a technical analyst in Vancouver, figures we are in the sixth large credit contraction in the last 300 years. In every case, the real price of gold has risen over 15 to 20 years. The real price of gold started to rise in 2007. We could be in the early days of a super bull market for gold mining shares. TGR: Those majors probably average $500/oz in cash costs. However, you have a buy rating on small Australian producer Crocodile Gold Corp. (CRK:TSX; CROCF:OTCQX), which just reported a loss of about $6 million for the quarter. Its cash costs are above $1,400/oz and its stock is down about 80% this year. Why on earth would you still have a buy rating on Crocodile Gold? JT: I believe in the long-term prospects of this company. It’s had a lot of problems. Its costs were $250/oz higher than projected this year because of lower-than-expected grades from its open-pit projects. Clearly, that’s a black eye for management because something went wrong. But I still believe that this company has extraordinary exploration potential and will get costs under control. TGR: For example, silver producer Great Panther Silver Ltd. (GPR:TSX; GPL:NYSE.A). As of Nov. 18, it was up 355% since you took your initial position. Great Panther is down almost 20% this year despite a strong Q311, however. What’s your outlook for Great Panther? JT: Its decline is in line with the general market decline. It keeps improving on a fundamental basis and expanding its resource. It’s a fine operation that’s earning money. TGR: What other smaller gold and silver miners are you interested in? JT: My favorite might be Sandstorm Gold Ltd. (SSL:TSX.V), which is a royalty play. It has one of the best looking charts in a horrible market. Sandstorm provides the capital to get companies into production and then it gets a royalty. It usually gets the chance to buy maybe 15% or 20% of a project’s production for the life of that project at cost. It has several properties that are producing now. Its projects are getting bigger and production is growing. This is a company that’s going to continue to earn more and more very rapidly. There are fewer risks involved in this model than if it was an operator, too. TGR: Its production forecast for this year is from 16–18 thousand ounces (Koz). However, that will increase to more than 50 Koz by 2014. That’s certainly strong growth. JT: The gold price, where it is relative to the cost of mining and the expansion of production, means that earnings are going to grow very rapidly, if not exponentially. TGR: Do you think that too many royalty plays kill the goose? JT: That could be the case. With increased competition, they might be paying too much for the deals that they strike. However, I’m not concerned about that with Sandstorm at this point. Royalty plays, like Sandstorm, Silver Wheaton Corp. (SLW:TSX; SLW:NYSE), Royal Gold Inc. (RGL:TSX; RGLD:NASDAQ) and others, generally sell at much higher multiples than mining companies because there’s less risk involved. An operator can have any number of things go wrong and have to put in more capital to get things moving again. TGR: It’s more of a matter of vetting these projects and being sure the geological model works and the metallurgy is good. JT: Yes. I have a high regard for the management of Sandstorm. They’re really sharp. They get involved in projects that have enormous upside potential. It’s not just the ounces that might be in a bankable feasibility study. They look at the exploration potential and the expansion of production, too. TGR: Let’s move down the food chain to the explorers. The portfolio scorecard in each edition of Hotline doesn’t paint a very kind picture of gold and silver exploration plays lately. JT: Nope, not this year. TGR: As of Nov. 18, only 8 of 50 exploration companies on that list, or 16%, were up: American Bonanza Gold Corp. (BZA:TSX), Metanor Resources Inc. (MTO:TSX.V), Prodigy Gold Inc. (PDG:TSX.V), Aurvista Gold Corp. (AVA:TSX.V), Meadow Bay Gold Corp. (MAY:TSX.V; MAYGF:OTCQX), Pretium Resources Inc. (PVG:TSX), Nautilus Minerals Inc. (NUS:TSX) and Rye Patch Gold Corp. (RPM:TSX.V; RPMGF:OTCQX). You still have buy ratings on the other 42 companies, however. Why are you still recommending small-cap companies exploring for precious metals? JT: I believe in the sector. I can’t explain why the markets have treated the sector badly this year. The majors’ profits are up very sharply, yet the share prices haven’t even begun to keep up. It tells me that most of the players in the equity markets don’t recognize this as a gold bull market and they don’t see the potential for turnaround. They don’t realize, as Bob Hoy points out, that there’s probably another 15 years to go. Gold is going to be strong for a long time because the financial sector, deleveraging and the loss of confidence in fiat money is going to keep the real price of gold and real earnings high. I told my subscribers when things started to turn that they should build some profits and keep some cash on the sidelines because the entire sector is likely to decline in price along with the general market. The gold sector is being hurt badly and that’s an extraordinary opportunity. Why would I sell companies that I believe in even if, like Crocodile Gold, they’ve lost 80%? It would be a stupid time to sell. It would be a great time to take some of that cash that I suggested investors put aside and start to buy some of these companies as they decline. I don’t see any reason to jump ship now because I believe so firmly in the fundamentals of this industry. TGR: The biggest gainer on the list of the companies that are up this year is American Bonanza Gold. It’s up about 70% this year, but about 232% since you took your initial position. Why is that junior performing so well? JT: It’s on the verge of production at the Copperstone gold mine in Arizona. There were a lot of skeptics and the stock was extremely cheap. The costs are very low. It’s not a big mine and the production levels are fairly small, but it has really good exploration potential that can be built into a much bigger mining operation over the long term. TGR: When is initial production expected? JT: I believe in Q112. TGR: American Bonanza should be generating some cash flow at that point. JT: It should, with the caveat that more often than not startup operations have some kinks to work out. However, this was a previously producing mine. That reduces some of the metallurgical risk and other risks of a new startup. I’m confident it’s going to get the job done. TGR: You recently interviewed management from Merrex Gold Inc. (MXI:TSX.V; MXGIF:OTCQX), which is not doing too badly this year. What did you learn about Merrex? JT: Merrex is exploring the Siribaya deposit mine in Mali with IAMGOLD Corporation (IMG:TSX; IAG:NYSE) as its 50% joint venture partner and largest shareholder. IAMGOLD is there because it believes this is going to be a multimillion ounce deposit. And IAMGOLD is committed—it spent about $10 million to earn a 50% interest. It has about 460 Koz from a relative high-grade open pit at a quarter grams per ton. However, that’s based on less than 5% of the total strike length of two major zones, plus another zone was discovered, too. Moreover, some of the assays recently from the south end of the zone that was drilled have been much higher grades. The average grade may be even higher than 2.25 grams. The only real downside is that the company has to rely on diesel fuel for now. There’s some vulnerability to spiking oil prices. TGR: IAMGOLD is effectively using Merrex as an exploration arm. JT: IAMGOLD is the operator of the project. It has a joint committee that decides on the strategy and drill programs. In fact, one of the management members of Merrex who I was with in Switzerland was going to Toronto on his return to talk to IAMGOLD about the next drill program. TGR: You also have a buy rating on Calico Resources Corp. (CKB:TSX.V; CVXHF:OTCQX), which is drilling the Grassy Mountain gold project in Oregon. Oregon is generally not considered the most mining-friendly state. Why does Calico make your scorecard with a buy rating? JT: Washington is probably considered one of the most difficult states in the country for mining. California had been very difficult, but it’s getting tougher everywhere. Calico management discovered by doing research that Oregon is no more difficult than any other Western state. Politicians with common sense know the local people want jobs. Where are the jobs going to come from? Mining is a wealth-creating activity. It’s not going to be easy. Getting permits moved through the pipeline can be difficult, but I have confidence in the management team at Calico led by Chairman Buck Morrow, for whom I have a high regard. Grassy Mountain was worked on during the last gold bull market. The potential there is extraordinary. It has gotten some really nice assays back. TGR: What are some other precious metals explorers that you’re following closely and remain excited about? JT: I love Rye Patch Gold in Nevada. It has 3.1 million ounces (Moz) gold, but it has 3.9 Moz gold equivalent including silver. Rye Patch clearly has a shot at building something much bigger than that with its good management and miniscule market cap. I also like Metanor Resources a lot. Since Sandstorm provided capital, the company has been focusing on its underground Bachelor Lake mine in Le Sueur, northeast of Val d’Or, Québec. Bachelor Lake is going to be put into production within the next six months to a year. It should do very well with that. It also has the Barry deposit, which has the potential to be a very large deposit similar to Osisko Mining Corp. (OSK:TSX). Québec is one of the best provinces in which to run, explore and develop projects. Aurvista Gold in Québec has 2 Moz and huge exploration potential. Pretium Resources also has a huge deposit up there next to Seabridge Gold Inc.’s (SEA:TSX; SA:NYSE.A) gold-silver deposit. Pretium is headed by Bob Quartermain and a very strong management team. It’s actually been one of the winners this year. TGR: Do you have any parting thoughts? JT: It’s painful sitting with stocks in this kind of a market, but that’s the nature of the beast. You hold a junior mining company and all of a sudden it takes off. You just don’t know when. You have to believe in the fundamentals of the story and the chance to come up with something big. A couple of times I’ve walked out of a stock and a day or two later the company made a great discovery—that is really painful. TGR: How would you respond to someone like Rick Rule who says it’s not about the 80% you lost, it’s about what you do with the 20% that you have left? JT: I suppose that’s right. Rick is a very conservative investor. He really likes to buy stocks when they’re cheap. He’s a very disciplined trader. You want to protect that 20%. When you get a market that’s on the upside, you can make that 80% back very quickly if you’re in the right stocks. Of course, I’d never recommend that investors back up the truck and bet the farm on any one company. I have a lot of companies on my list because I believe in diversification. These little penny mining companies, the miniscule market-cap companies, can be tenbaggers in a hurry if they’re successful. Whenever you invest in a deal, you can lose 100%, but you can’t lose 1,000%. The upside is limitless. With 20/20 hindsight I should have sold everything and waited until now to buy, but I didn’t know for sure how the markets were going to treat gold stocks this year. But I’ve been telling investors to build some cash for this kind of environment. Now is the time to be buying. TGR: Thank you. As he followed the demolition of the U.S. gold standard and the rapid rise in the national debt, Jay Taylor’s interest in U.S. monetary and fiscal policy grew, particularly as it related to gold. He began publishing North American Gold Mining Stocks in 1981. In 1997, he decided to pursue his avocation as a new full-time career—including publication of his weekly Gold, Energy & Tech Stocks newsletter. He also has a radio program, “Turning Hard Times Into Good Times.” So I really wonder if I surveyed folks in town and asked them what percentage of jobs were still in manufacturing I wonder what the modal answer would be? The actual answer.. by one measure, is a speck under 7.7%. Within a very insignificant significant digit of the lowest percentage since.. well, I can’t quite say ever in the same sense of ever ever. Pre-columbian paleoeconomic employment taxonomies are not quite my field. Lowest for an October though… Maybe ever is fair in that context though since I am pretty sure October was not a pre-Columbian concept. Not all because of the loss of existing manufacturing jobs of course. Remember October employment for the Pittsburgh region is at at all time high, so even stable employment counts in any one industry would be declining in percentage within the region.  The less flippant point is that there is a myth out there that the local manufacturing decline is all ancient history. As trend the last 5 years have not been kind; the last decade has not been kind. There was a bit of stability in the mid to latter 1990’s, but what that was masking was continuing decline in most of the legacy manufacturing sectors in the region while there was a decent chunk of new manufacturing jobs being created at the Sony Plant in Westmoreland County. Take that one establishment out of the mix, and the trend has been mostly unabated. How long has the trend been going on in some form? Pittsburgh, the region, employed the largest percentage of the US manufacturing workforce in 1909. So a bit more than a century ago. Looking forward there are some announced hits coming that have not shown up in the data yet. You might have worried more when you saw the headlines that Heinz is soon to be closing 5 plants, but that actually does not matter in this context since Heinz actually does not have any manufacturing plants in the MSA any longer.  Join the forum discussion on this post - (1) PostsThe 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 Quarterly Services Survey will be released, showing the status of the information and technology-related service industries. 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. At 3:00 PM Eastern time, the Consumer Credit report for October will be released. The consensus estimate is that there will be an increase of $7.5 billion in the consumer credit available, after an increase of $7.4 billion in the previous month.
The Gold Report: When you last spoke with The Gold Report in August, the gold:silver ratio was about 40:1. Today it’s about 53:1. In August, you were looking for a lower gold:silver ratio that you thought would probably be more reasonable under the circumstances. Yet it seems to have gone the other direction. What do you think has happened here? Was silver drastically overpriced or not able to keep up with the gold? TGR: So, what you’re saying is the European debt crisis is the thing that’s really driving the gold price higher. CL: Two or three of the central banks have put a historical amount of gold on their books, which tells you there’s more focus on gold because of the European crisis. TGR: What do you think is going to happen with metals prices if this Eurozone situation deteriorates further? CL: That’s a hard question. I think it’s in the hands of the policymakers. When Greece said we’re going to do the referendum and that Greece could be kicked out of the Eurozone, the Greek people were rushing to their banks to get the euro out. If the euro starts falling apart, I think gold could be one of the hard assets people in Europe will try to get their hands on. That could be very positive for gold. I can see Germany give in to the other euro countries and basically agree to use the European Central Bank to print money. That’s probably the most likely outcome. That would delay the crisis and investors would focus on other countries such as Japan and the United States. Then Europe may quiet down a little bit. But, that would be very positive to gold as well. Gold can potentially have a very explosive move on the announcement. TGR: You’ve had pretty spectacular performance since you started your portfolio with about $5,000. In August, it was down about 10% for the year. What’s happened here in the last three or four months? CL: It’s been down between 10% and 15% so far, it has been quite flat this year. Considering that I own a lot of junior stocks, those stocks can be very volatile. TGR: It’s been a tough year for everybody and not easy to show any spectacular gains in 2011. How about some of the individual stocks in your portfolio; do you have some nice winners that you’d like to talk about? CL: Prophecy Platinum Corp. (NKL:TSX.V; PNIKD:OTCPK; P94P:Fkft) was a spectacular winner. The rest have been holding on. However, I’m quite optimistic because some of the stocks have some major news coming in the next few months. TGR: You mentioned platinum, which always used to trade at a pretty substantial premium to gold. It’s obviously a lot rarer than gold. Yet somehow, it’s faded into obscurity in the last few years. Do you have any opinions on why that might be the case? CL: In fact, I was out telling everybody that I’m loading up on platinum. Platinum is less than 10% of the global production of gold. Some 75% of global production comes from South Africa, which is having problems with electricity, labor disputes and other issues. Right now platinum is trading at a discount to gold. It’s almost unheard of. It used to be platinum was twice as much as gold. There could be hedge funds that may be long platinum and short gold and are having some problems and may be unwinding some positions. Over the long run, I think platinum is probably a very good investment. TGR: Tell us more about Prophecy Platinum. CL: This stock has been a spectacular winner for me this year. It’s up from less than $1/share to over $6/share in quite a short time. Now it’s pulled back to about the $3/share range. Prophecy just completed a private placement, of which 25% was participation by the insiders. That’s very strong insider participation. The price right now is at around the private placement price. Prophecy has a huge platinum group metals (PGM) deposit in the Yukon. It’s 12 million ounces in the NI 43-101. Prophecy just had some very nice drill holes. When the next update comes out, it will probably have more PGM and the gold. So, that’s looking very good. It has a sister company called Prophecy Coal Corp. (PCY:TSX; PRPCF:OTCQX; 1P2:Fkft), which owns about 45% of Prophecy Platinum. If you deduct its cash and the value of its Prophecy Platinum holdings, you get the coalmine in Mongolia for free. Plus you have leverage to this platinum play. TGR: The platinum price situation is just hard to believe—the way it has fallen back. Maybe it has something to do with less industrial demand. CL: The industrial demand will slow down a little bit. But, it’s not this dramatic. I feel it’s like when silver dropped to $10/ounce in 2008. The price dropped so low that I think it’s an opportunity for investors to buy platinum and platinum stocks on the cheap. Another platinum producer I like is Stillwater Mining Company (SWC:NYSE). That’s the largest platinum producer in North America. TGR: Stillwater. That’s the only producer in the U.S. that I’m aware of. CL: Right. It fell very hard recently and lost two-thirds of its market cap. It now has a little bit of a rebound. I bought it pretty close to the bottom and I’m still holding it. TGR: You recently returned from a visit to Haiti where you went to take a look at the Majescor Resources Inc. (MJX:TSX.V) gold property. What kind of report do you have on that? CL: Oh, I was very excited about that. The property has a huge potential and Newmont Mining Corp. (NEM:NYSE) is also in the area. Newmont has been very interested in Majescor’s drilling program and even invited Majescor’s company executives to its office when I was there. That tells you how much focus it has on this drilling program by Majescor. It will have drilling results coming out in December. First, it was targeting copper and copper-gold and then it will drill out the area with some very high gold intercepts. In a previous release, Majescor showed 10 meters of something like 70 grams per ton. It will drill that next year. Basically, it’s a gold and copper or copper and gold project, depending on where you focus on it. TGR: So, we’re going to wait for results next month and see how that goes, correct? CL: Exactly. Its market cap is only $15 million and it could have a world-class deposit. Plus all the majors are looking at the drilling results. TGR: So there may be a good chance that it will get taken out pretty quickly if the stock doesn’t go crazy. CL: Majescor has been working on this project for two or three years and finally the drilling starts. It’s a pretty exciting time for shareholders. TGR: Back in August you were also pretty positive on Pretium Resources Inc. (PVG:TSX). The company has a couple of properties that look pretty interesting at Snowfield and Brucejack. What’s been going on with those properties since last August? CL: I visited its property and it was very, very exciting. The high-grade gold intercept was fantastic. Right now, the market is in a holding mode and we haven’t seen much movement in the past few months. Once people see how good a deposit it is and recognize how undervalued it is, I think we should see some good upside movement on this stock. TGR: You also visited the Romios Gold Resources Inc. (RG:TSX.V; RMIOF:NASDAQ; D4R:Fkft) and the NovaGold Resources Inc. (NG:TSX; NG:NYSE.A) properties up in Northwestern B.C. last summer. What’s going on there? CL: Romios started releasing drilling results and you can see it has some pretty good intercepts. It is still looking for the sweet spot and will probably need to take more time to drill out this area to find the center of the deposit. TGR: When do you expect some significant news? CL: Depending on the next round of drilling results, it could mean Romios needs to come back next year to do more drilling. It already released a few rounds of results and I think it has maybe one or two rounds of results left. TGR: Romios is near NovaGold. Do you think there’s some possibility that NovaGold may try to take a run at Romios? CL: NovaGold has a new CEO and plans to sell this Galore Creek deposit. Last time I think I was hoping it would have fantastic drilling results and then we would have a takeover situation. But, now it looks like it has found a deposit and needs to drill more. So, you probably need a little bit more patience to see how it develops, probably into next year. TGR: What about NovaCopper? CL: NovaGold wants to spin copper projects off and potentially the name could be NovaCopper. We’ll have to see what kind of deal it has and what direction that property goes. TGR: What about other companies in your portfolio? Any developments there that our readers should be aware of? CL: I’m still holding a lot of OceanaGold Corp. (OGC:TSX; OGC:ASX). The company is a producer in New Zealand and is starting up its new gold mine in the Philippines. It’s probably one of the cheaper gold producers you can find. I also own Coeur d’Alene Mines Corp. (CDM:TSX; CDE:NYSE). That’s a big silver producer and just had a management change. The company has two new silver mines going and half a billion dollar cash flow each year. It’s building up a third mine, which is a gold mine, and a fourth mine, a silver mine. It doesn’t have much in capital requirements coming and I hope will end up paying a dividend. I’ve been holding the stock for a while and expect to keep holding it. TGR: What are your expectations as far as market performance in the last weeks of the year? Then what happens next year with the precious metals and mining stocks? CL: A lot depends on the European solution. I think the most likely result would be a massive money printing in the Eurozone. That would be very positive for gold. As far as gold mining, we have seen the general lack of capital in mining stocks. That’s why I try to stay with companies with a strong cash flow. Many exploration companies and emerging producers are trading at very low valuation. Still, the market doesn’t give them recognition. If we have any solutions in the Europe situation, these stocks can have a huge run. TGR: Are there any other parting thoughts you might want to leave with our readers as far as how they should be playing this market? CL: Gold stocks are extremely undervalued right now versus the gold price. I personally believe that gold will go much higher. How high will gold stocks go? I think this depends on market conditions. Gold stocks have two faces. One is related to gold. The other is related to the capital markets. Mining companies need to raise money to produce gold. It’s a very capital-intensive industry. So, if the capital market doesn’t improve, gold mining stocks may lag behind gold for some time. But, once we have some stabilization, I can see some extremely undervalued gold stocks out there. Another idea to think about is to try to follow what the majors like. A company like Majescor clearly has the interest from majors. Majors are flooded with cash and can afford to pay a reasonable market price for a property. So, I think it’s probably a good time to follow the trades of the majors. TGR: You’ve given us some good information and food for thought. Thanks for joining us today. CL: Thanks for having me. Chen Lin writes the popular stock newsletter What Is Chen Buying? What Is Chen Selling?, published and distributed by Taylor Hard Money Advisors, Inc. While a doctoral candidate in aeronautical engineering at Princeton, Lin found his investment strategies were so profitable that he put his Ph.D. on the back burner. He employs a value-oriented approach and often demonstrates excellent market timing due to his exceptional technical analysis. |
||
|
Copyright © 2012 Citizen Economists - All Rights Reserved |
||
Despite the “fugly” future that Bob Moriarty, founder of 321gold.com, talks about in this exclusive interview with The Gold Report, he’s downright bullish on the U.S. dollar for the time being. He says it’s not only a safe haven but “the best investment to be in for the last six months.” As for equities, Moriarty makes it clear that he takes no pleasure in watching a company lose 25% of its value in a week when there is nothing wrong with the company. At the same time, he’s alert to bargains. Any time you have the opportunity to buy cash at a discount, he advises, “throw money at it.”
Jay Taylor believes the biggest challenge facing the U.S.—deflation—could mean a better year, or even decade, for junior gold stocks. Taylor, editor of Jay Taylor’s Gold, Energy & Tech Stocks, has ridden some equities to the bottom of this punishing market and is ready to pile more cash into small gold companies. In this exclusive interview with The Gold Report, he explains why market sentiment hasn’t shaken his faith.
Investors focused on picking the next ailing economy have reinforced gold as the ultimate refuge if all the financial juggling fails. In this exclusive interview with The Gold Report, Chen Lin talks about the effects of risk aversion on the performance of gold stocks. While it has been a tough year for precious metals stocks, there are some very promising stories smart investors should be looking at as others decide to clean house for tax purposes.
Most Popular Posts