MarketVVizard's Market Thoughts

Top 380. Oct 11, 2003 1:02 PM

» Normxxx - Re: the size of the Asian economies?

In response to message posted by SouthPacific:

All true and worthwhile, but what about the risks?

1. At the moment, virtually all of the gains in the Asian markets are supported by foreign (mostly U.S.) money. If the Western markets go down, the Asian markets will go down faster (as they have in the past). Of course, the corollary is also true, so the time to invest in the Asian markets is right after a crash.

2. Most of the business of Asia goes to support the U.S. $600B deficit habit. When and/or if the U.S. economy folds (temporarily or finally) as it just did, guess what happens to the Asian economies? When their economies become too large to be maintained by our consumption habit, will they follow in Japan's 1990s footsteps?

3. Corruption and other structural problems in Asia is endemic. Bureaucrats are self-serving, and the laws and courts hardly more than a joke. The last people Asian companies care about are their stockholders, who are there (in their opinion, not unlike that of the U.S. dot com's managers) to be fleeced. Corporate visibility is slim to nonexistent. The Japanese Kiretsu and the Korean Chaebol being representative of the Eastern way of doing business.

4. Never forget that the Chinese rulers are die-hard oligarchs and also highly imperialistic. They will never yield power, as in the Soviet Union, without civil war. They will extend their power into India, Korea, and the other "Tigers." They will fight us and take Taiwan, when they consider themselves ready and the U.S. vulnerable.

Investment timing is everything.

-- posted by Normxxx

Top 381. Oct 11, 2003 1:23 PM

» Normxxx - Re: Net Generals make a comeback -- GOLD

In response to message posted by MarketVVizard:

I do find it interesting that gold has done so well despite the market rallying so much. Flight to safety or the building in of inflationary expectations?

Check out, in this week's Barron's

Midas Touch, By SANDRA WARD
MONDAY, OCTOBER 13, 2003
Goldmoney.com's James Turk believes today's gold price is cheap and can only go higher

-- posted by Normxxx

Top 382. Oct 11, 2003 1:53 PM

» SouthPacific - Re: Re: the size of the Asian economies?

Normxxx,
"All true and worthwhile, but what about the risks? 1. At the moment, virtually all of the gains in the Asian markets are supported by foreign (mostly U.S.) money. If the Western markets go down, the Asian markets will go down faster (as they have in the past). Of course, the corollary is also true, so the time to invest in the Asian markets is right after a crash. 2. Most of the business of Asia goes to support the U.S. $600B deficit habit. When and/or if the U.S. economy folds (temporarily or finally) as it just did, guess what happens to the Asian economies?"

The risk in Asia would seem to be substantial since their economies are still greatly influenced by American consumers; but the global nexus of support makes it increasingly difficult to guess who would dare pull the rug out from under who? In some ways contemporary global finance resembles an international Kiretsu.

-- posted by SouthPacific

Top 383. Oct 11, 2003 8:03 PM

» Normxxx - Re: Re: Re: the size of the Asian economies?

In response to message posted by SouthPacific:

You're being kind. Chaos is closer to it.

-- posted by Normxxx

http://www.nytimes.com/2003/10/12/busine...

Top 384. Oct 12, 2003 11:48 AM

» SouthPacific - Re: Re: Re: Re: the size of the Asian economies?

In response to message posted by Normxxx:

Normxxx,
You may be right.

For those interested in gold(I've never owned any), this looks like a cost effective way for small investors to own the pure metal with a reasonable expense ratio.

snips from the NYTimes article:

October 12, 2003
New Glamour for an Old-Fashioned Asset
By CONRAD DE AENLLE

"If investors want to get into gold, they can take many paths - and the decision can be crucial. Few conventional investments are more cumbersome and costly. Gold pays no income and can be expensive to store, and trading commissions are typically far higher than those for stocks and bonds.

One way to cope with these obstacles may be a fund called Equity Gold Trust, which is being considered for approval by regulators and is expected to be listed on the New York Stock Exchange. The fund will hold one asset - gold bullion - and is intended to make gold cheaper for small investors.

Each share of the fund will be worth one-tenth of an ounce of gold, minus fund expenses, and will be redeemable for cash. The bullion will be stored in the London vault of HSBC Holdings, the big banking company. Because there is no active management, and because the sponsor of the fund, an industry association called the World Gold Council, will hold the bullion in bulk, the annual expenses are projected to be about 0.2 percent of assets, or about 8 cents a share, based on the current price of bullion.

This issue is a pure-play in gold," Mr. Cox at Citigroup said. "One could settle the shares any day based on the daily price in London, so there is liquidity. The idea seems to allow for very small investments."

"Gold now trades at $373.55 an ounce, up from about $270 early in 2001. And by one important measure, it is treasured more than ever, prompting some analysts to urge caution. Global Market Perspective, an investment advisory newsletter published by a technical analyst, Robert Prechter, said in its September issue that large speculators in the gold futures that are traded on the Comex division of the New York Mercantile Exchange had accumulated their largest-ever net holding of long positions. The newsletter noted that previous peaks of nearly the same magnitude had heralded substantial price declines, and it predicted that another would occur."

-- posted by SouthPacific

Top 385. Oct 13, 2003 4:37 PM

» Normxxx - Re: GOLD!

In response to message posted by SouthPacific:

<img src="http://graphics7.nytimes.com/images/2003..." width="184" height="220" border="0" align="center">

Part of HSBC's gold stockpile in London.

Gold is a fairly risky investment, but in this world, you cannot afford to be without some. Owning precious metals is an insurance policy against the Fed, inflation, tough economic times, a currency debacle, or just against the successful attempt by our government to champion a lower dollar. It should be used as another asset class for asset allocation purposes. In the latest issue of Grant's Interest Rate Observer, Jim Grant writes: "[Gold] is a hedge. However, in my opinion, it is a hedge bargain. The value of a hedge should vary according to the cost and imminence of the risks being hedged against. In the case of gold, the risks are monetary. They are potentially very costly, and they are more than imminent. They are upon us in the shape of burgeoning deficits and a radically reflationary policy stance. Owning gold, you are insuring not against what may be, but against what already is."

Depending upon your sophistication and your specific knowledge of the asset class, you might keep 10 to 20% of your assets in Gold.

Neither Gold nor Gold stocks trade like equities. Unlike equities, Gold tends to make sharp spike tops, as well as V bottoms, although it can languish in a trading range for years. Since it is strongly influenced by geopolitics as well as finance, especially the politics of the central banks, it is quite erratic. Despite what some market letters say, gold cannot really be timed -- TA simply does not work. The best strategy for accumulating gold is to wait until it hits a bottom and then buy. Unlike stocks, you can accumulate it on the way down (once it has dropped sharply enough). Remember, Gold is insurance against financial catastrophe! If you try to trade it, you will surely lose your shirt (although, you can trade a portion of it --i.e., you can let it range between 10 to 20% of assets). Don't expect to make money on buying and holding it either; Gold moves up and down in broad sweeps depending on the world situation (financial and geopolitical).

Since endemic inflation is a property of fiat money, there is probably now a very long term tendency for the price of Gold to rise. But we have only been on a purely world fiat money system since 1976 (when Nixon stopped the convertability of dollars into Gold). That's much too short a period of time to make any profound pronouncements; but since then, the price of Gold has risen from $35 to $850, dropped to around $250, and recently has risen to about $370.

The $850 an ounce or so top in Gold is something over $2000 dollars in today's dollars (but that was during a very inflationary period which is good for Gold and other commodities), so there is likely still some room at the top. On the other hand, Gold will not fall much below $250 an ounce, since that is around the average cost of mining it (at that price, the Gold mines start shutting down). The cost of mining Gold is much different for the different mines and there is political and currency risk in many of the countries (e.g., South Africa) where it is mined. There is also mining risk:

[News item: It was a nightmare. On Thursday morning, Freeport-McMoRan Copper & Gold (FCX) experienced a tragic mine collapse that killed and injured mine workers at the open pit mine in Indonesia. This mine collapse and loss of life will increase geo-political tension for FCX. Reports were skimpy but the company expected the disaster to impact production forecasts sending the stock into a tailspin, down over 10% at one point.]

Also, some mines hedge their future production, which lowers their value in a rising market. And some mines exist on paper only and have yet to show an actual physical ounce of the stuff. The Gold mining industry is very small: I believe the total market cap of GM exceeds that of the entire Gold mining industry. So beware when there is a rush to buy Gold mines. (The advantage of owning some Gold stocks is that they are highly leveraged -- some much more than others -- and, in a rising market will go up many times the actual price of Gold. But, of course, the reverse is also true.)

YOU MUST DO YOUR DUE DILIGENCE FOR ANY GOLD MINING STOCK YOU CONTEMPLATE BUYING!

Always remember (despite what you will read) there is little use for Gold outside of jewelry (which is just another way of accumulating the physical metal). It has some use in electronics, but not much, primarily because of price instability (not because of high price). The central banks own tons of the stuff, but if they could find an agreeable substitute, would gladly dump it, as they have in the recent past. On the other hand, China may soon allow their citizens to own Gold, in which case there should be a brief run on it. But, in general, the so-called "monetary" value of Gold is purely PR (rather like some internet/dot.com stocks when the going was/is good).

You probably want to divide your money for the Gold class more or less evenly between the (paper or physical) bullion and the mining stocks (when the stocks are not ridiculously priced), for reasons beyond the scope of this message.

In general, when Gold is hot, the mining stocks can sell at much more than the value of their proven and probable reserves. The closed-end Central Fund of Canada. Ltd has until recently sold for as much as a 25% premium over the value of the gold and silver they owned in their vaults!

Since the "paper" gold (Equity Gold Trust or equivalent) will be interchangeable with the physical metal (or its equivalent in cash), this should not happen with it (thanks to arbitrage activities), but there is likely to be a small premium (= "fund expenses") because of the inclusive costs involved in servicing the "paper" gold. Costs of storage, insurance, security, etc., which would be included, are seperate from the price of the physical metal.

If you take a look at the long-term chart showing the net-position of Commercial traders in COMEX gold futures at http://www.cairns.net.au/~sharefin/Marke... you'll see that the Commercial traders, as far as their positions in the futures market are concerned, are almost always on the WRONG side of the major price trend. For example, the Commercials were relentlessly net-long gold futures during the bear-market years of 1996-2000 and have been relentlessly net-short since April of 2001, when Gold started its most recent uptrend. Furthermore, as the gold price has trended higher, the commercial net-short position has also trended higher. In fact, on 2nd September (the cut-off date for a recent Commitments of Traders Report), it was at an all-time high of 164,000 contracts.

A commercial net-short position in gold futures shouldn't, therefore, be considered as being bearish for gold. What an extremely high commercial net-short position and correspondingly high speculative net-long position does mean is that when a trend change eventually occurs it will be followed by a substantial decline. This is because the speculators will rush for the exit once important support levels give way and there will be a lot of speculators trying to fit through a relatively small exit (and it is just after such a panic drop in the price that Gold becomes a relatively good buy). However, the size of the commercial net-short position gives us no information as to when and at what price level a trend change is likely to occur.

[News Item: SYDNEY, Sept 18 (Reuters) - World gold prices would be pressured lower if leading European central banks agree to increase the amount of gold they sell each year to more than 480 tonnes, JP Morgan said on Thursday.

The banks are currently limited under the Washington Agreement to sales of 400 tonnes a year, but the five-year agreement expires in September 2004 and traders are speculating they are about to thrash out a new gold sales pact.

"The consensus is that anything more than 480 tonnes would hurt the gold price," JP Morgan gold analyst Geoff Breen told Reuters.

But any downward slide in bullion prices would probably be short-lived, as investors focus longer-term on a weak U.S. dollar, low interest rates and falling mine production as reasons to buy the precious metal, Breen said.]

-- posted by Normxxx

Top 386. Oct 13, 2003 5:30 PM

» Kirk - Re: Gold for the Small Investor

.
In response to message posted by SouthPacific:

For those interested in gold(I've never owned any), this looks like a cost effective way for small investors to own the pure metal with a reasonable expense ratio.

Why is HHH the first thing that comes to mind when I read that article?

Whenever the NYSE wants to "make things easier for the small investor" I am reminded of my favorite investment quotes:

"When the fish are biting, feed the fish."

Maybe it will be different this time? smile

-- posted by Kirk

Top 387. Oct 14, 2003 8:30 AM

» Normxxx - Re: Re: Gold for the Small Investor

In response to message posted by Kirk:

Right now, Gold is almost purely a bet on a further drop in the dollar. The drop in the dollar from its recent high, i.e., against the EURO, is about 25-30%; the rise in Gold from its recent low is about 33-35%. In other words, there has been little or no rise in the absolute value of Gold (i.e., as measured against a basket of world currencies); there has been a drop in the value of the dollar.

You could try another currency instead (if you figure the dollar will continue falling); you could get CDs denominated in EUROS, AU$, NZ$, CA$, or baskets of currencies. But then, you still have to worrry about what is backing these currencies (answer: the full faith of their governments). You might want to combine such a strategy with owning Gold or Gold stocks.

-- posted by Normxxx

Top 388. Oct 14, 2003 8:44 AM

» Normxxx - Re: Re: Gold for the Small Investor

In response to message posted by Kirk:

You know, there IS a strong resemblence between the HHH graph and a graph of Gold since 1980, including the recent upturn!

-- posted by Normxxx