Welcome to the Room - September 29, 2006
Welcome to "The Room"
September's Casey Gold Stock Companion is now available: Please Click Here
Last Updated: September 22,2006
In every investment sector, time is a critical element. Here at Casey Research, with the exception of the more conservative Gold Stock Companion
, the mandate is to point subscribers in the direction of companies with the very real potential to double (or better) in the coming 12 months.
While I haven’t taken a look lately, I suspect that, even with the summer doldrums and September’s surprise correction, stocks recommended in our service 8 to 12 months ago are still solidly in the black… with many meeting our mandate. That would not, however, be the case for many stocks purchased, say, in the March to August time frame.
The number of stocks you personally bought in the latter date range will, no doubt, influence your view on the wisdom of investing in this sector. Understandable. Even so, to be fair, the element of time has to be accounted for. Given a rational period of time, we firmly believe the stocks we are now following will, on the whole, be trading for many multiples of where they are today.
Thanks to the latest slap down, however, it may take some time for the market to regain confidence in gold and gold stocks. But we continue—based on the data we watch day in, day out—to steadfastly view any weakness favorably as allowing us to buy right and sit tight, with the firm conviction that, given some time, we will come out a whole lot more than just all right.
Of course, with weakness the order of the day, you can and should be a lot more cautious in placing bids. Case in point: this week AuEx announced phenomenal results from the latest phase of drilling on its Long Canyon project (see full update on the Our Stocks page on this web site). While the company still has a long way to go before we can say conclusively they are on to the major deposit they are after, these results tell us that they continue hunting in the right neighborhood.
And what does the market do? Pushes AuEx up a stingy 1.8% on the day the news was released. It has since added a bit more, but not much. And if gold keeps flopping around, the odds are good the stock will give back even those paltry gains.
Now, you have to set your own sails, but that lack of interest in continued positive news out of one of the most interesting new exploration programs of this cycle, by a company run by Ron Parratt, an Explorers’ League
Honoree, no less, spells opportunity to us. With a capital “O”. No need to rush in, and given the overall softness in the market, you’d be a fool to buy at the market. But you’d be a bigger fool to not take advantage of the weakness to add more of this, and other of the quality stocks, to your portfolio.
In the upcoming quarterly update edition of the International Speculator
, we’ll highlight as “best buys” the companies which are, through the drills, making solid progress on what look to be significant discoveries… but which have gone largely unrecognized by the fretting market.
And to help alleviate some of the worry, we’ll circle back with further evidence that the opportunity in resource stocks not only remains intact but is better than ever.
Yes, the wall of worry is high… but in time, it will
My favorite quote of the week comes from Hungarian Prime Minister Ferenc Gyurcsany who was caught on tape admitting, among other things, that “We did nothing for four years. Nothing. . . We screwed up. Not a little, a lot. . . Plainly, we lied throughout the last year and a half, two years," and the prized sound byte "We lied in the morning, we lied in the evening, and also at night."
The notion that politicians might actually prevaricate apparently caught the Hungarians by surprise, so much so that the not-so-loyal opposition rumbled into the streets with pitchforks and torches in hand. This, despite Ferenc also being heard to say about the lying that “it must stop.”
(As an aside, my second-favorite quote had to be from Chavez the Entertainer, when he commented that the podium our distinguished president had spoken at the day before himself, “smells of sulfur still today.” Whatever his many faults, you have to give Chavez credit for a fine sense of the dramatic.)
Back on point, our own Bud Conrad recently took a closer look at the correlation between the price of gasoline and the popularity of the aforementioned president of these United States.
The parallels are really quite revealing, as you can see for yourself in the chart just below.
Being unencumbered by budgets, and so having limitless staff available to sniff out these things, it’s a safe assumption that elected officialdom has also taken notice of this corollary. Especially given that the connection is so logical.
After all, if you’re a working stiff for whom gasoline-powered transportation provides the daily connection to your paycheck, each weekly or semi-weekly visit to the pump has to be a painful reminder that things are not going exactly to plan.
Or at least not your plan.
Which is to say, having enough money left over at the end of the week for a six-pack of beer or a modest bottle of red (forget about enough money to actually retire and live like a human being some day; the steady erosion of disposable wealth has long since extinguished that hope in the bosom of much of the boobus
How might the politicos push gas prices down pre-election? Cooling down the rhetoric with the Middle East, ignoring the antics of Chavez (or the new oil sales agreements he is signing with the Chinese), waving arms about the big new discovery in the Gulf of Mexico… a discovery which is years, and maybe never, away from being developed.
Power has its privileges, including the privilege of lying without consequence, and having a free pass to yank on the levers of the state at will. I fully expect that those levers are being pulled frantically, and will continue to be, until the November elections.
This just in…
“The Conference Board Consumer Confidence Index, which had increased moderately in July, posted a sharp decline in August. The Index now stands at 99.6 (1985=100), down from 107.0 in July. The Present Situation Index decreased to 123.4 from 134.2. The Expectations Index declined to 83.8 from 88.9 last month. [...]
"Consumer confidence lost significant ground in August and is now at its lowest level this year," says Lynn Franco, Director of The Conference Board Consumer Research Center. "Less favorable business conditions coupled with a less favorable job scenario have resulted in the largest one month decline in confidence since Hurricane Katrina last year. Looking ahead, the glass remains half empty as consumers are growing increasingly more pessimistic about the short-term outlook."
Less confidence, weakened no doubt by falling house prices, translates into less consumerism. Leading to more pressure on the U.S. economy, causing more unemployment. Resulting in more politicians getting more nervous about losing their own jobs, boosting the number of calls made to Fed governors. Triggering a lowering of the Fed Funds rate and unleashing a flood of newly minted money into the system at the same time that the downturn lowers tax receipts and generates higher social spending. Adding to the already out-of-control level of government spending and piling even more debt on top of the government’s paper Everest. Deepening the growing concern of foreigners holding trillions of U.S. dollars, causing same to more actively diversify their assets. Boosting purchases of gold and sending prices higher as the dollar begins to collapse.
Supporting that scenario, according to Bloomberg, net purchases of U.S. Treasury securities by foreigners fell to a four-month low in July, pushing the yield on the benchmark 10-year note to a four-week high.
Lower interest rates and the dollar collapses. Raise interest rates and the economy collapses, requiring more money to be pumped into the system. And the dollar collapses. A rock and a hard place and in either event, gold wins.
If you have a scenario more plausible, we’d love to hear it and may even report it here. Send your thoughts our way at email@example.com.
Below is a chart we haven’t updated in awhile, the volume on the TSX Cap Gold. As you can see, the volume is rising as the summer quiet season ends. Prices, however, aren’t responding… because new purchases are being offset by nervous selling. This too will pass.
No one, including us, can foresee the historical implications of a herd of over-confident twenty- and thirty-something former brokers awash in $2 trillion in OPM (other people’s money), and looking to juice up the returns in order to pull down big performance fees.
But this week we may have seen a preview when Amaranth Advisors, which was the toast of the town after making $2 billion last year, managed to lose $5 billion in a single week by betting wrongly on natural gas.
Doug and I were talking about this yesterday, and his take is that if you were a hedge fund manager with a billion under management and an agreement that would pay you 20% of the upside, might you not consider betting heavily on the financial equivalent of red or black? If you won, and your fund went up 50% in a year, you’d pull down a cool $100 million. That is a big incentive. On the other hand, if you lost… well, so what? It’s not your money. And if you won one year, and tried to do it all over again the next, but lost then, you’d still have your $100 million. Nice work if you can get it.
Meanwhile, the Financial Times reported yesterday that, because volatility in financial markets has eased some, the hedgers view it as being safe to jump back into riskier investments. And why not? They’ll never get their $100 million sitting in Treasury bills.
Expect the worst… but for gold, maybe the best.
The following out of ResourceInvestor.com caught our attention, shedding some light, perhaps, on another reason for gold’s recent swing to the south.
“St. LOUIS (ResourceInvestor.com) -- The European Central Bank reported yesterday that three central banks in the European Gold Agreement (EGA) decreased holdings by EUR 499 million ($633 million) in the week ending September 15. At today’s gold prices, this totals 33 tonnes and puts September’s gold sales at 40 tonnes so far.
“It’s becoming clear that my suspicion that central bank selling is indeed a major factor behind the recent gold decline,” said Peter Grandich, editor of The Grandich Letter, in a note today.
The 15 EGA central banks have now reportedly sold roughly 380 tonnes, still substantially short of the maximum amount of 500 permitted by the agreement. But last week's sale brought the number closer, with one week of sales still remaining prior to the September 27 deadline.
Matthew Turner, commodities analyst for Virtual Metals, told Resource Investor this update might include Portugal's recently announced sale of 20 tonnes.
According to a press release by Banco de Portugal last week, 20 tonnes of its gold reserves were sold in the last few months in the context of the Central Bank Gold Agreement.“
To which we say, “Obrigado, Mr. Central Bankers”. We’ll happily trade you our paper for your gold.
I came across the photo below, taken by our own Louis James, of the first Explorers’ League Summit
, held in Chicago earlier this year. It is of Rick Rule grilling a panel that includes my favorite partner and resident guru Doug Casey, as well as Rob McEwen and Explorers’ League Honorees Ron Parratt, Ron Netolitzky, Simon Ridgway, Ross Beaty, Roman Shklanka and Duane Poliquin.
That is a lot
of knowledge and expertise in a very small space. In fact, up to this point, I don’t think there has ever been anything to rival it.
It’s happening again, this time in Vancouver on October 15 and 16, when Doug will again host Netolitzky, Ridgway, Shklanka and Poliquin, plus Lukas Lundin and John Prochnau at the Casey Research/Explorers’ League Vancouver Gold & Silver Stock Summit.
The X-leaguers will take a fresh look at two topics, “What’s New and Important in Exploration”
and “How You Know You’ve Found a Winner”
in which you’ll learn the specific information you need to know when an early-stage company is actually on to something big… and know it in time to jump on board for the maximum profits.
An event like this, which is deliberately limited in size in order to assure maximum audience/speaker interaction, can be invaluable
in getting you the specific answers to your specific stock questions. If you can make it, do.
Based on the post-conference survey from the first edition of the Summit, you'll be glad you made the effort to attend: 96% of the Chicago participants rated the experience as “Very Good” or “Excellent” (with the majority in the latter camp).
To quote one attendee,
“Thank you for organizing a great event in Chicago. It was great to be in a room of like-minded independent thinkers. It is beyond price to hear thinkers speak more freely in a private venue like this.”
And there was this from another:
“Thank you so much. A great learning experience and a great setup. Being able to speak with the ‘Explorers’ League’ members in such an intimate environment was truly unique.”
To see the full schedule and to sign up, click on the link just below.
Starting next week, depending on the number of slots still available, we’ll broaden our Summit announcements to include affiliated organizations (including Kitco), so if you’re interested in one of the remaining seats at the Summit, please take action right away.
The timing for the event looks to be excellent (i.e. potentially before the markets kick back into full gear) and it will be some time before there will be another. Sign up today. You will be glad you did.
Hope to see you there.
That’s it for this week. As always, thank you for reading, and for subscribing.
Here’s to the rebound in gold!