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Heretical Corner

S2S           Mon  4-June-2007 8AM
Mortgage "pools" and Chinese stagflation

I am surprised (see *); Deutsche Bank is a well reputable institution.  Are they getting so desperate as to buy those "cats in a bag".  It may indicate a big problem, especially if it turns out that the mortgage buyer cannot sue the original mortgage issuer and if not - then the "pooled" mortgage assets would become less of an asset than the banks thought they were...

I am now more inclined to view a "pseudo-deflationary" scenario as the serious posibility and have to give a credit to Robert Prechter.   "pseudo" means that in the situation of rapidly (>=10%) inflating currency and credit supply, a "pseudo-deflation" will be showing up as the prices still rising in nominal figures, but at the rate than is LOWER than the rate of inflation!  That is the classical stagflation - the old fashion deflationary recession in modern dressing disguised by the rising monetary supply!   This can and eventually will affect the raw materials but these will deflate the least, i.e. their prices will appear and only appear to be rising the fastest.  However they (**) will still be rising slower than monetary inflation rate due to the real slowdown in the economic activity worldwide with the exception of India and China.  At the moment the GDP in most economies is rising nominally much slower (~3%) than the rate of currency and credit inflation (10-13%)  in almost all countries except India and China (8 and 10% respectively)

By those measures the real GDP growth worldwide is negative ~ -7% indicating the real recession and is stagnant in India and China, indicating that the stagnation in the rising living standards in China and their 14% unemployment is very real and has nothing to do with the influx of the countryside population into the cities.  It is in fact the consequence of the stagnation!

Prediction:  expect social upheavals and changes  in China, Russia and in most other undemocratic countries!   Stagnating living standards under very high overblown expectations caused by the distorted media image and propaganda of "success" are the social powder keg.  Only very stable socially, and democratic societies  can survive such stagnation or recession without suffering some major socio-political crisis.

Stan

-----------------

 *) Read this:

http://biz.yahoo.com/fo/070601/549844fec1f41a3861ca5c3c697b9106.html?.v=1&.pf=loans

Forbes Magazine
Paper Chase
Friday June 1, 12:42 pm ET

By Bernard Condon
You're in luck. Your mortgage lender has flipped, sliced and diced your loan--and now no one knows who holds it.

In 2006 Michelle Tucker, a 35-year-old UPS package processor and mother of two, was hit by a one-two punch. Her husband had surgery on his shoulder and was forced to stop taking construction jobs around town that helped pay the bills. Worse, the adjustable mortgage with the low teaser rate she took out on her three-bedroom home in Jacksonville, Fla. adjusted, now to 10%, nearly double her old rate. She defaulted. Soon after, the lender filed suit to foreclose.

Then a stroke of luck: A Legal Aid lawyer, April Charney, got the foreclosure withdrawn after discovering that the company that filed to foreclose didn't own the Tuckers' loan. The owner was actually a securitized pool of loans overseen by Deutsche Bank (NYSE:DB - News). And Charney has documents showing the pool bought the loan after the Tuckers defaulted--an illegal purchase for most pools, including this one. That means a court might refuse to recognize it owns the loan. Charney is arguing it should do just that.

------

 **) With a likely exception of gold and other precious metals which should rise at or higher than inflation rate, since their demand is not determined by the industrial cycles but rather by the hedging against an instability of the monetary policy.

S2S           Thgu 24-May-2007 10AM
Banks

This is a good example of what we were talking about yesterday:

http://www.jsonline.com/story/index.aspx?id=610122

Credit card companies and banks get an average of 2.75% on every gallon of gas sold, and credit card processing fees now rank as the second-biggest expense for gas station operators, according to the National Association of Convenience Stores.

The way I see it is, I'm doing all the work of providing the labor, the wages, the electricity, the lighting, the maintenance of the pumps, the repairs and the insurance, which is quite substantial," Curro said. "I'm doing all the work, and somebody else is getting fat on me."

Comment:

Flooding the economy with cheap credit (= inflationary "square"[*] dollars policy) causes overinvestment in all unregulated commercial sectors such as manufacturing, investment funds, brokers and consumer retail heavily depressing their profitability.   Regulated or monopolised sectors such as banking, health and mineral resources are not affected as much because it is easier to build yet another factory in China making 30$  DVD players or website generating eyballs than set up a new bank or build a new mine where everything that can go wrong usually does go wrong and things cannot be planned very well.

It leads to a situation where entire manufacturing sector becomes unprofitable and forced to lower the prices in order to sell at all, depressing wages as well.  Meantime the raw materials, energy and food become bottlenecks eroding the disposable incomes of people employed in manufacturing and service sectors.  This is a classical malinvestment disease cycles described in the classical analyses of the 19-th century Europe.

Inflationary effects of printing "square" dollars are offset by depressed pricing in the overinvested sectors, thus the "averaged" inflation, if one adds falling prices for LCD TV sets plus rising prices of butter, the average inflation comes out low or zero.   This keeps square dollar interest rates low permitting to generate even more credit.    It is similiar to Weimar Republic scenario when up until the final curency blowout the interest rates have been stable and low (6%).  The lesson from those days is anyone who kept gold or some other stable currency or hard assets - won!   Another lesson is that in such cases 80% of people tend to vote for dictators...

------------

*)  We use terms "square" dolar indicating a measure of commercial credit, as opposed to the "round" dollars meaning cash and savings.   "Square" dollars are the currency used by large institutions while "round" dollars are the curency used by the general population.   Those two currencies are circulating through distinct channels and generally do not mix, with the exception of one possible leakage allowing converting of "squares" into "round" dollars - mortgage credit.

S2S           Mon 12-Feb-2007 9AM
More corporate successes

http://www.msnbc.msn.com/id/17104615/

US slowdown looms as groups miss targets
By Francesco Guerrera in New York

Updated: 1:40 a.m. CT Feb 12, 2007

The percentage of US companies failing to meet Wall Street's earnings expectations has reached the highest level in more than two years, fuelling fears that corporate America's record run of profit growth will come to an abrupt end.     Concerns of a slowdown in corporate profitability – one of the key reasons for the stock market's record-breaking streak – have been heightened by companies' increasingly bearish outlook on business prospects.

Comment [morning rant warn level=MODERATE]:

  In spite of the supposedly "healthy robust" economy according to other journalistic reports?     In spite of virtually free and infinitely extendable corporate credit?   In spite of evacutating almost all manufacturing to India and China?    They are contradicting their own media propaganda of "success", just like late Gierek in the communist Poland of the 1970-ties.

I am guessing, but it seems that the virtually free credit machine may have hit a snag.   There must be something in the financial mechanisms that is now putting a brake on the fake profit generation out of the fake, credit-stimulated phony corporate "growth" that has been working so smoothly after 1996.  What would that snag be?   Could it be the higher interest rates?  Hardly, the rates haven't risen that much.   The recent merger mania may have something to do with that - but I think it may be  one of the symptomes of desperation rather than the cause.  My gut feeling tells me that something serious is comming their way but  they  are of course not telling us, and I do not know yet what exactly it might be.

Stan

S2S           Sun 11-Feb-2007 3PM
Telecoms

Stan B. wrote:

Look how  [... censored 6 letter word beginning with f and ending with d] they are:

http://news.bbc.co.uk/2/hi/business/6345363.stm

Telecoms firm to cut 12,500 jobs

Patricia Russo said the firm's results so far had been disappointing   Newly-merged telecoms equipment firm Alcatel-Lucent is to cut 12,500 jobs over the next three years after suffering a collapse in profits.  The firm said the cuts were "difficult but necessary" as it sought savings of more than 1.7bn euros ($2.2bn; £1.1bn).  The firm has struggled over the past year, with profits more than halving to 522m euros in 2006 and the business making a loss in the final quarter.  It blamed the result on uncertainty surrounding its eventual merger.
...
Full-year profits fell to 522m from 1.67bn euros the year before as the business was hit by substantial one-off costs relating to restructuring and the reduced value of assets.

Comment:

    It looks like they followed a classical receipe for trading two cats for a dog for a million dollar price [referring to an old Polish salesman's joke of trading two cats for 500,000$ each, in exchange for a dog worth 1M$] .   Beefing up their nominal profits and assets by fiddling their accounts and let all hell break loose afterwards.   We are witnessing a fraud on gigantic scale.  There is no hope until they all go bust - Alcatel, Nortel etc, all of them!.    If that does not happen, millions of people working for them and "investing" in them will keep getting poorer and poorer.

Stan

S2S           Sun 4-Feb-2007 2PM
Important comment

Stan B. wrote:

http://www.financialsense.com/Market/wrapup.htm

  It's worth reading it all (note the wrapup will stay under this link only for 1 day so read it now or save it all (with graphs)  on your local hard disk.

  Stan

  --------------

  Today's Market WrapUp  02.02.2007

  We're Swimming in Liquidity, Aren't We?
  BY BRIAN PRETTI

  Although I’m pretty darn guilty of this personally, I can’t turn around these days without hearing the words, “it’s a liquidity driven market.” Trust   me, this is not about to go off into yet another discussion of the macro credit cycle. Collectively, we know global central bankers are “sponsoring”   excess liquidity. We know Wall Street is capable of the same and is fully in gear at this point. We know the derivatives markets underpin excessive   risk taking on the part of investors. We know private equity is the new fountain of youth for the institutional investment community. And we know   leveraged hedge funds are not about to change their collective ways any time soon.

  But what we don’t know is how households/consumers will react ahead as, very much unlike the financial markets, they are not swimming in   liquidity. Not by a long shot. At least not relative to the context of history. Given my fixation on the residential real estate cycle being an asset   class capable of behavior modification when it comes to the US consumer, it highlights the need to fully recognize that US household excess   liquidity availability has largely been driven by the monetization of asset inflation in both equities late last decade and residential real estate in the   current, to say nothing of additional leverage assumption. In literally point blank terms, the following chart documents just how important stock  and real estate asset inflation has been to growth in household net worth by the decade over the last half century-plus. As is clear, real estate and
  equities have never been more meaningful to aggregate household net worth expansion than is the case in the current decade. Hence, incredibly  meaningful to consumer behavior.
  ...

Stan P. wrote:

This is a great article! I have not seen it. Thank you.  Rarely one has an opportunity to see a graphical representation of what everybody is talking about in real numbers.  I would like to point out what is missing in this article as well. We both KNOW what will happen next.
We have been there - or at least our Polish families in late 80's and 90's.

First. When the government is printing credit it will always leak into real "goods and services" economy through the "door" of asset inflation. In Poland these were "cars, furs, gold, land..." anything tangible of real value.

Second. When the government is printing money it does NOT make sense to have savings. They will be inflated out.   It does make sense to own assets, though. In this sense US consumers behave PERFECTLY REASONABLY

Third: Neither US consumers nor US government will EVER pay back these loans. They will be inflated out of existence.

Fourth: At some point dollar, just like Jaruzelski's zloty, will break down. Once actual debasement starts nobody wants the paper. However, at this point you can not have any debts either. Because, just like in Poland, the bank interest rates on borrowed money may go to 80% or higher. It HAS TO be higher then tax-adjusted rate of inflation or the economy, the banking system will collapse.  I had many friends in Poland whose bank debt principal was inflated to near zero but who had mortgage payments of 80% of a home value every YEAR. They went bankrupt. There were millions who had "spoldzielcze mieszkanie"  who could not pay the interest

Five: Deflation WILL not happen. It is easy to prevent by printing money a la Japanese.

Six:  If all mortgages go into default then the banks can not simply foreclose. What they will do with millions of properties they cannot sell? What they will do if people simply refuse to leave? These banks will be bankrupt anyway because the cash flow will dry out.

Seven: Just like in Poland the government will have to pay everybody a minimum pension sufficient for survival. ("Emerytury starego portfela" takie jak mejej mamy. Wszyscy jednakowo, bez wzgledu na staz pracy i pozycje. Nie bedzie innego wyjscia.)

Eight: When you have millions of mortgages in default and no cash the government HAS TO step in. They have to take the ownership of your home and let you live in it until you die. They also have to sent seniors a monthly cheque sufficient for survival. This is not a jungle...

Nine: If everything else fails the USA has one  guaranteed, though one-time way out. They can exchange the currency, like the communists.  Overnight, the trillions of dollars owned by chinese or arabs will lose value. Dollar will cease to be the reserve currency and LIFE WILL GO ON!

Ten: I do not believe it will come to this. It is in nobody interest. Instead, the Dollar will have to be devalued and the interest rates will have to stay low. This can be achieved by removing the excess credit and letting the currency slide. The Japanese/German solution! 20 years of no-growth, no-bancrupcies until the balance sheets improve.

Eleven: When people die, their debts don't matter. This is a game of time. If they manage to "swim" long enough, like 30 years, without "drowning" then the entire problem will disappear with the deaths of baby boomers.

Twelve: USA is a very productive economy. The boomers are competent people. This is not a moribound Gierek's situation [1970-ties Poland].  They will find a way out though many will take a haircut.

My point is not to allow the government to haircut us.  I seriously warn you: when the dollar eventually starts sliding not to owe any variable-rate debts.  Fixed rate liability is OK - it will nullify itself. [ unless the government changes the rules of the game, which they CAN DO]   If you have debts you have to pay them in full before the collapse or they will destroy your net worth.    Stanley

S2S           Thu 25-Jan-2007 7PM
Banks deserve Nobel Prize in economics

It's wonderful, isn't it?  Something created out of nothing, out of thin air!   Large companies have been doing it all the time.  Note that as long as more and more paper credit is generated, and as long as that "production" keeps accelerating, that is the second derrivative is >0, then it will also keep interest rates on savings and deposits depressed!   If credit is cheap to get, nobody is going to pay you anything to keep YOUR savings in their bank!  Why should they?    The interbank interest rates will be then also generally depressed for the same reason.  Interest rates = the "cost" of money.

Depressed interest rates makes it possible to accelerate the generation of more new creadit or even money - bank notes!  Now that is a real perpetual motion machine!    The only problem is inflation but as long as manufacturing keeps expanding at the same rate as money, i.e ~10% a year, then there will be no consumer inflation!      The only dark cloud on the horizon are those goods that cannot be physically expanded at the above rate.  Would you like to offer your guess as to what that might be? 

Stan B.

Stanley P. wrote:

I have just learned an interesting fact.
If one uses a debit card for purchases and there is not sufficient money
in the account then in the past the transaction was refused.
Not any more. Now the transaction will go through, but later you will be
hit with $27.20 overdraft fee.
This is done, of course, for customer's convenience.
I think this invention deserves a Nobel prize in economics.
Stan

S2S           Thu 25-Jan-2007 7PM
Successes are rewarded

Stanley P. wrote:

Successes are rewarded:
Ford Motor Co. lost a staggering $12.7 billion in 2006 -- an average of $1,925 for every car and truck it sold...
...because of interest on its debt, "total automotive results are expected to be worse in 2007 than in 2006...
...the losses were far from the largest corporate deficits on record -- Time Warner Inc. reported a $97.2 billion loss in 2002
...Ford Motor Co. may offer performance bonuses to white-collar workers in an effort to keep them with the company to help lead its restructuring...

more successes to come:
,,,For the year, sales [of existing homes] fell by 8.4 percent, the biggest annual decline since 1989...
but economists said they believe the low point for housing has been reached and they are forecasting a slow rebound in 2007. Because of that optimism, analysts don't believe the slump in housing will drag the overall economy into a recession....

B2S           Sat 13-Jan-2007 11am
Bears

Bob D. wrote:

Thanks Stan. I don't exactly from a lay point of view, how it would sound. From a common arms length view, would mention that right to me,  the climate is right for the bear. Stan, every darn cement factory in Canada is expanding, little shit pit copper mines are open, a gold fever is enveloping, and consumers confidence is high while being debt ridden as never before. perhaps you could give ne a little tutoring before the post?

Bears not hibernating in 2007 GRRR!!!

I agree with this, it does look dodgy.  The current property boom in Canada (except perhaps Alberta) seems to be basically following the inflationary rise in building material costs of 5-10%/y.   I don't see it sustainable because of the high and rising energy costs will push the material costs, especially cement much higher eroding profits, and will simultaneously dampen the customer's enthusiasm to keep heating the extra housing and comuting between those cottages.     Looks like the capital is screaming to find anything at a higer yield than 4% and they are scrapping off a bottom of a barrel.   Now that the conservative prime minister Harper has successfully managed to obliterate the income trusts  impoverishing large number of retirees in the process, there is probably less choices for investors than ever before in history.

I don't know much about banking.  I came across frequent statements from some analysts that banking sector does very well when interest rates are stable or falling.   The last 20 years have been like that - very favorable for the banks.  How many more years will this trend of falling or stable interest rates last?  I don't know.   My guess is as long until they figure out and publish the true rate of inflation.

Stan

S2S           Tue 9-Jan-2007 4PM
Economic "miracle"

How can you reconcile the following mutually inconsistent facts:

1. mild winter and
2. flat or slowly growing natgas prices ~6.6$ today

3. oil supply disruption in Nigeria, Russia and more sabre-rattling in Iran, and
4. oil prices dropping happily by 10$ ?

What if Germany and Poland will have to start buying 2M barrels of oil next quarter in tankers, on the open market?
Has that been already priced in that 55$ price?   I am not getting it....

S2S         Mon  8-Jan-2007 3PM
Severe correction?

http://www.bloomberg.com/apps/news?pid=20601087&sid=afYGFBA.L8PQ&refer=home

Global Markets Face `Severe Correction,' Faber Says (Update4)

By Ian C. Sayson and Pimm Fox

Jan. 8 (Bloomberg) -- Marc Faber, who predicted the U.S. stock market crash in 1987, said global assets are poised for a ``severe correction'' and it's time to sell.

``In the next few months, we could get a severe correction in all asset markets,'' Faber said in an interview with Bloomberg Television in New York. ``In a selling panic you should buy, but in the buying mania that we have now the wisest course of action is to liquidate.''  ...

S2S       Mon 8-Jan-2007 1PM
More Ford

Stanley P. wrote:

You have smartly avoided to voice any conclusions.
  Yes, I think Ford will go under and GM will survive.
  But GM has to change the front grill and cupholder on its models too.
  Only then people will ignore Toyota and start buying SUV's
  S

I don't have a conclusion and I cannot predict which one would survive.  They may even both go under.    Perfecting the cupholders will get nowhere, however both companies have enough fat to survive just by eating their own people.   Both companies have enough know how to produce good cars if they ever choose to do so.    It would be twice as expensive as Honda but they have enough resources to subsidize every car they sell for a few years.

I now nothing about autobiz but if I wanted to gamble I would short the one that is expected to succeed by most people.   Let me check the actual numbers:

Table: Cost of calls and puts for Jan-2008 at the striking price equal to todays (8-Jan-2007) stock value  F=7.7$, GM=30.4$ (based on
http://finance.yahoo.com/q/op?s=F&m=2008-01):

     | FORD              | GENERAL MOTORS
-----|-------------------|------------------
CALL | 20% (1.55$@7.50$) | 16% (4.91$@30$)
PUT  | 13% (1.00$@7.50$) | 14% (4.30$@30$)

That means that probably a similiar number of people expects GM to go up versus down as whitnessed by similiar prices of calls and puts 16%:14%, while most opinions about F would be to go UP, since the Ford's call options are very expensive at 20% of the stock price!   Actually, I did not expect that
because the media has managed to portray Ford as a bunch of loosers while hyping GM up beyond belief, plus all that Kerkorian thing.   That shows that one must not form an opinion based on media on anything.  "Prasa klamie" [media lie].

In the light of that I would probably short F since the puts are cheaper than calls and to me it is bearish.  If one believes that odds of each company are 50:50 then it may make more sense to short the cheaper play but be prepared that you may loose with a ~50% chance.   Under these assumptions you may probably break even if Ford goes down with p=50% by about 2$ (-26%) within the next few months.   Interestingly, to protect such a play against entire sector collapse [error, it should be SECTOR INCREASE] a Ford put would have to be coupled with a GM call.

If you played F long then it would have had to go up by 40% (3$) for the same break even.   It doesn't make me rush to play it.  I would rather continue
exploring uranium, energy etc.   I think the entire industrial manufacturing sector including automotive, electronics, computers, software etc are all highly vulnerable to cheap labor from India and China, rising energy costs and inflation killing the purchasing power,  and not much of an upside potential in real terms after inflation adjustment.   Even if we assume that they are going to tap onto a virtually free credit and free borrowing [courtesy of US Federal Reserve policy] - all that means simply more M&A but not the real growth.

Stan

S2S         Sun 7-Jan-2007 6PM
Ford

That article put me to sleep.  When I woke up, everything around me looked like shades of metallic gray and all was foggy and bland.      Interestingly, I noticed that a GM's (I think) 2 door Pontiac Pursuit was quite a nice car to drive, I rented one for Hamilton trip in Nov.   I was pleasantly surprised.    I wonder if Ford has got something like that.    May be that's why Kerkorian paid 20+ bucks for GM but not for Ford.   I have a feeling that everybody is now expecting F to go under and GM to survive.  Being a contrarian it may make perhaps more sense to play on the opposite outcome.   I think the way the pros play shorts is that they play it differentially, one against the other so when they short one, they long another company of the same sector.

Stan

Stanley P. wrote:

Hello Stan
 I am sending you a copy of a very interesting article from yahoo. Please read. I do not comment.   I believe your conclusions will be the same as mine  Staszek

Ford's Future May Rest on 2 Redesigns
  Sunday January 7, 10:55 am ET
  By Tom Krisher, AP Business Writer

  With Automaker's Future at Stake, Ford Engineers Update Aging Focus, Pedestrian Five Hundred
  DEARBORN, Mich. (AP) -- The challenge from Ford Motor Co.'s top brass was daunting: Take an old car and a bland one and make them better. Don't  change their basic frames and footprints, but make them look and feel new. And by the way, the future of the company is at stake, because if they don't sell,   the automaker could run out of money.
...
  Ford has mortgaged its assets to borrow up to $23.4 billion to fund a massive restructuring plan and cover billions in losses expected until 2009. The
  company, which lost $7 billion in the first nine months of last year, expects to burn up $17 billion in cash during the next two years.
...
  They raised the sheet metal on the sides, shrinking the window size to give it a sloping, sportier look, with horizontal creases in the sheet metal. here's more chrome on the grille, mimicking Ford's successful Fusion mid-sized car, and the hood became more rounded.  ...  The interior is simple but modern with nicer seats, lighted cupholders and more expensive materials including a brushed aluminum look for the dashboard and
  blue instrument lighting.     The new Focus also is among the models to get the optional Ford-Microsoft "Sync" system that integrates cell phones and personal music players into the  car's electronics, something Ford hopes will appeal to younger buyers.  ...

S2S           Fri  29-Dec-2006  9PM
U₃O₈ - new uranium play in Guyana

What do you think of Guyana?
They are going public, here is the news:

http://www.u308corp.com/

Note who is on the board of directors:  Dr. Keith Fourtybanger !

Stan B.

S2S           28-Dec-2006  9PM
One bad apple

Stan B. wrote:

http://www.ft.com/cms/s/801e1b82-9605-11db-9976-0000779e2340.html

Apple ‘falsified’ files on Jobs’ options

By Richard Waters in San Francisco

Published: December 28 2006 00:21 | Last updated: December 28 2006 15:08

Steve Jobs, chief executive of Apple Computer, was handed 7.5m stock options in 2001 without the required authorisation from the company’s board of directors, according to people familiar with the matter.  Records that purported to show a full board meeting had taken place to approve Mr Jobs’ remuneration, as required by Apple’s procedures, were later falsified. These are now among the pieces of evidence being weighed by the Securities and Exchange Commission as it decides whether to pursue a case against the company or any individuals over the affair, according to these people. News of the irregularities, which is expected to be revealed in a regulatory filing by Apple before the end of this week, will add to pressure that has been growing on one of Silicon Valley’s most highly-regarded companies since the middle of 2005.

and

http://www.financialsense.com/editorials/cooke/2006/1227.html

ALGERIA INCREASES THE PRICE OF OIL
by Ronald R. Cooke

...National mandates to increase the fees and taxes charged against production and refining is happening throughout the world. Existing contract obligations are disregarded at the whim of each nation’s political establishment. This trend guarantees higher prices are a permanent fixture of  the world’s oil and natural gas supply chain.

-----

Comment: it was predictable, we thought of that as a very strong possibility.  First Russia, then Venezuela, Bolivia now Algieria.  Who is next?   The new political theory that all oil/gold and God knows what -  belongs to the "people" - will guarantee that:

1) people will get poorer
2) governments will get more powerful
3) oil and gas exploration will slow down
4) price of oil and gas will go up.

If you bought oil and gas you will do fine, I think.  Probably.

Stan [B.]

Re: Apple.

Thanks, I have read similar articles, but not this complete. I have found it interesting that the fact "the record of board meetings... as falsified" is called "irregularity". Besides, If the board did not know then the only people who COULD give themselves stock options were CEO and CFO.

Re: Oil and Gas contracts

I do not think I am surprised. Steven Harper lied to voters to get elected. Governments "word" was never worth a paper it was written on and this includes western democracies, even the best ones. You will be hard press to find a justification for French occupation of Algeria, 300 years of Brits pillaging India or the Boer war - after the discovery  of gold in SA Contrary to you I do NOT think abuse and disregard of law will make government stronger.  It will make them weaker. Governments are only as strong as their population support. In short, South Korea is stronger then North Korea and Chile is stronger then Cuba. Idi Amin-Dada has found this out first hand. Pity all weak governments have to resort to internal cruelty to stay in power - they have no other means. But this is not the sign of strength. USA, Canada and other democratic countries seem "weak", but are nothing but.

I have found a peculiar thing in respect to you and me. In many areas I have found myself starting as an odd-ball and ending right smack in the centre. This has happened NOT because we have changed, but because the society around us has changed. The examples abound both in my life and yours. For example, nobody [but you] was interested in trans fats 5 years ago. Margarine was considered "healthy". Now New York state has banned all trans-fats with very short implementation period. You have quit the corporate world 10 years ago. I am trying right now. I think we will soon find ourselves at the tip of an iceberg. "Common" people are very patient, but not stupid. Abuse of power and privilege in a democratic society usually ends badly for the abusers. They will not be punished. Life will find a way around them and they  will become irrelevant. Call it the "italian" way. People need leaders and will follow them. They can also recognize fraud and crap. In totalitarian societies it almost always ends in bloodshed. In a democracy bullshitters will eventually become irrelevant. The governments are bankrupt and they will have to renege on more and more promises. But people have to keep feeding their children and take care of their parents. They will find a way to do it. Steve Jobs was universally considered an iconic "star" of high tech. Now he is exposed as a crook. Thief, to say it bluntly. Apple management stole from investors and falsified documents to hide it. What do you think it will do to "investors". They are hard pressed by their retirement needs and they do not see a viable alternative - yet. I needed you to show me the way. The corporate management has fired all the engineers, decent programmers etc. Right now they can still hire Hindus and Chinese. They can also get free money. But Beware - the iceberg is growing.

Stan   [P.]

S2S           Fri  27-Oct-2006  6PM
Linux Linux ...

From today's Canaccord "Morning Coffee" bulletin:

I have a comment:

  -  after that Oracle anouncement they were all talking about shorting Red Hat corporation but I would think even farther ahead - why not shorting Microsoft instead?!    We shall keep in mind that Oracle need not spend a single dollar on the R&D  - all necessary basic Linux development has already been done!

When a very large stable multibillion dollar company like Oracle puts its weight behind it, anything may (or may not) happen!   It's no longer a  basement business or guerilla operation.   You did not probably look at Linux, but I did:

  - yesterday I just managed (after 2 months of sparse efforts) to make all my network work seemlessly with 3 Windows XP PCs, one WinMe, and two Linux, one Ubuntu/Debian distro (gnome GUI) and one 300GB file server in the kitchen running Kubuntu/Debian and KDE GUI.   These things are fast like hell!  There is a good choice of proven SQL servers (GNU license, free), if I ever wanted to run a database (I don't but you should!).  You have all the applications plus compilers and debuggers at your disposal.  Free and with all the docs!

I am still a novice in Linux but I have to say:  I am HUGELY impressed with it!   Whoever takes a (significant!) trouble to familiarize with it and learn it, would not ever want to go back to Microsoft  Windows!   I know that!

My assessment of the situation is that we wrote off Linux prematurely when we looked at it back 10 years ago because it's graphics shell felt slow and pretty unusable back then on those 60MHz 486 and 100MHz Pentiums, in comparison with Win3.1.  Win 3.1 was buggy like hell and clunky but blindingly fast when we run it on 100MHz pentiums.

KDE GUI is still exactly as slow as back then if you put it on a 60MHz machine but  we now run 3000MHz pentium cpu's, whereas Windows kept getting slower and slower in comparison.  Second observation is that the MS Win NT idea of tight (+proprietary and secret) integration of graphics engine into the kernel, although in principle superior to having several explicit graphics GUI server/processes (as X11 + KDE servers in Linux), does not seem to work in practice as well.  I don't know if the idea was right and MS may have done something wrong but this looks to me like a big potential show stopper for MS.

I also noticed that the networking has been a lot more reliable, powerfull and better documented under Linux.  Not only there is a comprehensive documentation about it but it is the only known source where you can read about bugs and loopholes in the Windows servers!

I have worked also with Xforce GUI (at S.D. last month, in Ireland) which is absolutely amazingly fast and lean!   It requires a tiny 4MB of memory overhead  but still comes with virtually everything you would ever need.  You can run it even on a handheld device, embedded etc.  In comparison, MS have given up on the small appliances since their WinCE is an ancient dying relic.  Big mistake I think, just look at those portable audiovideo players!  Is this a beginning of the end of the Mezozoic era?

Stan

S2S           Mon  18-Sep-2006  11AM
Something may have changed in the long term

I have a comment:   [rant mode=ON]   We have been talking about it on several occassions.  The more I think the more I feel in the gut that the issue of the "boomers" generation and the sociology, is more important than we realize.  The whole think about that unprecedented 1990'ties stock boom + consummer spending boom + property boom has just coincided with the boomers passing through their period of the highest personal income, as they were in their 30-ties and 40-ties.   However now they are in their 50-ties and and (a) their personal income is stagnating due to layoffs and corporate "age-ism", poor health and the wide spread practice of corporate early retirements;  (b) - many started already and will intensify drawing on their fixed assets such as their real estate holdings and their retirement plans - i.e. stock.   This IMHO will have to produce a devastating effect on the market, creating exactly the opposite trend to the one of the 1990-ties.

If the largest group in the society have been steadily acquiring all paper assets and real estate, and indicriminantly so, their prices had to go up.  There is no other way.  If the same largest group are going to start disposing of those same assets, their prices or their _relative_ prices in relation to OTHER basket of goods that were not accumulated, will have to keep going down!

It doesn't mean that the economy has to crash or depression vs boom, it may be either, however it seems to me that the main assets being held by the boomers in the N.America and Europe - must go down regardless of how will the world economy be doing. There is probably no way of avoiding it.   In other words - no end of the world, just the end of the boomers   8-:)

Please notice how selectively (or short sightedly) they have invested in only those 2 assets classes: the technology stock and property!     No investments in land, in resources.  No investing in agriculture or water resources.    25 years of non-investment in minerals, no new energy, running down the power stations and turning back the clock on nuclear energy.  Nuking down any new technology related to space explorations and even destroying and regressing what they have already had built for them by von Braun.  The only area of technology their nimble fingers did not destroy was computers, probably by accident rather than design.

The last trend I have to mention, which is probably the most troublesome is the fact that the market cap of the entire financial sector has reached about 30% of the total market.  Based on historical precedences this is probably unsustainable in the long term.  Something will have to snap.

Stan

S2S           Wed  13-Sep-2006  11AM
Gold

Congratulation for becomming a conspiratorialist and welcome in the club!     Andrew is our undisputable chairman, I am just a reluctant member.   I would also suggest to co-opt your friend Wojtek, I am sure he would have a lot to say to in the light of the recent development regarding Pluto.      8-:)

I agree with your comments, it does look strange but I do not understand the mechanism of setting the gold leasing rates.   It
has been noticed by some commentators that the movement in the leasing rates often preceeds the movement of gold price.  This
was the case last week.

Incidentally I just reviewed our gold predictions (posted on StanInvest) and you won!  I am congratulating you!   I must keep consulting you more often, to make more money.

Another "conspiratorial" factor I would like to point out is the manipulative way of reporting the oil and gasoline storage "data".   It is not widely known that albeit the stored fuel reserves do play a role in stabilising the fluctuations they cannot possibly influence the moving average.  The first problem is that the media is presenting this information with a slant as if it could.   The second problem is that oil and gasoline reserves are worth only about ~1-3 months of supply, in the USA. In other countries they are typically even  lower.  The same with gasoline, in addition it cannot be stored for more than 3 months because of chemical deterioration.  Because of this, large gasoline reserves may in fact serve to destabilize the market since it has to be dumped after expiry regardless of the price!   This is probably happening right now - that's why gasoline retail prices collapsed by more than crude oil.!    The third problem is that the reported reserves are, according to Matt Simmons,  not based on any physical readings (level sensors) but rather are calculated and estimated based on some theoretical models.

Staszek

Stanley P. wrote:

> We have traded places. Now I will play the devil's advocate.
> In the recent month gold lease rates dropped like a stone.
> Over 4 times! Show me the reason!
> At the same time there are persistent rumors about central bank selling
> With hard data only on Portugal (32 tons sold).
> Anyway, there has never been a bigger spread between gold lease rates
> and interest rates.
> A temptation to do carry trade must be greater then ever.
> At the same time overextended financial and mining institutions got an
> opportunity to unwind some really bad paper
> and not-so-prohibitive cost. Plus the Hindu "marriage season" is coming.
> Any which way you look at it, it stinks.
> Krotko mowiac, mysle ze to jest ordynarna, desperacka, grubymi nicmi
> szyta manipulacja.
> Bylbym bardzo zdziwiony gdyby to dlugo trwalo.
> [ translation : in short, I think
> it is a crudely sawn manipulation .  I would be surorized if it lasted.]
>Remember, October is a
> month prone to stock market crashes.
> Inflacja wylazla z worka, prowokacje iranskie robia sie bezczelne a tu
> ropa spada $10 zloto $50.
> Powiadaja [they say]  "if something looks too good to be true, it usually is". Co
> jak co ja nie jestem paranoikiem i nie wierze w konspiracje.
> Ale jak cos absolutnie nie trzyma sie kupy to trzeba spojrzec krytycznie
> na zalozenia.
> To nie jest konspiracja ale to moze byc "polityka gospodarcza". Zobacz
> jak latwo centralnemu bankowi manipulowac systemem
> "fiat currency". nawet nie musza juz publikowac M1,M2,M3 money supply.
[Translation: Inflation came out of a bag, Iranian provocations become more bold and then oil suddenly drops by 10$, gold by 50$. They say "if something looks too good to be true, it usually is".    I am not paranoic and don't believe in consiracies but  if something absolutely does not compute, one has to look  critically at some assumptions.  It maybe not a conspiracy but rather an "economic policy". Look how easy it is for a central bank to manipulate the "fiet" currency system.  They do not even have to publish M1,M2,M3 money supply.

> Popatrz na wykres [look at the graph]

> Lease Rates
>
> 0.13% to 0.03%, straight down.
> One thing is missing to call it a "theory": a reason. I still do not
> understand why pushing
> gold lower would help the state policies. It is such small market!
> Let me formulate a thesis. Gold may or may not be "money". But gold can
> be exchanged for money.
> Borrowing an ounce of gold at 0.03% is the same as borrowing US$600.- at
> 0.03%.
> Why would anybody do the lending if they can sell themselves to buy a
> basket of Canadian Petroleum Income Funds instead?
> If you are a bullion bank and the gold is going down from $750 to $580
> and the lease rate is going down too why would you hold this gold?
> I would sell it. Maybe that is what they did!
> Understanding why and how gold has fallen 20% this summer is a key to
> uncover government financial policy.
> It is not malice. There must be a sound economic reason.
> SP.
>
> Stan Bleszynski wrote:
> > Gold keeps fluctuating as in the channel, since it crash in May.  It has fallen today. However, in the last 2 weeks the
pattern has changed.  This may be important.  The last 4 weeks pattern has become bullish again, for the first time since May.
> >
> > Stan
> >

S2S           Sat  5-Aug-2006  10AM
More successes of American corporate socialism

R. Kyosake of the "Rich Dad/Poor Dad" books, wrote about it over 10 years ago, warning people not to trust the corporate pension plans.  Please take a look at the wording - they imply that nuking the rich pilots' pensions in order to secure money for the poor (=other employees) is supposed to be socially justified...

Watch out if you make more than 35k$ in any one year - they may chop it off and give the "excess" to the poor...   And they thought that  señor De Castro was dead?!

Stan

http://www.cnn.com/2006/US/08/04/delta.pilots.ap/index.html

Friday, August 4, 2006; Posted: 8:53 p.m. EDT (00:53 GMT)

ATLANTA, Georgia (AP) -- Delta Air Lines Inc. filed a formal request with bankruptcy court late Friday to terminate its pilots' pension plan, as U.S. President George W. Bush prepared to sign a bill aimed in part at helping the struggling carrier save its other employees' pensions. ...

---

S2S           Thu  3-Aug-2006  1PM
Shorting Russia?

I need a consulting help.  My "bigger picture" instincts are telling me to short Russia.   Are you aware
of any large liquid Russian-invested or Russia-entangled stock that can have widely tradeable options?
The best candidates would be Russian energy sector, or any other sector.

I tried Rosneft but their stock is illiquid.   Bema Gold used to be heavily exposed to Russia but probably
not any longer.  Smart guys.   [...]  What else is there?
[...]

P.S.

Martin Weiss bulletin is stating that the "Federasts" are going to increase the interest rates again next
week due to the "surprizingly" inflationary [LAUGHING LIKE CRAZY]  core Consumer Price Index  figures...

S2S    Sat, 17 Jun 2006 09:38:56 - 400
Great Rant

Stan P. writes:

Very interesting. Thank you. I have couple of comments, though.

1. Hedge fund blowup. [see M.Weiss warning]

        I really did not think yet about this possibility. Thank you for a warning. I do not worry about the volatility just yet: Everybody KNOWS the housing is in trouble  which means down the road the consumer is in trouble. But NOT TODAY.  In addition, we have a greenhorn FED chairman, who, please note, is a "docent" [German "Dozent" or "Privatdozent" - an obsolete scientific title].  This is exactly the kind of people we both run away from: a scholar with real power.  A guy who has neat theories, and if the people fail to measure up.... cut their heads off!!!

        The really major difference from the previous cycles is that we have a FIFTH ASIAN TIGER growing. It will not stop to grow even if US economy tanks. It will suffer, slow down and the growth rate will fall from 10 percent to, let say 5%, but it will keep growing. Their problem is double this of East Germany: they have to rebuild every sewer, every rail, every road, every building in their country plus scrap and rebuild all industry It is a third world legacy plus a communist legacy. [East Germans were not third world]   Plus, India is showing signs of life too. There is nothing better to jolt the great country run by incompetent beaurocracy like a SUCCESSFUL COMPETITOT - China.

        This means the continuous demand for raw materials, transportation and even industrial goods They cannot produce some of the more sophisticated stuff just yet.

2. Nortel

        I think you are mistaken. They COULD NOT sell 2 billion worth of stock at $4.  You do not sell new stock to the public. You sell it to the brokers.  They would not buy it at $4. They are not stupid. If they did, the stock would immediately tank to $1.50 and THEY would lose a billion.   This $4 was based on a SLIM HOPE that things are getting better at Nortel.  The trading volume has run down, the sellers disapppeared. Imagine what would happen to $4 stock if people has learned they need nother 2 billion to SURVIVE.  Would YOU give more money to this alligator?

        Let me be blunt. Just like in the Airline business there is too much capacity in  the fiber or wire based telecom. One - Lucent, will live. Another, Nortel will die.   If you had a choice which one would you choose? Lucent is Bell Labs plus accounting in order plus more product lines. The French buyers made the right choice.

        Nortel was arrogant and stupid. Remember their "profit" with big bonuses for management If this was USA these executives would be in JAIL TODAY. They should have relocated their headquaters to Quebec, long time ago (like Air Canada and Bombardier). Then it would be the Federal Government problem. THE PROBLEM, in short :-)   Today, they have no friends.  Remember, banckruptcy is not a liquidation of business. It is changing an ownership and management.

        Stelco was trading at $1 long after the bancrupcy judge said the stock is worthless.    Nortel was trading at $4 for EXACTLY THE SAME REASON. Hope for a Miracle - or stupidy.     Pick your choice.   Miracles DO happen. Remember Algoma Steel. It was a basket case. Worse then Stelco.    Today it is flush with cash thanks to Chinese demand and better worldwide prices.

        As to taking more debt. It is ALWAYS like this. Refinancing. You never pay your debt,  you roll it forward. For the bankers, it is one piece of paper for the other piece of paper.  The alternative is immediate bancrupcy. I assure you THIS decision will be taken by OTTAWA

3. ACE Aviation/Air Canada

    I would like you to notice another phenomenon: ACE Aviation. According to newspapers they are doing well. So well that if not for the recent market pullback we would have another Air Canada IPO today. This is a miracle. A divine intervention. The same company. Same management. Same planes.  Same routes. Yet Air Canada went bust while ACE Aviation, their holding company would sell its only asset (!!!) again (!!!) to widows and orphans (pension funds?) AVE MARIA. HALLELUYAH!!!      (BTW: Do you see similarities with $4 Nortel?)

4.  Denison:

Watch out!  I have recently listened to a good fund manager answering question on Dennison Mines. This stock is cheap for a good reason. They have massive operational problems at their mines for years.

======================
Now the important part
======================
[RANT MODE ON, FULL THROTLE]

I have never talked to you about it. Nobody else does. It will not happen in our lives.

URANIUM HAS GREAT FUTURE - medium to long term. Unless somebody builds a commercial fussion power plant.

Here is THE ARGUMENT

A the beginning of the 20 century the average content of CO2 in atmosphere was 0.2% You can check the old physical books. It is true!
Today, it is 0.39%. It has doubled in 106 years. Now, the vein blood has 8% CO2 and it falls to 0.8% in the oxygenated blood. There has to be a gradient or the CO2 will NOT be exhaled by the lungs.

I do not know where the limit is. It may be 0.8%, 1% or 2% of CO2 in the air (which corresponds to 21%, 20%, 19% of oxygen content in the air./ Actually less because a lot of CO2 will get dissolved in the oceans creating a weak H2CO3 acid). But at some point high CO2 contents will start creating havoc with our lungs. Having a choice what do you prefer: driving a car or being able to breathe? If you keep driving, you get a dead oceans in the bargain.

I am no Greens fan, but at some point the controls at using carbon fuels worldwide will be put in place. Very strick controls. It has to happen and it will happen. In addition, oil WILL run out. In 30 or 50 years, but it will become prohibitively expensive and liquefying coal is not good either. Besides, by that time atmospheric CO2 will be at 0.8%

There are only four possible alternatives

1. Nuclear fussion
2. Nuclear fission
3. Biofuels - they recycle the atmospheric carbon.
4. Extreme conservation

I strongly doubt 3. and 4. will be sufficient. The only real solution is 1. but it does NOT EXISTS. The solution will be found - one day but probably not soon enough. Wind and geothermal is a white elephant. Elegant, but only a drop in a bucket. In the short term - 30-50 years it will be oil and gas. Medium term - Uranium. It is the only viable alternative! [Long term - Bin Laden 3 will start a global holocaust in the name of Allah.]

Here is the prediction. Cheap oil is gone. It will never go back to $20 no matter what the "analyst" say. It may drop to $50 for a short time, The reason: the demand is growing, the supply is not

Economics 101 dictates the price will remain high in real terms, inflation adjusted. I think Beijng will start building reactors much sooner then anybody expects. They do not have enough surplus to pay for oil. Mining thermal coal will soon - 10-20 years become uneconomic in China just like everywhere else in the world. They will have to pay the miners real wages one day!

At $70 the nuclear option is a bargain. Despite the radioactive waste!

So here is my final prediction which you may actually agree with. The "Analysts" and the "Investors" are all wrong. They are wrong because they have failed to comprehend the basic economic trend The center of world economic activity has ALREADY shifted to Asia. There will be setbacks and the US is still No1 and will remain so for a long time. I am a physicist. I can extrapolate and integrate. THE WRITING IS ON THE WALL for everyone to see. Just like Europe has quietly become No2 and will remain so content of their great way of life, North America will do well for the predictable future. The Mexicans are great workers in California (but not in Mexico :-) )  But the dynamics, the cauldron, the energy, the place to succeed has shifted from New York to Shanghai. If my suspicions are right, it will shift to Calcutta in 20-50 years. The economy does not function without freedom and the Chinese have real problem with grasping the concept. Not so the Hindus. They understand both democracy and freedom.  The technology can be learned, the freedom has to be sucked from your mother's milk and breathed from the air around you.

Long term this favors India over China. They will land on Mars - not the Chinese.
See you soon
Stan P.

S2S  Fri, 16 Jun 2006 12:51:25 -0400
NT

Taking more debt to repay the short term line of credit???   They must be haemorrhaging cash from every pore, bleeding like crazy! Why did they not do it a couple of months back when their stock was worth ~4C$ and the corp bond rates lower?  This is the exact repetition of the now famous mistake by the previous CEO John Roth who borrowed 1.5B$ agaist the stock at 1.5$/share, six months after the stock went down from 6$/share.   Good time to start thinking of shorting it or not just yet?  Note that this time around, if my gut feeling is right, the company may be in the end game...

Stan B.

Nortel works to reorganize debt

Friday, June 16, 2006

Nortel Networks is offering to investors $2-billion (U.S.) in senior unsecured notes to help it reorganize debt and settle some lawsuits.

Toronto-based Nortel said Friday it plans to use $1.3-billion of the net proceeds to repay a one-year credit line arranged in February.

The rest will go to general corporate purposes, including replenishment of $150-million used to repay 7.4 per cent notes due June 15 and $575-million plus accrued interest of $5-million deposited into escrow on June 1 for a proposed class-action settlement announced Feb. 8.

The Internet and telecom networks firm has struggled in recent years in the face of major losses, an accounting scandal, executive firings and shareholder lawsuits.

Nortel also announced Friday it has formally filed new audited financial statements for the three-year period ended Dec. 31, 2005, restated to reflect changes in reportable segments.       Copyright © 2006 Bell Globemedia Publishing

S2S    Friday, June 16, 2006
More M.Weiss

From:

4 Hidden Surprises Come to the Fore
Money and Markets       Friday, June 16, 2006
 "Money and Markets" <eletter@weissinc.com>

 ... Right now, all three of these indicators – emerging markets, the VIX and the junk bonds – are telling me that some major hedge funds or institutions are getting annihilated. We don’t know who yet. But we soon will.

--------

S2S   Wed, 07 Jun 2006 11:11:28
M.Weiss, J.Puplava et al.

As you know, since last year I am trying a new strategy of following certain selected stock/invest analysts, particulary the guy you dislike (Puplava - see Peyto, Harvest En., KBR and ARU) and Martin Weiss.  Results from [following] the first guy are quite interesting and do not need to be commented as you probably noticed.    Weiss on the other hand seems to be a mixed bag, for example he was wrong about an imminent jump in the interest rates a month ago.   However 2 weeks ago on the 23/05 he recommended in a bulletin titled "Three Tech Stocks I Hate!" shorting Intel Corp, MU and Juniper Notworks.   Today I noticed the following snippet on the news:

Intel to lay off 16,000 employees
- sources
Wolfgang Gruener May 31, 2006 17:41
Westlake Village (CA) and Chicago (IL) - Update - Intel chief executive officer Paul Otellini revealed last month that Intel is about o enter the most extensive "self re-evaluation" phase in 20 years. Now, first indications of the impact of this process begin to surface: According to industry sources, the company may lay off or "re-deploy" up to 16,000 employees. Intel is expected to announce details on 15 June. http://www.tgdaily.com/2006/05/31/intel_to_lay_off_16000/

My comment and conclusion:

It is a bit to early for me to vouch 100% on Weiss but so far so good!  Keep an eye on him. You may find it useful.
Stan B.

S2S      Fri, 02 Jun 2006 13:07:47 (put on the web on 3-Aug-2006)
Aurelian

I love this, today I have the proof that Kitco website is a brillant indicator.  What does matter is not what they publish but what they don't!   I am going to use them regularly.

Stan B.

(6-June)
Re: The only really interresting story is Aurelian ARU.V.

Kitco mentioned it only once when it was already 7C$ a share last week.  They totally ignored it when it jumped [from 0.8$] to 3C$, and there is no mention whatsever even today when it has gone to 19$.  .  This is in a total contrast to hundreds of other similiar juniors when they were trumpeting every minute change of their stock movement from every tannoy, like for example that f..ed KRY.   I was curious if you noticed this strange behavior of Kitco.   Also there was no pumping whatsoever for ARU even though I was watching it like hell keeping my finger on the trigger ready to dump it (when was at 7$)  if I detected a slightest trace of a stench.  Instead - total silence!!!   No news, no pumping, no bashing no praising no nothing.   I have never seen anything like it before.   Very strange!.

 Stan  B.

Stanley P.  wrote:

If this is true then you have nothing to worry about about your portfolio - both gold and oil will stay high. Personally, I do not believe one word of it, but this is just my personal opinion.  As to our ranting it comes and goes in waves. Right now there is a lull, but there is really not much going on.   We can only "politykowac" - polish style :-) because there is realy no solid information.  The only really interresting story is Aurelian ARU.V. Did they stumbled on a world class discovery or is it another Bre-X ? [...]

--------------

S2S    Sun, 28 May 2006 17:07:11 (put on the web on 3-Aug-2006)
Forecasting the Gold price

My forecast for gold is as follows:

1. Technically the trend is very bullish.  The bowl-like pattern interleaved with trangular spikes, almost no trace of domes except in the shortest of scale (intraday) 2 weaks ago just preceeding the plunge.  The recent peak and a dip follows exactly the same pattern as previous ones, on the scales from days on a monthly chart to the scale of years on the yearly chart..    I have therefore no reason to suspect that the trend may change in any serious fashion any time soon, with the exception of some unforeseen global catastrophic events like a III WW, magmatic eruption under PNG, Second Comming etc.

2.  The bowl-like pattern has a characteristic time scale of 2 months (1-3 typ), therefore I would expect the current bottom last for about 2 more months until mid July and then the price should test the 730$/oz limit again.   The subsequent rise should add another 50-120 bucks on top and above 730$ within 1-2 month (i.e  by 780-850 August-September).

3. After September there may be another correction followed by another very steep ~150$ spike, most likely to 950-1000$/oz by February 2007.   I am less confident about that however.

Could you respond to this email in-writing with your prediction, that you said on the phone, for the record?  I will put it on StanInvest then.  Thanks,
Stan B.

Stanley P.  wrote:

Gold will trade in range 640-675 until september when it will slowly rise due to increased physical demand.  I do not foresee the dollar crash JUST YET. In fact, I think dollar will trade 1.27-1.32 euro for the   rest of the year, barring unforeseen catastrophes (volcannoes, hurricanes, terrorists, revolutions or oil embargo).    My reasoning: due to the high oil price the demand in USA will soften as people start counting bucks.
  This should improve trade deficit. The terms of trade with Europe has become more favorable.   US interrest rate will rise another 0.5% withing 6 months which should keep inflation in check.   Housing market will soften, but not crash

  I think we are missing a big demographic point. The 11 million illegal mexican immigrants in the States.   There is no way to kick out 11 million people - Mexico could not absorb them back. There is nobody to replace them in  the USA. There is also no will too get tough with them and there is no need.  They will stay.  They are mostly young. This means 11 millions new americans, 20-30 million extra children, 6-7 million new homes   11 million more cars, food, furniture, clothing.

  I think THIS TIME they will force them to learn English (else no citizenship)  - everybody knows how essential it is to avoid creating more ghettos and more underclass.

  One more prediction. I believe the next big [commodity] thing will be LIGHTING.  These white LEDs are fantastic, the production is ramping up and the cost is coming down.  Energy is scarce and has become expensive - permanently. It is time to stop heating air  with 100 years old Edison invention :-(  especially with 100,000 plus hours MTBF typical for solid state electronics.

S2S           Mon  13-April-2006  12PM
Gold Falls in London...

Quote:  "Gold Falls in London Trading as Drop in Crude Oil Eases Inflation Concern - Bloomberg, Apr 13, 2006 08:06"

First of all, WHAT INFLATION?  I thought prices rise only by 2% a year?   ;-)

Secondly, I really enjoyed reading all those news headlines informing me of oil prices falling to 29$ then falling to 49$, 59$, and today "falling" down to 68.5$.    When they mentioned the other day ETF in commodities they were saying in the headlines that this gives people a good opportunity for easy shorting.   Go ahead then...    let's short some   8-:)  (sorry just kidding, please don't!)

I appreciated (literally) the fact that gold has been falling steadily, from 260$ to 280$, then to 320$, 380$, 420$, crashing in January'06 to around 550$ and finally falling back today down to 595$.

I hope my friends journalists will keep up with their good work and "oby tak dalej" [= So far soo good].

Stan

stanley p. wrote:

If your memory hasn't been so short you would remember communists did exactly the same.They lied, lied, lied and it worked, ...for a while.W 68 studenci przejrzeli, ale robotnicy nie. W 70 robotnicy przejrzeli, ale inteligencja i studenci chwilowo mieli dosc.Zreszta byly male Fiaty do "wygrania". W 80 wszyscy mieli dosc, ale armia jeszcze sie sluchala pana Generala.W 88 roku juz sie nikt nikogo nie sluchal i palcem nie kiwnal.What is surprising to us is that in communism it was understandable because journalists were EMPLOYED by the state. People here are confused because the press is supposed to be independent. There are no strings to pull, in theory.  Yet they exist. You would have to talk to my friend Janek Ajzner who tried to make a career at the university of Toronto propagating the free market point of view. He was crushed by leftist professors. The universities and the press are hotbeds of left-wing thinking. To see how bad it it you would have to go to UofT to listen to these people to read some of their "naukowych wypocin" On the surface it is an unholy alliance of universities, media, big corporations and governments. It seems to make no sense. yet it does.Because the biggest danger to all these people and institutions is a private individual. Self reliant, financially independent and God Forbid,thinking for himself.Democracy is not about the elected government. This is what we were conditioned to believe. This is, at best, statism. It is better thendictatorship, of course. To understand the difference one has to go back 20 years when words still had meaning. This form of elected representative government was then called "socialdemocracy". It applied mostly to nordic countries and France, then become adopted in most of Europeand parts of former British Empire. Please note "socialdemocracy" not simply "democracy".Democracy is active, socialdemocracy passive.  Democracy asserts the rights of the individual. Socialdemocracy denies these rights.A comparison: 100 years ago a male had all the rights in the household. A female had only one right: to choose a husband. Afterwards she was a virtual slave for the rest of HIS life. (Only a widow or a whore had some sort of independence). In socialdemocracy, you can choose a premier or president from 2 to 5 candidates. Afterwards you have no say whatsoever for the next 4 to 8 years.By that token there is only 1.5 democratic countries in the world today. One is Switzerland. The remaining 1/2 is United States, where the voters have some control over members of congress and administration.

Nie ma powodu do rozpaczy. Po pierwsze, Rzad sie sam wykonczy, trzeba mu tylko...pozwolic rzadzic. Po drugie, Internet sluzy do ... kopania dolkow  Domyslam sie teraz co bylo w puszce Pandory:  Bity, Stasiu, bity!. Wylazly z puszki rozlazly sie i katastrofa... Nikt juz nie slucha panow ideologow. Ja myslalem ze jestem dziwolagiem: od 10 lat nie bylem w kinie,od 5 lat nie czytam gazet, od dwoch lat nie ogladam telewizji... Myslisz ze jestem sam? A jak myslisz dlaczego akcje Abitibi (producent papieru) tak leca w dol?   Mialem w Polsce znajomych ktorzy byli w Rosji przy smierci Stalina. Czarna rozpacz, wszyscy placza, ksiezyc spadnie, slonce zgasnie.Dawne, dobre czasy. Oh, wtedy to mozna bylo klamac i pierdolic od rzeczy i wszyscy z podziwem kiwali glowami...No trzymaj sie S.

You are right - it's an unholy alliance but it's hard to call them leftists.  It has evolved into some kind of colorless statism or may be statinism    8-:)

Note: there will be a pullback [in gold] for sure, but so far it has been typically -10% (-15% happened only once in 2003).   Similar for oil but it was about -25%. after Kathrina peak.   As somebody noticed in one of the articles I quoted, the "leftists/statists" may print all the money they want supposedly without inflation (he he) and can propagate and publish all the "true facts" they believe in, but they cannot print more gold, copper nor oil! (*).

Stan

------
Footnote:
*) Quote  "The world has figured out that printing presses cannot make gold, silver or gasoline."
by David Bond, "Its Over" 10-Apr-2006,  http://www.kitco.com/ind/Bond/apr102006.html
------

Very unfortunate, because then socialism would work! It is a very nice system, after all Imagine Gierek swings his magic wand "i male fiaty powstaja z niczego :-)  "   [cars produce themselves out of nothing]   I wrote this many times: I believe statism is psychological. There are people who cannot adjust to change.

Please consider the current statist/leftist/gomint buzzword: "sustainable development" What a nonsense! Think about it. Everything dies. It makes room for new and better. Dinosaurs were great design, yet they died and made room for us. Each product has a life cycle. So is each factory. Eternal cycle of renewal. Yet the statists want the investment to last forever. They hate mining because they are not "sustainable" They do it becaus e "susytainable" development does not change, is "static" therefore it can be effectively managed by the government beaurocrats ie. the statists themselves. (they would have time to think and develop procedures)  What a croc!

Think about Enron and Worldcom. They use it as a "proof" capitalism does not work. What a bullshit. In capitalism Enron would be eaten on day 1 ;  If they did, the banks would suffer, not the retirees.

However, it is also true capitalism leaves a lot of people behind and suffers from periodic crises. By pure logic one should eliminate these "useless retirees" plus the sick. Keep only the "superior race" I have heard this before and it is not funny.

So here is my firm belief. The biggest protection of democration is access to information! We need entrepreneurial meritocracy and we do need the government, which has a tendency to grow into social cancer. We may even need the unions. The only way to keep the balance is to keep people informed. I am still not sure if in the internet age "janitors can take over" because they are more numerous.

Kultura plebejska, kultura budki z piwem i stadionu futbolowego nie ma prawa dojsc do wladzy. Bo wtedy kolejnym, nieuniknionym krokiem jest nowy Stalin albo nowy Mao. WSZYSTKIE rewolucje przerodzily sie w dyktatury i konczyly masowymi mordami. Wszystkie co do jednej!   Dlatego oczekuje ze w Iranie "walka klasowa sie zaostrzy" i trzeba bedzie uciac wiecej Iranskich glow ktore niedostatecznie popieraja A.la.ha.    S

S2S           Mon  27-Mar-2006  3PM
Gold correction is over!

Gold correction seems over, all gold stock is going up rapidly!  Some on rumors some in sympathy.   Incidentally some of the best performers are medium to large cap companies, again, whereas the juniors are often heard of going +20% one week and -20% a few weeks later, and every headline is full of that small crap.     At the same time nobody noticed that Goldcorp and Meridian were going steadily up almost every week!   Mass psychology is weird thing and flag-waveing theory is actually true.    It shows who is really speculating in juniors and that the totally different kind of people keep quietly accumulating on gold majors ignoring flags, mirrors and smoke ...

Same with oil.   I was hoping to buy more Shiningbank on the cheap (adding to some bought about a year ago) following the smear campaign and all the negativity  in the media.    As it turned out it fell only by 2 dollars from about 24 to about 22 and now is back at 24.   I was hoping to buy it up at 18-19.  Another miss.   This trusts gives now 13% yield in spite of the rock bottom natgas prices!    It has already paid me 200$ since I owned it!   Imagine what will it be like when gas goes back to 10$+ !

You know, in retrospect we should be grateful to the media for creating a fear climate where as the consequence one can buy the cheap energy trusts yielding 10-15%!    Amazing, isn't it?   Buy Cisco or Microsoft?  Why exactly anyone would want to do that is beyond me!   I am investing not gambling.  No thank you, not now.  But when they start paying me 10% yield I may reconsider!
Stan

S2S           Fri  24-Mar-2006  3PM
Yamana Gold (3)

I just read their release.   You are right it's full of red flags!    Despite having 5Moz in the ground, dig out only 0.1Moz/yr at a cash cost 290$ (probably fudged), and at the same time are still looking at acquisitions and exploration in other areas!   I wonder why!   8-:)
Their grades are falling but they promise they will get better (?)     They hedged 50% of their copper at 1.2$/lb  (!!!), and then they paid their managers 2M$ stock options for such a brillian foresight,  at the same time when they lossed 4M$ (!).   This is not even wrong, its a total mess or a may even be a scam!   I am amazed!
Stan

S2S           Tue  21-Mar-2006  3PM
Yamana Gold (2)

stanley p.  wrote:

Yes, I remember you telling me this. I have started looking at the insider reports myself. Please note in Yamana case they HAD TO KNOW they are losing money and that their costs per ounce are quite high.  (280$ vs average 175$)  Please note there is a very simple way to avoid insider trading altogether, once and for all.  It is the same method americans use to limit government corruption.  When you become a US president you have to disclose all your assets and turn over management of these assets to a professional money manager.  Look how simple and efficient method of controlling corruption it is if you force CEO's and CFO's to turn over management of their assets to professionals while they are officers of public corporations. Someone could resign? BS. It never happens. You could not benefit from insider knowledge. Period. Martha Stewart could attest what happens when other people KNOW.

Re: dual listed business.

There are probably legitimate cases of dual listing, especially if the second listing is in the USA. Please note a stock market listing is VERY expensive as you have to comply with all regulations of both exchanges. It basically requires dual accounting.  So why would you do it? Well, you can sell 10 million new shares to Canadians and another 10 million new shares to Norwegians.   I start to agree with you. Investment in small companies does not work simply because percentage of crooks is too high.  Those who survive to become mid-size companies MUST HAVE HAD some business skills as well, some products and real sales. I am starting to agree mid size is the best investment category. However, in Canada there is just too few of them, at least in metals and minerals.  These who are worth anything are bought very quickly by the majors.
S.

I actually prefer if they hold the assets and trade them in their own names rather than their wives' or some third party caretakers.  At least I know who is who otherwise I would have to memorise the names of their past present and future wives and refresh them every time they divorce, etc.

Dual-listing is a serious impediment.   I have seen too many dual-listed companies that disclose ZERO:  0.000  CAN$ of insider trading in 10 years in Canada and in US!   Guess what...

I remember in Europe the stock regulations are also tight but for some strange reasons less transparent for us customers er I mean "investors".    Trying to get any kind of insider trading info of a European company is like pulling teeth.  Nothing is published anywhere and you will be forced to pay for special reports, 30 bucks, one company at a time.  I tried in Ireland (1995) and  I couldn't even trade the stock on line back then, plus the cost per trade thru a broker by phone was 60 punts per transaction (about 130 CAN$).    Yes, USA and Canada are 30 years ahead of the rest of the world in stock markets.  That's why I was pleasantly
surprised with the Warsaw Stock Exchange.  [...]

S2S           Thu  21-Mar-2006  3PM
Yamana Gold

stanley p. wrote:

  I have never invested in Yamana Gold.  It was very expensive stock most of the time   and there was some strange smell there I did not like .   Now I know what it was.   Please read their financial statements just released.  After reading these two pages of continuous success   you wil barely notice they have actually LOST 4 millions.

  Just to avoid misunderstanding between us which happens recently more often   because we see each other less. I have no problem they have lost money.   The official press releases have become the only way of communication   between   company management and company owners [shareholders]. So it has to be honest   and stick to the facts. If there is a problem the management should explain   how   and when they are going to correct it. If I want poetry I will read   Mickiewicz or Norwid.

  I am sick and tired of being manipulated. Anybody who tries  it and gets caught will join my private Black List off  fu...ed companies.  Welcome our new arrival, Yamana Gold.
 S

Yup,  I will put them on blist!

I did look into Yamana a few weeks ago after talking to you but absolutely wasn't even tempted to buy them for a very simple reason: their management was selling their own stock like crazy!

They can write whatever success story they wish in their reports but if they won't buy their own stock so I shall not either!   This method is, as any, not completely immune against manipulation by management, however nobody seem to have figured out yet how to fudge the insider trading reports except not to trade at all in one market and instead doing it in all in Europe in case of dual-listed companies (I have seen such companies, that Norwegian one that you mentioned once, is doing just that!).     That is another reason I look suspiciously at dual-listed businesses.

On my list of personally proven methods listed in the order of reliability and usefullness are:

1) Insider trading reports.  I get them on TD Waterhose web page under Research, must be logged-in.

2) Reports by some small analysts and small fund operators like Puplava, Weiss, some of the "gold bugs" from Kitco

3) Some selected bulletins like Canaccord's "Morning Coffe", internal BMO and TD publications (discontinued or severly restricted 2 years ago, even branch managers don't get them anymore)

4) Technical analysis of the charts, especially reliable being a "bowl" pattern, and "dome" patterns, less reliable are triangles and straight support/resistance lines.

....
[long way nothing]
...

998) Yearly and quarterly reports.
999) Press releases

S2S           Thu  12-Mar-2006  3PM
Rant

Stanley P.  wrote:
 http://www.kitco.com/ind/Schiff/mar172006.html

Schiff's article is good.  A simplification but illustrates neatly what the problem is. There has to be a balance between production (regarded as troublesome and dirty) and financial services (considered clean and superior).  Communists also _loved_ desk jobs...  .     In reality however,  one is not a substitute for another.  This is exactly the way I saw American and European economies in the 1990-ties when I noticed a cultural shift in the upper management, when any kind of creative activity that resulted in new products begun by and large to be under-appreciated and any business based on acquiring things and exchanging paper assets became rewarded beyond reason (no I am not against trade but this is not what I saw).

I also was reading at that time a lot about British economy, having lived in Ireland and noticed with great surprise that what was happening at that time in the USA took place in Britain in the period beginning with the 1920-ties and ending in 1970-ties.  50-years of de-industralisation.   This was probably inevitable but British unlike Americans were extremely attached to their Pound Sterling and were defending it at all cost.   It was of course futile but the result of BoE interventions was that the pound was always overvalued in comparison to the economy.     Americans are also using the fact that US$ is the world currency like British pound, in order to sell financial "assets" and services to the world, however ulike British, they seem to be ready to dump $ at any time.  This I believe is one difference that may save their bacon in the long run preventing a total de-industralisation.

If history is of any value, the basic lesson of that is that no British stock of any kind was worth buying with the exception of only one: British Petroelium.   In Britain, no matter what you would have invested in, in the 1920-ties, would have been of lower value whatsoever 30 years later!  Even property and land were dubious becasue buying property in Britain in the 1920-ties you would have been paying real pounds while cashing 30 years later [actually 40]  in Harold Wilson's pounds taxed at 80% capital gains....  Speaking of taxes, deindustralisation in Britain was accompanied by a HUGE political swing left.   Which was not an accident.   Similar trends may also happen in the USA.  This unfortunate "Patriot Act" is a precedence towards more nationalism and such things may be followed by "defending" more American "values", then "culture", finally it may end up unfortunately protecting the rights of the "working class" .

Stan

S2S            7-8 -Mar-2006  3PM
LionOre

... a lot of bad experiences with juniors  I wanter to share with you a link: read it: http://ca.news.finance.yahoo.com/07032006/2/finance-lionore-mining-s-q4-loss-jumps-128-6m-huge.html
You know I have liked the company and the management. They do fit your profile of medium fast growing companies. Suddenly such a bomb! If you follow they price movements you will see sudden drop 6 months ago. It stayed down despite NO NEWS and high commodity prices. My conclusion: ol' cynical reps from Cannacord & Friends most likely KNEW the company will blow way in advance. I followed the official news closely. There was nothing in company behaviour that would signal "accounting errors". They have made multiple acquisitions/expansions in recent years and must have been checked for credit-worthiness by major banks. Nothing has signaled a 300-mil asset writedown. Since valuing minini assets is voodoo economics at best (even Warren doesn't know how to do it) I wonder if we are for a whole series of mining blowups.
...

I knew something must have gone badly wrong with LIM back in December, 4 months ago when I noticed a spate of insdider selling.  Huge in fact!   As I told you I value insider selling or buying very prominently in my decision making.  In this case it was such a strong signal that I could not simply ignore it and I dumped them all immediately.   That surprised me and was the very fact that prompted me to revaluate and recheck all my other holdings at that time.   None of the juniors passed that test with the exception of  Cambior, Kimber and NGX - these are the only out of about 20 that I retained.
...

An interresting quote from Lion Ore announcement.

- Cash balance at December 31, 2005, including certain temporarily restricted amounts, was $229.5 million (2004: $262.5 million).

What a gem! Urban would be proud. Note this beauty: "certain temporarily restricted accounts" temporarily restricted? Most likely by creditor banks! Can they touch the cash? I doubt it. So how much is restricted, for how long. Why CASH accounts are restricted at all. Did they violated debt covenants?   Then another gem:

 "Thunderbox gold operations accounted for a loss in the quarter of $13.1 million"

A gold mine LOST money? There is only one explanation: the entire production was hedged. If so, how much of their nickel production is hedged?  It looks like in order to grow so fast they gambled their future and lost.   Read this carefully:

In light of the decision not to pursue gold exploration, which had the potential to unlock the value of the gold exploration tenements with an enhancement of the gold resource base, and given the short mine life of the Thunderbox gold mine, it was determined that the producing gold and exploration assets were impaired. The Thunderbox producing assets were written down from $69.7 million to $32.1 million, and the exploration assets, consisting of capitalized exploration costs and the assigned value of tenements (acquired with the takeover of Dalrymple Resources, previous 40% owner of Thunderbox) were written off by $74.1 million.

So they assigned a book value of 74 million to a lot in a desert providing they can "unlock" it through exploration and they simply decided not to do it? How about entering a promising field of Nanotechnology instead? This whole thing stinks. I wonder how much losses are hidden in Barrick and Placer hedge books.  If gold goes to $1000, will Barrick go out of business?  Will they manage to sell enough shares to "investors" (polish translation "frajer" [sucker]) to cover them?

There is probably a lot more that is not written nor told yet.  To restrict an account they must have a pending court injunction.   A bank cannot just freeze an account unless (unlikely) they defaulted on a loan to the same bank!  In that case they shouldn't keep a current account in the same bank!    I wonder why haven't we heard about it?

Such things are routinely happening in Russia (Bema - shiver shiver ...).  I thought that in Africa they have a press and media.

It looks like a tip of an iceberg and if they managed to keep that secret for so long, you can imagine what it really might be when they turn the volume on full, xray them with audits and put them in the spotlights.   I have an impression that it is another MacWatters: subpar operation using a  short-lifespan mine running out, plus  "mydlenie oczu" [colorful smoke] by means of some side resources supposedly in the ground to beef up expectations with probably no intentions of ever using them...

I have seen it a few times, if a prospecting company has this here and that over there and something else somewhere else, and "by the way there is an old mine" -  it is always a red flag!

BTW, I also have a gut feeling we shall hear more in the future about Bema Gold as well, since that company exhibited the same pattern as LIM, in my humble opinion...

Stan

S2S           Tue  6-Mar-2006  5PM
Goldcorp

I have experienced a valuable lesson with respect to Goldcorp, which I would like to share.

Remember that we being recovering scientists, tend to fall in love with theories more often than we should.  One of such theories was the idea that since mid to large cap mining companies are like slow moving large animals they were supposedly unlikely to bring a more decent return.  Since I was aiming for something like 30%+ a year (I didn't achieve this goal BTW)   I decided to play/speculate on large number of juniors:   junior mining prospectors  were suppose to produce  higher return and using a large number of them was supposed to spread the risk of banckruptcy by anyone of them.  Results as you may have guesses were TOTALLY opposite to what the theory predicted!

#1.   The average appreciation of the juniors was not higher than the midcap companies but it fluctuated with a very high sigma - by a factor of 1/2 to 2 within a period of 3-6 months.    To overcome a high fluctuation (beta) one would either have to time the stock which requires much higher remote viewing skills that I have, or would require averaging in time by holding the stock for >12months at a time.  At the end,  one would still get similar return as with the medium to large cap cyclical stock (assuming that you do it at the right point in the cycle, for the sector)  - but with probably a higher risk!!!

#2.  I have had a few good three and four baggers and they were all mid-cap to large cap stock!    Meridian Gold and Golcorp are three baggers since I bought them for 11 dollars each during the previous gold corrections.   Aber Diamond was a 4-bagger which I bought after reading a managament praise in a Bank of Montral bulletin.   Peyto is a four bagger  since I bought it at around 10-14$.  Parallel Petes (oil) is a 5 bagger since I bought it at 3.5$,  Standard Silver Resources quadrupled since I bought it.   Bema Gold has doubled when I sold it.

#3.  None of  my juniors have ever became a 4 bagger!   I only got a few 2-baggers but they all fizzled out when I missed their selling point by just a couple of weeks!.  I held about 20 juniors total and when I added them up the net return on them was close to zero or negative, depending on which period you look at.     The only exception was KBR that I bought last year for 1.6$ following Puplava which has shot up yesterday  to 3$ on some drilling but I won't be surprized when it hits 2 dollars back again....  Which BTW shows me that since we do not really _know_ what is going on (we thing we do but we really don't!) then the best other option is probably to follow some people who do seem to know.

#4.   A theory I stole from the "Turtles" investor's club, stating that the less risky and the bigger a company is, the more of it's stock you should buy and hold at any given time, has worked very well and that in fact has saved my bacon over the years.   The fact that I used to buy 1000-1500$ worth of any given medium to large cap stock, while only 400$ in any given junior caused the overall account to grow rather than shrink.

I have to stress the following generalisation that I have learned:

---

INVESTMENT IS EXTREMELY COUNTER-INTUITIVE, AND IN ORDER TO STAY AFLOAT AND THRIVE YOU MUST (I REPEAT  MUST ! ) BE ADAPTABLE LIKE WATER AND QUICK LIKE AIR, AND YOU HAVE TO BE ABLE TO EXPLORE SEVERAL NOT JUST ONE STRATEGY AND BE PREPARED TO ABANDON ANY ONE OF THEM AT A SHORT NOTICE!   FLEXIBILITY IS THE KEY!

---

Stan

S2S           Mon  27-Feb-2006  5PM
Charming the oil snakes

I just watched O'Leary Live on Robot TV for 5 minutes and realized suddenly where have you gotten those ideas from, such as for example that oil is risky etc!   I must say, based on my experience with people and on my first impression: stay away from that guy since he can eat you alive!  This is the red alert warning.   In my humble opinion 3/4 of what he has said seems highly subjective opinions that are not based on facts but whishes and prejudices.  You would probably achieve a higher rate of hits if you pinned the stocks on a wall and threw darts.

For example he says there is  a16$ terror premium on oil (it may well be!!!)  and if that was somehow miraculously removed the prices would "crash" (quoting his word) down to 45$.    45$ - my foot!    Sure the price would have gone down IF the terrorists have suddenly disappeared as if by magic and the Saudis had discovered a new large field...   IF IF IF IF IF IF .....

Furthermore, even if the price would have indeed gone down to 45,  BP, Exxon and Texaco would still be earning about 8B$ every quarter for the next couple of years because of the future contracts and Canadian oil income royalty trusts would still be paying you 10-15% yield or more (rather more if their prices went down!).   Which would severly restrict their downside slide (the only risk, bigger than the oil price drop is the interest rate hike but he has somehow been surprprisingly quite on that...)     I am not advocating buying oil because this is only one of many plays, perhaps there are better ones.   Besides I do not want to bear your karma...  8-:)    I am just URGING you to watch out towards those too outspoken smooth-talking television "experts" because chances are, you are being ruthlessly programmed...
S.

S2S           Tue, 21 Feb 2006
Prediction (natural gas)

In the short run (weeks) gas may fall to the long term (sloping) support line of about 7$.   By the end of the year we will probably see it testing the 15$ level again.

S2S           Tue, 21 Feb 2006
Google

Quote from Puplava editorial:

This week, Barron’s published a bearish cover story about Google (GOOG), which was a fairly innocuous piece. It highlighted Google as a company similar to most others in that they had formidable seasoned competition such as Microsoft and Yahoo, and a difficult road ahead. Such a competitive environment can be considered “business as usual” for all companies, including Google. The next day, the Wall Street Journal published an article highlighting the fact that about 19% of Google’s quarterly earnings came from interest income on cash which was mostly raised in their most recent secondary stock offering. A sharp gumshoe could have found this out by reading their SEC filings; but the lack of clarity in the quarterly reporting press releases and TV coverage typifies the mood and low level of integrity that now exists on Wall Street and within many corporate managements. Their strategy is to just tell the public what they must be told with no regard for clarity and color – just release the minimum allowed by the law and always promote the positive while remaining silent on the negative. (Sound familiar?)

That's how Google and most likely other cancerous corporations like Ford, GM, GE, SISCO etc may  manage to LEGALLY transfer their stock sale capital gains into corporate EARNINGS!   Holy cow!!!

As a side note, suppose that google had invested x amount on some bonds yielding 7%, that is 1.75% per quarter .  Since they had 1.5B$ net income last year and 1/5 of that was the interest on cash, therefore the principal x=16B$.    Since their total market cap is 109B$, then by selling another 60B$ which is probably still within the realm of possibilty without completely crashing the stock,  they can maintain 100% of their present net income out of cash interest only, or conversely may potentially double their net income, which may also (if people buy their "story") prop up their stock to offset that 60B$ (60%) dillution, and maintain the current stock price!      Stan, you are witnessing the real financial pyramid scheme!!!  No kidding!

Stan

S2S           Fri, 17 Feb 2006
Gold

I have been, unusually for me watching ROBTV today.  As you noticed, there is a change in pattern from the previous years, namely:

1) some analysts have become officially bulish on gold then changing back to bearinsh then comming out again bullish.  For example Goldman Sucks and others.  It all happeneded just in the last months!!!

2) There is a massive redistribution going on.  Unlike previously, when a fluctuation in gold would prompt massive institutional selling whereas the number of buy orders would stay more or less the same, leading to very deep price drops.   This month a gold drop is simply prompting BOTH the sell-offs and the buy-offs resulting in a stagnant price for the gold stock!!!

3) There seems to be a lot more publicity including both positive and negative publicity on gold and energy, although it's a very subjective observation.    Even though some analysts are now suggesting that the metal and energy boom is an "old story" and may have only a couple of years more to go because it begun 5 years ago in yr 2000, these same analysts somehow failed to inform their readers about the very existence of that supposedly aging boom even as late as 2003-1004.  I vividly remember Merryl's and Goldman's forecasts of 35$ oil and 350$ gold for 2005, made in early 2004!!!

I learned that every time the experts are damn sure of a trend, then that trend tend to fizzle out.  I learned that every time the experts are flip-flopping like hamburgers and are admitting of being ambivalent then we can probably bank on the fact that the trend is most likely intact and will continue following the existing direction (whatever that direction may be).

S2S           Tue, 14 Feb 2006
Inflation

Instead of "Inflation" I should have used the term "Monetary Inflation" everything else holds.  By your example, if you use some widely tradeable limited goods or material then there has always been "deflation" by that definition and there will always be as long as the population expands that is N=population size is growing faster than the reference gauge such as oil or gold.  If the number of people would shrink then there will be inflation (by your definition).    Everything is normalized to N.

Somebody put it this way:   the natural state of a free capitalist economy is deflationary boom.   That is true of course only if you use the real gauge to measure prices, not a paper "currency".

In the short term you are correct, dollar is strengthening and other currencies are not.  That is because the screwup is relative.    I do agree that American culture is very resilient and more sound than their competitors.   However the facts are facts: there has just been too much credit generated in US$ for this currency to be salvageable in the long run, moreover this credit will have to be kept expanding with no end in sight.    That is even if you could think of a scheme to halt exponential credit growth (above real growth) and balance it out for now, next year there will be 10-20% more credit generated and so on. Because it has to be in order to prevent a collapse now.  If you were a politician, whatever a scheme you would work out today to save the currency and balance the deficits, you would never catch up because next year you would be facing exactly the same plus 10% added on top.   And so on.

 This cannot last and will sooner or later lead to a hyperinflationary destruction of all that credit and debt together.  This is not a psychic prediction - this is extrapolation and math.

The way I suspect Americans will save their economy and themselves, is that they will simply let their currency collapse at some stage, letting other people hold empty bags.  Or rather bags full of worthless money.   Please keeep in view that there were periods in history when Americans did not have a central currency but instead various states were using different money, some British pound sterling, some Spanish peso, some were issuing their own notes.     In 1865 the Confederate dollar has completely collapsed whereas the Confederate economy did not!   A collapse of the currency is not the same as a collapse of the economy.   German economy was doing fine (booming) in the 1920-ties and kept booming through the 1930-ties, while Weimar mark was hyperinflating and the Reichsmark later on was stable only because it was NOT convertible, for example German soldiers prefered using US dollars or even Polish zloty when they occupied the country!     British economy was stagnating in the 1920-ties and went into a steep decline in the 1930-ties while Sterling was strong like hell...

So yes, they are pragmatic people and will just nuke that paper s..t.   What's a problem?

Stan

 stanley p.  wrote:

Hi Stan

 I will put a stick into a cobra's nest  I do not believe in the collapse of $$$ and I will act accordingly The US government (and the FED) is the only one which consistently defended the value of the currency for over two centuries. All other government regularly, periodically screw up their currencies for expedient short term goals. Americans did not. While they did slowly debased their money by printing credit, they consistentl;y try to defend the dollar if they can. I think americans understand their wages must go down - short term - in terms of oil, gas, steel and copper and they accepted it gingerly.

 In addition, the US government is the only one able to introduce speedy reform, if necessery.  The europeans, socialist and communists of all sorts, including chinese, are notorious for blowing their budgets, lack of financial discipline and plugging holes by using the printing press.

 There is no chance in hell Euro will achieve the status of reserve currency any time soon and there are no other candidates in sight.

 In addition, I disagree with your basic assumption. The one about inflation.  There is a consistent "mydlenie oczu" and confusion about it. We should sit down and clear the picture.  There is NO or little inflation. In fact, there is a bit of deflation, which is both expected and understandable  Here is the argument: Lets calculate prices not in terms of paper money, but in terms of real money or real values of necessities.  This means in terms of gold or oil or food or real estate. You should probably use a weighted average of all.   You will discover the obvious. If a barrel of oil is money then the industrial products experience strong deflation  the real assets (commodities, foods, real estate, capital assets, gold) hold their value  while labour traces the value of paper currency (does not change in nominal term but depreciates in real terms).  The paper currency loses value due to excessive debt, government deficit, war and excessive printing of credit money which leaks to real conomy.  This is NOT IINFLATION. This is debasing the currency  It means we all are taking a big hit in earning power in terms of basic necessities with the notable exception of communication and technology.  It is not an inflation. It is a one-time deflationary adjustment of indvidual earning power and standard of living.  The winners will be those who got rid of paper currency, but have no boatloads of short term debt either (credit cards, variable rate mortgages etc..). 30 year fixed mortgage is less dangerous. Those who converted their paper money assets into real assets [like home] and have no refinanceable debt will hold their wealth, others will get hit very, very hard.

 I will try to explain it like an accountant.  The sum of credits and debits is always zero (double entry accounting). When you put $100 in the bank, this $100 is your asset, but the bank liability.  They owe $100 to you and they have to pay it back. Credit is money. It is used to buy assets, like bonds. The total amount of money including credit  (liabilities) must equal the total amount of all goods and assets.  If you keep printing credit money the cost/value of a unit of money (dollar) in terms of purchasing power MUST GO DOWN This is debasing of currency, not inflation.  In addition, the percentage of cash money in real economy as a percentage of all money goes down. It means transfer of real wealth to institutions and the government  Now I will issue a postulate I cannot prove but I strongly believe it is true.    The amount of credit issued NEVER goes down. (Stanley's law)    Credit never gets paid back. It is replaced with new credit.  The goverment issuer [where all credit originates] rarery has the money (budget surplus) to buy it back. It never has the will to do it.

 The only excepion to this rule is Switzerland where effectively there is no central government  It is a direct democracy not a representative democracy. When you vote in new spending at the canton level you spend YOUR OWN money for the common good.

 Inflation is a monetary effect which applies to the real part of the economy only. It means the government is issuing (printing) real money which circulate in real economy buying less and less real goods. In the end people are not willing to work for their pay and demand higher salaries. They also cannot buy discretionary goods, only the necessities of life. If they cannot buy necessities either they take Bastille and set up guillotines.

 The debasing of currency is when government takes 24-carat gold currency out of circulation and mixes gold 50-50 with copper.  Nothing has changed in nominal terms. You simply have to pay twice for a loaf of bread while the government can buy some tanks it urgently needs.  This is what we are experiencing right now.

 The mechanism I have just described is the sole reason why the government will never allow gold to become money again.  It would be a first step toward the guillotines.

 Please comment
 Stanley

 -----Original Message-----
 From: Stan B.
Sent: February 14, 2006 10:42 AM
 To: sp
Subject: Re: Investment

Puplava calls it CRAP(*) accounting as opposed to GAAP Generally Accepted Accounting Principles

 There is a new trend developping that you may have noticed:  a core of some but not all large
corporations are slowly exhibiting better profitability (in terms of CRAP/EBITDA but still), and their P/E
is slowly gravitating downwards towards the long term average of 10.

 However, the rest of them, especially those that have to rely on strong R&D and innovation continue
having P/E out of a fairy tale.   This cannot be sustained and I suspect that we are close to a general
collapse of stock except for a selected handful of strong companies, the new "nifty-fifty".

 Some analysts argue that a growth company can justify high P/E because well it growth.  I don't hink it
is so because growth companies must also  plough disproportionately high amount of profits back into R&D
just in order to sustain such growth.     Therefore I think their price per EBITDA ought to be lower than
the blue-chip companies, not higher!   This is the same mechanism by which I calculated, if you remember
the values of the mining businesses: their P/E must reflect and be roughly proportional to the lifespan of
their assets: in case of mining that is 10-15 years, in case of hitechs 3-5 years.    By this , most
mining except gold mining (which is a pure speculation on future gold price) are undervalued while almost
all hitechs are overvalued by a larger margin!

I predict that the high tech companies will collapse in the next few years to 1/2-1/8 of its present
value, while the robust blue chip and defense stock will stay where they are.  Mining juniors will also
collapse or will be bought out by majors for a song as soon as interest rates start biting them and mining
majors especially in oil and coal sector will skyrocket as soon as inflation becomes official.

Notice that the share prices of timber, cement, aluminum, steel, copper , zink lead and nickel have the upper
limit due to recessionary constraints, whereas the energy, food and gold has not as much.

My prediction is that when all that (above) starts going the US dollar will quicky be abandoned as the
primary currency in the international trade and replaced with a new world-euro based on a basket of
currencies.  That will lead within a few years timeframe to a total collaps in the dollar caused by
excessive debt!.  I am not talking about loosing 50% - I am talking about loosing even 95% of its present
value!

Stan

*) Cloudy Reporting Accounting Principles (Pro Forma)

stanley p. wrote:

I have created a new definition of EBITDA:

"We have lost a boatload of money, but if you exclude evil taxes and all that
capital we were forced to spend to run our business (which is not our fault)
and which we were forced to depreciate overtime (instead of in one lousy
quarter) we are actually profitable!"

S2S           Fri, 03 Feb 2006
Oil and inflation

I borrrowed the following graph from the following article:

http://www.kitcocasey.com/displayArticle.php?id=525#

You will probably find that the gold curve also matches that pretty well.  That basically confirms what you said some time ago:  you are not seeing any oil shortages (yet) because there are none!   This is JUST a government-engineered inflation!

S2S           Fri  12-Aug-2005  12AM
Economy

 Stan P wrote:

  Bardzo interesujacy artukul. Tresc, ton i okazyjne prztyki. [translation: interesting article]
http://ca.us.biz.yahoo.com/ft/050812/fto081220050649196133.html?.v=1

Nothing new nor surprizing, we knew it al along and have been discussing this to death since yr 1999  I have one more comment:

Re: The dollar's rally from $1.345 against the euro in March to a high of $1.188 in early July was largely driven by a focus on the dollar-bullish cyclical dynamics of the US economy as growth continues to outstrip that in Europe and Japan and interest rate differentials continue to move in the dollar's favour.

I suspect that the commentator's interpretation on WHY did it happen was not entirely correct.
GDP growth in the USA is less than stellar - their 3.5% projected growth can be entirely explained as an accounting artefact caused by the underestimation of the real price index inflation (i.e. 7% vs.official CPI=3.5%).   Large institutional investors and large currency speculators/market makers are not stupid and they MUST see it!    The last time when I assumed that they are stupid - it caused me to miss a 2000punt gain in the 1993 Irish currency devaluation.   I stopped buying "The Economist" back then for that reason  8-:)

I suspect that the temporary dollar peak of this year was caused by some equivalent of the short covering, that is it has fallen faster in 2004 than it should have and thus slightly rebounded in the early 2005 to even-out the long term falling slope.    The long term currency exchange rate is always determined by the balance of trade and the overall level of indebtedness.   Even printing out the banknotes and credit notes is secondary to that.  For example, Weimar Republic had to print banknotes like crazy specifically to cover the deficit caused by war reparations.    Same with Brazil, Argetina and Poland  in the 1960-ties and 70-ties except the source of the debt was different.   In every case however first was the debt, then there was inflation.    For that reason the Feds have to generate more institutional credit and borrow from the future (selling bonds) to offset the deficit of capital following the stock crash of yr 2000 and de-industrialization, and also to cover the trade & budgetary deficits.

Had they not done it, it would have forced them to drastically tighten the belt, drastically limit consumption in a deflationary type of recession and allow many of the very large business entitites to declare bancruptcies.

It always adds up, contrary to the modern business theories: two plus two does equal four and the issuance of paper does not, to the surprize of politicians and corporate management, automatically make new products.

S2S           Fri  05-Aug-2005  7PM
Analog Micro Devices

It's [new word - my invention]  retro-predictable.     It was the same in 1970 after the stock crashed in the previous year and  all the second-best companies' stock collapsed except for the sector leaders.  These sector leaders were called "Nifty-Fifty" back then.   The "Nifty-Fifties" did eventually collapse as well,  but it took them 5 years longer when inflation eventually destroyed their cheap credit source.    When things are tough and valuations lofty then the second class passengers get thrown overboard to the sharks.    In that situation Intel being the undisputable leader has still got resources to rebuild production facilities every 1.8 to 5 years too keep ahead of technology obsolescence,  and can still bear the huge expenses of the continous process yield improvements, out of credit of course (what else,  with P/E about 20 ?!).  Unfortunately AMD was not in such a priviledged situation and was forced to cut corners.   Their P/E was also lower but that meant simply that their credit raising power was also lower!    I used to own their stock and was following them up until 2 years ago.

Actually we are dealing with the surprising situation when a lower P/E (but still way beyond 4.5) can be in fact a handicap for the company, therefore for example  Google can potentially weather the future storm better than Intel, TI, National Semi, ST and others.   Google needs  to re-issue only 1% of their stock this year to double their earnings...

As for AMD I here more and more reports of  AMD processors refusing to boot after 1-2 years which usually can be fixed by a 10-20% reduction in clock speed.

The first hint that something has gone badly wrong with AMD was when I tried overclocking them, after reading some hackers reports.   I found that it was simply not possible with the AMD -  I tried at least 7 different PC's over the last 5 years  and every single one of them would simply not boot with even a 10% higher clock!   You know electronics by now to understand what does that mean...

P.S.
AMD stock is already massively shorted.

S2S           Sat 30-July-2005  12PM
Three stages of corporate life cycles

Stan P. wrote:  I have also found that an IC may be MORE expensive then building the same circuit from components. This is nuts! This observation so far applies  solely to Analog Devices. I think it is "Steve-Jobs-Apple" type policy (high quality, high margins, plenty of lawyers and low sell volume) which will  eventually kill this company. I think AD is fu..ed while STM Microelectronics has great future.   I advise you to pay attention to them. Just like Microchip which does a lot  more then PIC's. I also think Zetex is fu..ed. While keeping high margins is good idea short term, it works only if you have a monopoly.   It is my personal opinion, but I believe the key to survival is Volume. You  have to capture significant portion of the market to keep costs low and  competitors at bay. Design is second and influences the first. Margins come  next and are the base of first two. Intel knew it. Apple did not.  Analog Devices and Zetex do not know it either. They sell their products at  prices which eliminated them from my design despite lower parts count and  superior performance! They are "pissing up wind" :-)

      You are right - I agree with your assessment of Zetex and ADI.  Their strategy worked extremely well in the beginning when you need very high profit margins to recoup your R&D (remember my StanInvest estimates on when and why the hitech R&D oriented companies MUST have very high earnings per capital invested!).  The same applies to S&M PCTI as well as all our consulting and new product dev activities personally.   We have to operate in the areas that give high profit margins inherently, therefore industrial automation is IN while for example wireless networking or other consumer products are OUT of the picture!

However once a company grows then it probably shouldn't spend as much on the R&D because (1) it cannot make use of that money as efficiently as S&M PCTI or similar small outfits, and (2) it can grow faster and safer just by gradually reducing profit margins, gaining market share and ramping up the volume!   We are not yet at that stage; Intel and MS have been till recently, while ADI(*) and ZETEX have missed that threshold and risk a steep decline due to cost overrun and insufficient cashflow.      Interestingly such a path won't last forever (nothing does) for the time comes inevitably, typically after several decades of good business, when the margins drop to zero as in railways and airlines and no amount of volume would save them.  Thus begins the third stage of the business lifecycle  when the profit may be slightly boosted again by, this time - gradually SHRINKING the company, and selling off hard assets if there are any.

Summarizing, these 3 stages can be characterized as follow:

1) "Startup" Phase

Small company, growth driven mostly by R&D and new products.  Their stock valuation (P/E) must be very low, i.e. under current market conditions below 5 which is determined by the short lifespan of technology products.   Unit profit margins must nominally be very hight (typ 300-1000% markup) in order to finance the R&D efforts.

2) "Market Leader" Phase

Medium to large company; growth driven by rapid increase in volume accompanied by a gradual reduction in profit margins (but not the absolute profits!).  R&D is still contributing to growth but not as much as marketing.   Continous sales expansion is driven not by new product as much as by the increase in the market share.

3) "Corporate Decline"  Phase

The "fake" growth stage, large corporations.    Unable to leverage their internal R&D for growth due to structural inefficiencies and often paralyzed by corporate administration.  At the same time unable to sustain growth by marketing efforts due to market saturation and the lack of new products or too-slow upgrades of existing products.  Corporate management then tends to  embark upon often costly acquisitions that further erode their profit margin, in order to mask the structural problems and create an illusion of growth.   In this phase the only real growth in profit and the maintainance of steady revenues may occur when the company starts gradually and steadily selling off their assets (until there are any left) and laying off their staff.

-------------------------
*) Digression:   I dealt with ADI very closely since yr 2000 when we bought our first Dev system + emulator for  DSP21065L for 6000.-  US$.   That was version 1.00 and worked perfectly though it had minor bugs.  The software was written by White Mountain company from East Coast  that was just bought by ADI.  Mind you the original software seems to be probably based on a free GNU compiler ported to ADI platform with some graphics interface added, written in VB, so the price 2000$ for the compiler part seemed a bit steep but since it was the whole package we didn't mind.    However I noticed a disturbing trend: with each software revision the software did not get better but rather worse: they fixed some minor bugs in graphics but also they introduced some more serious incompatibilities in the linker that forced us to do a lot of work to recompile with each upgrade.   Eventually, revision 3.5 became so incompatible with their own 21065L chip, and so buggy that we were forced to abandon the upgrade.   In addition, ADI refused to renew my originally purchased licence when I had to re-registered it on line last year after a disk crash, saying that I exceeded the installation limit.   May be I did, that's not a point.  You see it is not enough to buy a licence, ADI has to register it on line.   I wish them luck in selling their development systems in the future, and I hope their management will eventually make up their minds whether they want to be in the software tools business or in the chip business, but I would rather stay away from their DSP processors from now on.  Especially that TI has upgraded their DSP's with lots of internal RAM, which ADI has not done.

S2S          Thu 21-July-2005  12AM
Economy, or why does investing in hitechs require P/E<5 !

Stan P wrote:
Czesc Jesli chcesz sie usmiac to popatrz sobie [just for laugh]
http://finance.yahoo.com/q/bc?s=SW.TO&t=5y&l=on&z=m&q=l&c=  [last 5 years].

More successes of the American Corporate Socialism   8-:)

Since a few years ago I stopped following the telecoms.   The commonly expressed belief in telecom revival as the object of stock investment reminds me of the old "Railway Shares" phenomenon.   It took a 1929 crisis to cure most investors out of the railway share mania but some even persisted up until the 1950-ties in spite of continous losses.   Ask some older generation Americans.  Same with the airline industry of the 1990-ties.

In the high technology area a given technology lives typically only for a couple of years to 5 years, while the market may totally turn around or disappear during that period (for example our "Quantized" experience).    That means that from the point of view of a long term investor, the company assets ought to be replaced after 5 years on average.    It means that every 1$ invested in a hitech, minus the assets' depreciation MUST pay itsef back plus give a profit after a maximum of about 5 years.   It must also yield more than the current bank rate, possibly much more given the risk.    With APR=4% and the assets depreciation of -18%/year (because of assumed 5 year decline down to the 1/e level), the annual profit must amount to >22% of the initial capital invested.  That means that P/E must be below 4.5 approximately, for such an investment to make a financial sense!

Nowadays there are no such companies in the hitech sector, while an average (largely based on fudged or dodgy corporate accounting) P/E of the S&P 500 index is allegedly about 20 while NASDAQ's is probably about 30 (approximately) or worse, depending how they calculate it.   At P/E=20 those hitech companies cannot simply maintain their valuations in the long term by their own strength, therefore they are compelled  to seek shortcuts such as continually rasing cash from stock and corp bonds on a yearly basis to supplement their cash flow, or to fake growth by making expensive acquisitions paid with credit (again - selling more stock & bonds).  All that high tech corporate investment and loans can never be repaid under the present high valuation and low growth rates:  it can only either be annulled thru bancruptcies or inflated away by currency depreciation.

Keep in mind that years ago a typical technology lifespan used to be longer, for example in the 1950-ties and 60-ties - about 10 years, that is giving about -9.5% annual assets depreciation.   In those days, a similar calculation would result in the condition:  P/E<7.4  - which indeed was quite close to the factual corporate stock values during that period.

By the way, if the same model is applied to the present day oil and mining sector where the typical assets lifespan is of the order of 15-30 years (depreciation of -6.4% to -3.3%) then we obtain P/E<9.6-14.  That is precisely the case for the oil companies right now!   In other words, oil companies ARE fairly valued right now, while hitechs are not and by a very large factor to that (like at least four times too high).

S.B.

StanInvest           Thu 7-Apr-2005  9AM
More Enrons?

Washington Post.com  Highlights
http://www.msnbc.msn.com/id/7416903/

False signatures seen aiding Fannie Mae bonuses
Mortgage giant's regulator testifies before Congress
By Kathleen Day and Terence O'Hara

Updated: 8:03 a.m. ET April 7, 2005

Fannie Mae employees falsified signatures on accounting transactions that helped the company meet earnings targets for 1998, a
"manipulation" that triggered multimillion-dollar bonuses for top executives, a federal regulator said yesterday. [...]

Comment:  1T$ US mortgage market is at stake.  Safe as houses...

--
By Reuters ,  April 6,2005
http://moneycentral.msn.com/content/invest/extra/P114272.asp

Extra
McDonald's dead CEOs get bonus to go

More than $5 million goes to estates of former chief execs who engineered the restaurateur's financial turnaround.

McDonald's said on Wednesday it paid more than $5 million in bonuses to the estates of former Chief Executives
Jim Cantalupo and Charlie Bell following their deaths.

Cantalupo, who died suddenly of a heart attack last April, received a bonus of $1.8 million in recognition of his
"outstanding service,'' the company said in regulatory filing. McDonald's (MCD, news, msgs) said the bonus was
similar to one Cantalupo would have received had he remained employed throughout 2004.
[...]

Comment: perhaps a mumification and building them a pyramid would have been even more appropriate?

--

from the April 01, 2005 edition of The Christian Science Monitor
http://www.csmonitor.com/2005/0401/p03s01-usju.html

              TREMORS ON WALL STREET:
                 Traders at work. AIG has admitted
                  to $1.7 billion in improper
                  accounting. The investigation
                  suggests that the era of accounting
                  scandals may not be over despite
                  prosecutions involving Enron and
                  Worldcom.
                  HENNY RAY ABRAMS/REUTERS

                                     A top insurance company as the new Enron?
An accounting probe at AIG worries Wall Street, and involves
                                     some of America's richest men.

                                    By Ron Scherer | Staff writer of The Christian Science Monitor
                                     NEW YORK – American business is facing yet another major
                                     scandal involving more accounting shenanigans.

                                     But, this scandal has the potential to cause tsunami-sized damage:
                                     It involves a highly respected insurance company, American
                                     International Group (AIG) - which is part of the Dow Jones Industrial
                                     Average - which has now admitted to $1.7 billion in improper
                                     accounting. And, it has enveloped some legends in the financial
                                     arena: Maurice "Hank" Greenberg, forced out as chairman of AIG,
                                     and Warren Buffet, the Omaha stock market guru, who will be
                                     questioned about his possible involvement.

                                     Because AIG is so massive and important to the financial world,
                                     regulators will have to tread carefully. The company's main business is providing
                                     reinsurance, that is, it insures insurance companies. This helps the industry to
                                     spread its risk among many large and financially sound companies so a single
                                     event does not become a financial disaster for one company. [...]

StanInvest           Thu 31-Mar-2005  2PM
Oil (2)

Thu, 31 Mar 2005 13:36:32 -0500

On a different note, I will continue my dictionary of media language:

"Oil Price Comes Tumbling Down"  =  it hasn't gone up (see yesterday media announcements of that kind after oil
dropped by 0.24$ a barrel)

lack of commentaries on oil prices movement  = price goes up (example: todays increase by +1.6$)

You see media don't lie, one must read properly into it...
8-:)

Thu, 31 Mar 2005 11:00:01 -0500

Thu 10:22AM  ET - Associated Press
Americans' incomes, bolstered by strong gains in hiring, rose by 0.3 percent in February while consumer spending climbed at an even faster pace of 0.5 percent, the government reported Thursday.

Translation:

strong gains in hiring = an increase

seasonal adjustment = any reduction in employment regardless of the timing

"consumer spending climbed at an even faster pace of 0.5%" = it has increased just about or less than the average effective inflation rate (not the same as the CPI).

Comment: the underestimation of CPI by even a small factor has huge and multiple benefits, namely:

1) Creates a fake sense of prosperity by increasing the nominal consumer income&spending statistics!

2) Point 1 above boosts the stock market!

3) Creates an illusion of low interest rates environment which boosts stock and bond prices!

4) Reduces the cost of borrowing by allowing the bonds to carry low yields!

Note: it  would have been impossible to sell if the true inflation figures were used.   An intended consequence is that it allows companies like Nortel, Lucent, GM, Ford and similar screwups to function which would have been impossible otherwise.  (BTW have you heard of Daimler-Chrysler getting a huge gov "contract" (read pork) for developing fuel cells? - INCREDIBLE!)

5) Suppresses labor demands for wage increases and unrests, especially among the gov employees!

Smart guys...

Tue, 29 Mar 2005 11:54:50 -0500
Oil (1)

If you find it amusing and have to sit thru a boring meeting read the following spam stock promo that I just received.   Just like in 1929 it was possible to argue that the stock was fairly priced, so it is now with the techs, airlines and other stars of yesterday, as being supposedly poised to a further growth.    Notice the argument of comparing dotcom "eyballs" to barrels of oil and draw a conclusion.

From a spam bulletin by: "JamesDlugosch@investorplace.com"
--------------------------------
HOW TO MAKE A KILLING WHEN THE OIL BUBBLE BURSTS

Everyone agrees -- the days of cheap gas are over.  Everyone agrees -- oil prices can only head higher.  Everyone agrees -- energy prices are     headed for the sky.   Does this remind you of something?   Do you remember when everyone agreed that the days of bricks and mortar were done, finished dead? And that the prices of Internet stocks could only head higher because, after all, it's a new world, a new paradigm and old valuations simply didn't work?  We have all learned a word for the situation in which "everyone agrees"... and prices soar. The word is: bubble.   And the bubble in oil is as massive and as dangerous to your portfolio as the Internet bubble 5 years ago. [ ...]

Wed, 23 Mar 2005 20:40:33 -0500
Fixing Cars

Yahoo fin news:
GM Exec Lays Out Strategy for Fixing Unit
Wed 11:29AM  ET - Associated Press
General Motors Corp. plans to focus on new products and educating potential buyers about the unique aspects of its car and trucks as part of a multifaceted strategy for fixing its ailing North American business, the head of GM North America said Wednesday.

Caustic Commentary:
I didn't know GM was broken and required a "fixing".  Pity they didn't speak about it before. New products come as a result of a very long R&D cycle, I believe it is close to 10 years (in auto ind.).  If their old bosses forgot to energize the process 10 years ago (I bet!) then tough luck, they will be better off in the banking biz leaving the car making to those who know how to do it properly such as Japanese, German or Korean companies.

Using words like "educating buyers" stinks of a bad attitude, paraphrazing: "Our products are so damn good only those stupid customers don't know what is good for them" .   You see I probably am indeed prejudiced against corporate management in general.  For a good reason.
Stan

StanInvest           Mon 14-Feb-2005 11AM
Bonds.

Re: Junk bond yield is down compared to treasuries ie. spread is very thin

Yes but do you know why?

They say that there is now a dire shortage of long term bonds.  As you know, mutfunds and other financial investment vehicles have no choice - they MUST keep part of their portfolios in bonds by their statutory rules.  The same with foreign gummints and their central banks.  For example, China and Japan cannot buy US stock or any other stock directly in order to support the dollar, they can only buy bonds and only US gov bonds to that!   That has created an environment where prices of all bonds including corporate bonds have been driven artificially high - that means their yields have been driven artificially low!

We have been always talking about the market rectifying imbalances by itself, however you do not really have a true market if it is dominated as in case of bonds by a handfull of very large buyers and only one huge seller.   It does not look very stable in the long run, and something will have to yield.    When that "market" snaps, probably sooner rather than later, the yields will have only one way to go...

Stan

stan p. wrote:

No, But I have heard another interesting story

Junk bond yield is down compared to treasuries ie. spread is very thin .

This means bond buyers are comfortable with companies not going under.

But at the same time dollar and stocks seam to be poised down, while gold and euro up.

There is some basic discrepancy here. Both cannot be true.

SP

From: Stan B

Sent: February 14, 2005

To: Stan P.
Subject: SP

Two headlines:

1) Europe gold, silver move higher as dollar slides - Reuters, Feb 14, 2005 07:34
2) Gold up on euro, safe-haven buying - NetAssets, Feb 14, 2005 08:11

Silver up 0.6$, gold up by 10$ in a week.  And all this happening after IMF pre-announcing a major gold sale!!!
Stan
P.S.
Slyszales rozne historie o tajemniczym brokerze o numerze 99N?

StanInvest           Tue 1-June-2004 11AM
Gold and technology ....

This is the official invitation to "400dollars/oz" party, it should cross over by this weekend.   BTW, did you notice that the successive dips are progressively higher and higher?   It went like this (the lows only, since 03/2001, on a 5 years, 14-days moving average Kitco chart):

   260-->280-->310-->330-->380,

while the tops were:

         290-->320-->370-->420

The period is almost exactly 12 months and the amplitude of oscillations (tops minus subsequent lows) seems to be growing:

   10-->10-->40-->40

If it continues unchanged, it should reach at or above 420+50=470$/oz by December 2004 and then may dip again for a short time to about 380+50=430, around March 2005.   On the other hand it seem too predictable.  If something becomes too predictable and too many people cop on, then the pattern tends to change suddenly.   Anyway, this looks good (and nortels are truly f..ed), whichever way one looks at it.
Stan

P.S.
The above 470 and 430 figures result from applying linear extrapolation.  If we use linearily growing increments' approximation, which is equivalent to a second order (parabolic) extrapolation, then next December top may reach 420+70=490, and the next March bottom about 380+60=440.   These calculations are done with accuracy of +/-10.  Also since they are based on 14-day moving average, they represent smoothed out peaks not the actual daily tops and lows.

---- Hybrid car fiasco  ---
"Consumer Reports" tests ("Hybrid Gas Mileage Falls Short" by CBS) showed that hybrid Honda Civic really burns 10.5l/100km in the city while 2-seater Toyota Prius burns 8l/100km. Is this supposed to be called "progress"?

Why does it not surprise me? - Marketing gone mad, media lying or not telling the truth for 5 years, pathological corporate culture of car makers and dealers, false advertising unpunished or all of the above.
--------

StanInvest           Sat 17 April  2004 10AM (UPDATED 25-May-2004)
The Hour Of Truth;
Post mortem on my October/December gold stock "disaster".

RRSP Acc   - Company:	Bought & paid in Oct-Dec'03 (C$):	Value 17/04 (C$):	Value 25/05 (C$):	Vaue 11/06/2005 (C$)
Birim Goldfields	510	415	315	177
Canadian Golden Dragon	420	345	300	315
Canico	735	600	597	669
Eastman Resources	478	520	432	336
Manhattan Minerals	381	81	37	0
Navasota	480	140	130	100
Nevada Pacific	465	650	575	380
Northern Orion	873	1071	915	888
Northgate Expl	532	576	426	278
Silver Standard Res	835	1875	1510	1523
TOTAL =	5709	6273 (+9.9%)	5237 (-8.2%)	4666 (-18%)

StanInvest           Sat 17 April  2004 9AM
Goldfile: Kimber Resources  KBR.V  2.40C$

CAP = 1.9M$ US
Correction: 1M shares=5% thus the total cap is 50M CAN$ = 37M US$

Reserves:
Monterde, Mexico
Inferred  Gold=351,936oz=140M$(at 400$/oz)   Silver=15,915,056oz=111M$ US (at 7$/oz)
Total = 251M$ gross value
Res/Cap=130:1 (approx) correction 7:1

StanInvest           Fri 19 March  2004 11AM
Goldfile: KRY (Nasdaq) Crystallex  3.3US$, 11% shorted!

CAP = 294M$ US

Reserves:
Venezuela
Las Cristinas = 10Moz Au at 190$/oz cost --> 2B$ net value
Tomi goldmine = 100000oz at 100$ cost --> 30M$ net value
La Victoria (Lo Incredible) = 2.6Moz Au --> 1B$ gross value (approx 0.5B$ net value)
Albino1 = 425000oz Au at 130$/oz cost --> 115M$ net value

Total = 2.6B$ net value

Net value/CAP = 9:1
Res/Cap=20:1 (approx)

StanInvest           Sun 8 Feb  2004  6PM
S2S    "Twin Peaks" effect in the life cycle of organisations.

I told you about the PhD thesis on sociology done by A.Z's friend in Poland.   The credit for this article should go to him (and to A.Z.).    He studied the lifecycles of big organizations, corporate and political, and he concluded that when they approach their end-of-life stage, their staffing peaks out, then rapidly declines (see the graph below), then picks up again and build itself up to a second peak but usually lower.   That creates the double peak structure.   The following text is my attempt at recreating this idea and putting into more formal analyzis.

A :   Beginning (birth) of an organisation

A-B:  Stage 1 - Exponential growth (may be zig-zagged but the average is up)

B:  First slow down, beginning of troubles.  This situation is usually perceived by a minority of people within who are trying to fix it, then subsequently are beginning to get frustrated and leave or get fired.   This causes a slow down in the growth of staff but it is more than compensated by hiring new people that goes on at the same rate as before.  During Stage 2, the staffing peaks out at C, but revenue growth also slows down but for a different reason, namely that the original problems did NOT get fixed and are beginning to bite.   It is interesting that in case of publicly owned corporations, their stock may suddenly start dipping at point B followed by a recovery, even before the crisis (point C) becomes apparent.  This may lead to the company stock following the three peak "head and shoulder" formation, similiar to the graph below with the exception of additional small peak at point B

C: Stage 2 Peak.   The old business model has exhausted its potential, some transient problems evolved into major roadblock due to past inaction or mistakes, shortage of the people who could have implemented solutions, external factors or a combinations of the above, have caused the organization growth stall.

C-D:  After peaking out, the revenues start declining which gives the impetus to reduce costs by laying off staff, freeze R&D and marketing, outsourcing accounting to Mongolia etc.   This is very different from stage B-C when the most competent people may have left voluntarily; in this stage the people regarded as the most troublesome and thus dispensable, are pushed to quit or are fired.  Which very often are the very people who previously engaged most vigoriously in the efforts to save the organisation, and who did not quit in stage B-C.    Interestingly, in this stage the new hiring is not completely frozen but just slowed down.   Characteristing to C-D stage is hiring of business reorganization consultants and attempts at implementation of various new organizational, formalized "quality" procedures and  other structural and systemic innovations, seen as a panaceum to the problems.

D-E: "The Recovery".  Cost cutting measures work!   This results in less financial pressure and new hires are replacing people who were let go and the organisation resumes growing, albeit under completely new fundamentals, because the old engines of growth are gone and the new growth is for the time being financed solely by the cost cutting.  For example, businesses who cut down their R&D and marketing expenses can no longer grow by developping new products but are forced to resort to other ideas, such as moving towards financial sector (banking and investment), selling stock, becoming service oriented (if they weren't already) or attempting to grow by acquisitions.

In the political world, that is a stage when the political organization suddenly abandons their old doctrine (or extensively modifies it).  In case of corporations, they switch for example, from manufacturing into service oriented model etc., or from R&D oriented model into re-sale and distributorship etc.   In some rare cases such a transition may be successful.  In most cases however it isn't.  The success of this transition depends solely on the leadership vision and insights, the type of people that get hired during the C-D and D-E stage,  and also on the luck (but luck does seem to depend on people too...).

E:  Stage 3 peak, second peak or "The  Day of Reconning".  If the leadership discovers the new viable model and if the newly hired  people implement the new engine of growth, then the company may resume the exponential growth on the path E-F' (dashed line) and surpass the first peak C, albeit this would be at this stage, a very different organization.   If it doesn't, the cost cutting led growth must inevitably stall and the company enters the stage E-F.

E-F':  Up we go.  If the new business model proves viable and if the new people hired after peak C event prove themselves capable of implementing it, then the company may resume growth, eventually surpassing the first peak C.   This is quite rare but  not impossible.  Some good examples are: IBM which re-made itself from mainframe manufacturing and service into almost pure service business model.   It was largely due to the vision of the original IBM founders and the directors who always insisted on the importance of being in service, even during the time when manufacturing seemed all-important.  In other words for IBM, the transition from Stage 1 model to Stage 3 model was not a culture shock but a natural process understood by all in management.   Another successful examples are GE (from manufacturing to investment acquisitions and financial operations) and the Chineese Communist party (from communism to capitalism!).

E-F:   Down we go. If the new growth does not materialize, which is true for a vast majority of businesses and other organizations, then the organization is forced to intensify cost cutting.  This means that staff is being laid off across the board, including even in the management.   Interesting phenomenon at this stage is that the criteria for staff dismissals are very different.   While during the C-D layoffs, the criterium was the adherence to the no longer desirable old business model,  then during the E-F stage there is usually no criterium; and not surprizingly so, since a new model or a new engine of growth failed to materialize.  Therefore the layoffs proceed more less randomly or based on some arbitrary criteria, like non-compliance with administrative procedures, numerical quotas etc.

Characteristic to the situation at point F is that the declining company must either rapidly reverse back to the original pre-C model of revenue generation, or staying with a new Stage 3 model if it was even partially viable.  Since the original pre-C model may no longer be viable, and the most important people and financial resources are gone,  and since Stage 3 model is usually crippled (otherwise they would be on E-F'), the company cannot grow and enters the exponential decline stage F-G, or it dies.

F-G:  Stage 4 - If an organization doesn't die at point F, then it enters the final exponential decline.   Big organizations may sustain themselves for quite a long time reducing expenses, laying off staff and selling stock.  However this has to lead inevitably (mathematically) to exponential decay since staff reductions will invariably lead to more-less proportional revenue reduction, albeit with a few month time delay.   Characteristic features of corporations in this stage is either the adherance to the stage 1 model but without its original dynamism (=people!) or to some newer Stage 3 model if it proved itself to be even partially viable.   One can often find corporations at this stage who hang onto manufacturing of some old end of life products left over from Stage1 but with the R&D efforts cut to zero, and /or running some left-over ideas from Stage 3 but also with insufficient resources and no hope of growth.

StanInvest           Fri 30 Jan  2004  12PM
S2S  avoiding bad advice; aniversary of Columbia crash and more caustic comments (or may be we are just being bitter)

Stan P.  wrote:
Czesc Stasiu Bicie piany trwa. Zbliza sie przesilenie i trzeba podwoic wysilki oglupiajace. Posylam Ci nastepna perelke.

"Avoiding Bad Advice", Forbes Magazine, By Richard Lehmann, 29Jan04

Tlumaczenie z angielskiego. Stopa procentowa wzrosnie. [=Interest rates go up] Bond investors, don't panic and buy more! It  is GOOD for you!

Yes, it is pathetic since rising interest rates (dI/dt>0) means FALLING resale value of fixed investments, that is for people investing short term or speculating.    In addition there is another factor: it will cause the FALL in the real value in the long term (even if somebody holds it till the maturity), because rising interest rates (at least between 0 and about 6%) mean - HIGHER inflation!   See my last year's extensive and exhausting discussion on StanInvest (Issue2,  Wed  2 July  2003  12PM, "What exactly is the relation between interest rates and inflation?" ).     Only above about 6%,  inflation starts subsiding but they have a loooong way to reach that stage.   That's why throughout the 1970, dollar fell overall;  a US$ in 1981 was probably worth about  25 to 50 cents US$ of 1969.    BTW - bond investors were wiped out in the 1970-ties and many retirees went destitute.

Given the above, bonds and also general stocks and property are most likely a loosing proposition until interests reach that 6% or so.   I may be wrong of course, if I missed something, but I can't see what/if I missed anything.

Article says: "...but there is another   A Fed tightening of the money supply, aimed at lessening future inflation, will benefit them."

Au contraire!     -  Fed's pushing rates from 1% upwards will not tighten the money supply.  It will cause the overall inflation to accelerate (except gadgets from China)  just like in the 1970-ties, until the rates hit about 6%.

----

In case we haven't passed enough bile today, here is some more heavy rant on modern corporate culture

    Today is the aniversary of Columbia crash, thus the article.  I find it interesting to think about it again.  This is a clinical example of a prevalent mode of thinking. I remember in the 1970-ties, there was another managerial fad especially popular in the big coal and steel industries as well as textiles and automotive: always yield to the trade unions, never refuse them anything.  Look what happened since then.  If history is of any guide, it seems that the managerial fads and dogmas lead inevitably to a decline of the industry in which they take hold..  Or, on the other hand - they may be simply the symptom of a decay, not the cause of it.

Lesson for us:  we shall stay away from big high tech corps; our modus operandi as consultants gives us enough flexibility and safety distance when the s..t hits the fan for those nortels.   At the same time, it may open up new avenues of business that we may not be yet aware of.   The situation may also force us to retrain but that's is OK too.  It is also less secure in the short term but probably more secure long term.  For the reason above, I do not believe in the hitech recovery (though the general economy will of course recover) since it appears that the problems are of systemic and cultural nature, just like there was probably no likelihood of recovery in Gierek's Poland, for the same reason.  Even though the so-called "Realsozialismus" could in theory have been made working more efficiently than it did, sort of (like in Sweden or East Germany).
Stan

P.S.
Please notice that the NASA manager responsible for withdrawing the request for examination of the shuttle by satellite photography was never identified publicly or disciplined, as far as I know.  Unless they do it routinely, nothing will change, but I bet they will never do it!  It's the same with the nortels.   It has reached the stage that to change anything, even a small aspect of corporate management, you have to scrap the entire organisation, just like they had to dismantle the entire Polish People's Republic.

----------

"NASA complacency doomed shuttle from takeoff", By Jay Barbree, NBC News, 29Jan04
Subtitle:  Space officials ignored their own rules

....
Meanwhile, on the ground, some charged with the doomed astronauts' safety worried over video scenes of the foam crashing into Columbia's wing.  If it was determined that the strike was a fatal blow, they must do something.  First, NASA officials asked those in charge of America's spy satellite assets to take a look at the wing. Then, for a reason never explained, they dropped the request.  An inspection by the two spacewalkers on board Columbia was ruled out. Instead, a study by engineers suggested the foam impact was not a safety risk.   Columbia's mission managers went with that.   Most were comfortable with the study instead of looking for themselves, and they simply whistled away the four weeks they had to return the crew safely to earth.  Had they looked...
Stacked and ready to fly, the shuttle Atlantis could have been moved to the launch pad for a plausible, albeit risky, rescue.
...

StanInvest           Mon 26 Jan  2004  5PM
S2S more ranting on the currency issue and patterns of the last 3 recessions

Another illustration that the US gov is probably intentionally injecting money into the system by generating more "pork".   If you look at the examples quoted by Weiss, they don't look accidental.  Somebody allowed them to be slipped out without undue scrutiny.

This is a good illustration of what I said yesterday:   This is a hypotetical scenario based on my (layman's) understanding (not all details may be correct).

Before 1911 - recessions were governed by tightening of credit supply and demand.   Credit supply was regulated by the amount of gold reserves held by banks.    Eventually the emergence of giagantic corporations (coal and steel, railway barrons, new technologies etc) created alternative financing routes for small and medium businesses.  Large corporations were not bound by the banking restriction imposed by gold backing law.

Banking sector lobbyed to change the banking law to ease restriction on lending rules.   Banks were allowed to lend that what was secured by the Federal gov notes not just by their gold reserves.   However, the curency itself - the US$ bank notes that were in circulation were still gold backed.    Federal Reserve was created as a private enterprise funded by the banks, with the purpose to generate money supply if necessary.  The whole thing was of course backed by gov. securities as well as gold.

1929-1939 deflationary recession ("Great Depression").

Result: 1920-ies - massive credit expansion that resulted by 1925 in huge property bubble (especially Florida, Eastern and Central states), and with stock market bubble which crashed in 1929 and then for the second time in 1931.

Since the circulated dollar notes were still backed by gold and could not have been easily increased, the destruction of paper asset value on the stock market created deep drop in the overall money plus credit supply which could not have been offset by a rapid increase in the bank notes (cash) supply.   This resulted in a deep deflationary recession.   US government attempted to remedy by expanding monetary supply (=printing more bank notes) which, due to gold parity (gold backing) required corresponding increase in the gold holding by the US Treasury.  This was accomplished by Roosevelt's infamous gold confiscation act in 1933 (I think).   Extra cash was then injected into the economy through government-paid public works programs such as building highways, TVA etc .  This seemed to have worked welll and by 1936 recession started to slowly lift and by 1939 the economy was back on track.   Interestingly, since the dollar-gold  parity did not change, the foreign exchange rates did remain quite stable throughout those tumultous years, it was the same with the other currencies as well, not just US$.

1969-1981  inflationary recession ("Stagflation").

This mechanism had to change after the gold parity was revoked by Nixon; perhaps the incident when the French president C. de Gaulle requesting billions of US$ notes be returned in gold at 30$/oz, had something to do with this.   When the stock market crashed in 1969, this was remedied by the US gov in the same way as during the 30-ties, that is by injecting more cash into the economy.  Instead of building the highways, this time it took form of the  increased military spending (Vietnam), Apollo program and other.   Since dollar was no longer tied to gold, the fed gov was able to generate more money without having to confiscate or buy/borrow more gold.  Therefore the overall (world-wide) amount of dollars in circulation has increased, while other currencies supply remained constant then started to increase as well, since many of the other countries and the central banks used dollars as their curency backing.   One important feature was that the monetary growth of other currencies was also rising as fast as US$ which did not cause a significant shifts in the exhchange rates.   However, that created a situation unlike 1930-ties, when the monetary growth worldwide in all currencies put together, did exceed that of the raw materials, goods and services which created a global price inflation, beginning with oil, then spreading to everything else.

Inflation was eventually quenched by the US government by 1981, by means of jacking up the lending rate to above 10% which has then gradually reduced the growth rate of the monetary supply (and credit demand) and it did stabilize the US $,  and consequently also other currencies as well

2000-?   hyperinflationary recession ("Hyperstagflation" ???)

This started very similarly as in 1969 except that the US economy is not as big a part of the global market as it used to be, and the stock market valuation appears to have been more excessive in yr 2000 than in 1969.   Interestingly, both situations were preceeded, in 2000 as in 1969 by a few years of very loose governmental fiscal policy.    Unlike in 1969, US government decided and was capable of bringing the lending rates down further than then, which is creating now a much more rapid currency depreciation than in the 1970-ties.   Unlike in the 1970-ties, the European currency did not decide to follow the US $ depreciation route but, for political and systemic reason (ECB charter) remained relatively constant.    This is creating a very dangerous situation when the depreciation of the US$ cannot be masked by all other currencies and is now clearly visible on the charts.  US$ is also no longer as dominating globally as before which coupled with the increased visibility, makes possible for investors to easily avoid the pitfails of inflation by simply shifting away from the US assets offshore to Euro, SFR etc, and if/when even those may start depreciating - to gold bullion. This process will probably accelerate the dollar slide and will make inflation problem worse than before.  In addition, US gov cannot start increasing the interest rate to remedy the situation (especially that it has gone much lower than ever before) until the recession comes to an end, just like they could not do it througout the 1970-ties, only in 1980-1981.    Note that some people may be very critical of Mr. Greenspan as a person, but in the light of this analysis, I believe it is very likely that he is fully aware that he is creating inflation, for the purpose of avoiding a very deep economic depression.   He is probably trying to avoid a worse disaster, and the gov is also doleing out the "pork" money as fast as they possibly can, for the same reason.  Time will tell if this will work.  I am a bit skeptical since in the science and engineering a  problem cannot be simply canceled out by creating another one.   May be in politics it can?

S.B.

StanInvest           Thu 15 Jan  2004  11AM
S2S more ranting on the currency issue

Stan P. wrote:
You may be right about the fall of US$. I was speculating something similar. However, the situation is not Gierek. Nothing repeats itself exactly.Facts:

1. There is too much money floating around. AGREED. Thus this money has to get tied into something ie, disappear from your pocket. Overvalued stocks would do if you can keep them overvalued.

2. The economic (and in the future political) awakening of Asia reached China and will soon reach India. This is a permanent situation and the G7 has to adjust to this major upheaval (2 billion new workers on the market)

3. TODAY WE HAVE GOLD CORRECTION. Watch out!

4. US exports are growing fast. Now a bit of my private comment.At the beginning of the century US was growing fast and needed raw materials. In addition to its own vast supplies it needed CHEAP everything: rubber, iron ore, nickel, oil, copper to fuel its growth. Now it needs only small quantities for "replacement" jobs until they decide to rebuild the infrastructure. Contrary, China and India need everything, fast. It is in the best interest of both G7 and producers (though for difeferent reasons) to raise price of materials as much as they can. This has to include Oil. US labor must become cheaper. The only way is to increase the costs of transportation and lower US$. Then keep the exchange rate low. In any other scenerio US manufacturing will disappear. Influx of cheap goods from China will continue. Trade is a good thing! It irons-out imbalances (which are horrendous).This will keep the employment down and labor costs down. This is exactly what is different from Gierek!I would call it "partial inflation" because it will skip part of the economy which CAN BE EXPORTED....

This may well be a possible scenario, as you describe, that is no hyperinflation and destruction of the dollar but rather a permanent and orderly devaluation.

I have been thinking about this model (as I described on the recent StanInvest articles) and there is the following possibility:   Asia may permanently absorb these vast amounts of US treasuries (=money equivalent) into their currency pools, creating a sort of vastly expanded dollar currency zone.   Their own markets would not experience massive price inflation because their supply of goods internally is growing at a relative rate that is still higher than the rate of the monetary expansion there.  This is because their consumer goods supply is starting from a very low base so even a modest diversion of goods from the export onto their internal market is capable of quenching inflation.   At the same time they will keep flooding the US market keeping consumer prices there very low.    And you are right, labor costs must eventually come closer than they are at the moment, but only if their government will converge the legal system and the civil rights.    Otherwise democracy will always sustain higher wages because nobody would want to live under dictatorship like a slave.    So the condition for this scenario is that Asia must liberalize their system which it does slowly.  Conversely any major setback means that the system reverts to the old style.

So I guess the outcome all depends on wether the growth of monetary supply exceeds or is on par with the combined growth of Asian economies.  In the first case the eventual inflation is intevitable, in the latter case it will not happen.   If I remember correctly, the US total monetary supply does grow faster than the total Asian output, so the inflationary scenario is probably more likely, but I need to check it out.

In either case however, the total combined monetary supply is growing very fast, be it 10% (=non-inflationary) or 20% (=inflationary) it is still much higher than the growth in the supply of gold and silver.  Therefore in either case the precious metals will have to appreciate, especially that Asians will hbe having more and more surplus capital, beyond what they need to survive, some of that will be spent on precious metals.   In terms of potential demand, these are huge numbers!

Stan B.

StanInvest           Wed 14 Jan  2004  4PM
S2S more ranting on the theme: Bush=Gierek or Great American Inflation

Stan P. wrote:

Zgadza sie.[re StanInvest of 13-Jan-2004]  Including falling gold stocks.I disagree with "subsidizing", though. It is not this simple because capital cost is long term. Only short term gov't bonds are "cheap". Long term industrial credit is still 6-8% There are two extra issues:1. FED does what it has to. It is either crisis TODAY and a democrat in a White House or printing money. They do it smart using banks and they can continue for a while.2. Remortgaging as a source of disposable cash was a one-time deal. It has dried already. question is what happens now?S

Q: "What happens now?"

Same as in PRL [Polish People's Republic] by the end of 1970-ties:  in the US - massive inflation when all that capital and credit pumped into Asia comes eventually home.  I wasn't sure about it before, remember our discussion: inflation versus deflation?   I think it is now clear.   The numbers (=rising supply of US securities) are telling us the whole story.

Under Gierek it hapened much faster because he operated only within a single country, but still he was able to defer the inflation using goods imported on credit, for the full 3 years: 1971-1974.   It only really started to be evident in 1975.  Clinton and Bush have had more time since 1996 until today but the time is comming.  It will happen fairly soon because everybody, I mean EVERYBODY, even the media are talking openly about it!

See for example: Forbes original link
(or local copy here)

I am not predicting here, just reading the history file: everybody who owns stock (even industrial metals, with the exception perhaps of gold and silver stock but I am NOT 100% sure about it * ), especially industrial stock will have to end up just like Polish savers under Gierek.   There is just too much of this printed stuff flying around.

Rule #1:  if government wants you badly to do certain thing, like owning stock, if they tout it from every TV screen and newspaper, than you have it guaranteed - it's bound to collapse and you stand to loose all.    The game is close to being called over.
------------------
Footnote:
*) If I was to start over my portfolio I probably would have put 50% into physical bullion w Banku Ziemianskim [hole in the ground] and the rest in Central Fund of Canada (=gold and silver certificates).

-------------------

Re:  "Only short term gov't bonds are "cheap". Long term industrial credit is still 6-8%"

Yes but big corporations and bank are massively engaged in the so-called carry trade: they swap the long term debt for the short credit, precisely to reduce costs.  It is working very well for them, for example big Japanese corporations were able to borrow investment capital at or BELOW 1% rates since late 1980-ties!   That's why the Japanese gov cannot do anything to unravel it - total paralysis, since any rise in the short term rates would kill them all  instantaneously!   Similar situation has just developped here in N.America.    How do you thing are the big 3 automakers able to give their customers 0% loans or how do the telecoms manage to pay salaries and pensions without turning any profit whatsoever for years?!

This is making the whole situation even more dangerous and this ensures that the FEDs not only do not want to raise rates but simply CANNOT do it without trashing their entire economy!   Therefore the US dollar has to keep falling for all practical purposes, may be even INDEFINITELY !!!

Stan

StanInvest           Tue 13 Jan  2004  8PM
S2S - this cannot last!

I just realized something obvious (and really trivial):   since the bulk of the new capital (credit) that originates in the USA is being dumped in Asia, which uses it to expand manufacturing, therefore the amount of goods exported back from Asia to N.America must be growing at the similar rate that the capital, which is FASTER than the purchasing power of all the consumers in the N.American market!   This is obvious, since the local purchasing power can only grow at a rate of the local money supply expansion, which is being roughly estimated at 5-10% (see Puplava, mostly through remortgaging).  If volume of imported consumer goods is growing at a rate higher or equal to the growth of the local purchasing power, their prices cannot significantly increase!    That's why the inflation figures come out unrealistically low!

 In fact this is equivalent to US government simply subsidising production of consumer goods in Asia to be sold in the local market.   The cost of Asian high tech goods could not have been made so low and volume rising so fast,  if Asians had to pay the realistic prices for RAISING CAPITAL!    In fact the equation can now be written as:

   cost of products = labor + materials + cost_of_capital + profit.

 Up until recently, Asia could not really flood the world with the high tech goods, only with the traditional stuff, because capital costs necessary for high tech manufacturing were too high.   Now they aren't, ONLY and ONLY because US government is actively helping them create credit and bring down the cost of borrowing, by means of using American IOU's and printing treasury bonds like crazy!   In other words, the end results is that the inflation in the US is artificially underestimated because the capital cost in the equation above is being kept artificially low, -  subsidized on a massive scale by the US gov itself!
S.B.

StanInvest           Wed 7 Jan  2004  12AM
S2S - correlation between technological progress and financial cycles

Re:  http://www2.ccnmatthews.com/scripts/ccn-release.pl?/current/0107001n.html

This is the so-called "BlueRay" DVD standard.   Note that there are now violet and near ultraviolet semiconductive lasers which will probably double the capacity by yet another factor of 2 from BlueRau but they are at the moment not very durable.

It is growing indeed very rapidly.  I did notice a trend (as the time goes by one tends to notice more long term trends and patters...).  Namely, in the periods of financial boom like the 1990-tie the pace of the progress tend to stagnate.  For example, optical disks were introduced in the early 1980-ties and skyrocketed by the mid 80-ties by 1990-ties there were already rewritable (magneto-optical, and phase changed like modern CD-R).  That was incredible progress!.   At the same time there was recession of 1982 and stock crash of 1987.   In the 1990-ties, on the other hand progress in the computer industry has noticeably slowed down in terms of innovation but not in terms of incremental improvement.   For example, there was no new technology introduced during that time, except the existing products were improved and polished.   Optical storage media increased capacity by reducing the wavelength, and improving the optics.   Wirelless technology all existed in more less the same form before 1990-ties but was more expensive and less refined.   Computer processors haven't changed much except the speed.  Hard drives similiarly etc.  In the commercial software the progress was probably the least; it is still the same technology that existed by mid 1980-ties albeit better debugged.

Interestingly after the year 2000 crash, a few things appear to have started moving.   In the non-commercial (academic) software research the progress seems to have be made very recently, there are some new and intriguing development in new computer languages for linguistic analysis and logic manipulation, as well as some new methodological concept going beyong the bottleneck and the stagnation caused by the OOP.

I would expect this trend for more innovation as opposed to refinement to continue as the second leg of this financial crisis is just about to unravel.

[rant]  I always felt that the R&D activity have been shifted on the back stage in the 1990-ties as if the businesses found better ways of making money and were no longer prepared to tolerate all that unpredictability in devising new products and inveting new services etc.   Company directors seemed to have lost patience with the finicky engineers and with the R&D management that tended to be notoriously inaccurate in planning for the innovations and in forecasting their timing and budget.   I expect this tendency to be totally reversed in the nearest future as most high technology and new service businesses will have no other choices for survival but to revert back to the innovative ways.

S2S - United States; the signs of the true recession and the reason behind the misleading statistics

This is very interesting situation that reminds me even more of the Eastern European slide into the economical abyss of the 1970-ties.   It is not just the "propaganda of success"  ;  the similarity is deeper than that.   For example the existence of the two-tier economy.   There is one sector of consumer products and services, largely prodced domestically which prices are rising rapidly.  In the US it is estimated at high single digit (5-9% annually, see Jim Puplava editorials ).  At the same time there is another sector of imported goods that are not subjected to price inflation, and that are purchased basically on credit therefore generating a massive balance of payment defict.   As long as inflation is measured within the imported goods sector, it comes out as close to zero, when however it is measured in the first group - it comes out as rather high.

This situation is analogous to the Eastern European economies being divided into a sector of raw materials and oil imported cheaply and at fixed prices from the Soviet Union, and the consumer goods, labor  and food produced by small local enterprises (often private).   We have a perfect analogy of the cheap Sovier oil and minerals being equivalent to cheap electronics from China.

Note that since the cheap imported goods are paid with credit (=US treasuries) this will have to unravel at some stage, EVEN if China and Japan decided to forgive or deferr indefinitely  the US debt, that is even if they decided to hang onto their "treasury trove" of US securities indefinitely.   We saw exactly the same situation in the Eastern Europe when the crisis was eventually precipitated even though the Soviet Union never really demanded the full payment (except from Poland...) and even though was selling under deflated prices till the very end!

One interesting conclusion of this analysis, is that the low consumer inflation in the US (by imported goods) is really a temporary artefacts, and that the true situation is better reflected by the statistics that include only the locally manufactured goods and services.   Thus, if the true price inflation was in the high single digit, since yr 2000, then the real  GDP growth must have been and probably still is NEGATIVE in the last 3 years!   That is also consistent with the persistently high unemployment.

StanInvest           Fri 2 Jan  2004  4PM

****Happy New Year! ****

Canico T.CNI (13.3 CAN$)

Market Cap: 289 US$
Resources Onca Puma West, inferred: 104Mt of ore, 2.15% of Ni --> 36B US$ (at 16k$/t)
Res/Cap=124:1

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Stan Bleszynski

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