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30million ounces silver options at 6-7$?
Looking Down The Barrel
Richard Daughty, The Mogambo Guru - The Daily Reckoning
"...What in the hell can one do to protect wealth? What can the normal, modern paranoid-wacko employ to hold at bay all the frightful forces of evil that he sees rising all around him? Double-barreled shotguns is a popular answer, of course, to keeping things at bay. But as for protecting wealth, this is the same question that people have been asking themselves since wealth was invented. We are brought back, as it always brought them back, to our old yellow-metal friend, gold..."
The Mogambo Guru
- The Fed created $6.9 billion in raw credit last week, to a new record high. Government debt bought outright was up only $1.7 billion, but also to a new record.
- "The bubble was going to burst sometime," said Chris McCarty. Chris is the survey director at the University of Florida's Center of Survey Research for Consumer Confidence. "With credit cards lowering their standards... lower interest rates on homes and cars... and people refinancing their homes for 125 percent of what they are worth, I could see this coming a mile away."
Me, too, Chris. And when you see something coming from a mile away, why not use the lead time and set something up to make, you know, a little money? And, since anybody with half a brain can see more and more economic calamities besetting the USA and the dollar, why not take this lead time to set up something to make a little of that moolah?
As I lean heroically and inspiringly into the wind, my flashing blue eyes scanning the distant horizon, my hand shielding my aforementioned flashing blue eyes against the blinding sun. How thrilling! So, what shall it be? Stocks? No. Bonds? No. Real estate? No. Foreign stocks and bonds and currency and real estate? Probably yes, in some cases, with the proviso that if anything goes wrong, you are going to be a foreign devil who is suing a home-boy, and who is a long, long way from where the money is, and where the courts are.
Then what does one use? What can it be? What in the hell can one do to protect wealth? What can the normal, modern paranoid-wacko employ to hold at bay all the frightful forces of evil that he sees rising all around him? Double-barreled shotguns is a popular answer, of course, to keeping things at bay. But as for protecting wealth, this is the same question that people have been asking themselves since wealth was invented. We are brought back, as it always brought them back, to our old yellow-metal friend, gold.
We know that since the monetary inflation of the Fed is abetting the deficit-inflation of the Congress, price inflation is guaranteed to soar one day. And that means that gold will also, one day, soar. And, perhaps it is just me, but there is just something about a guaranteed soaring price that appeals to my sense of gluttonous avarice. Why EVERYBODY is not buying gold is beyond me. It is a guaranteed winner! Guaranteed!
- On page 63 of the April 12, 2003 issue of the Economist magazine we are treated to an interesting tidbit. According to the World Economic Outlook, housing booms have been followed by busts 40% of the time. Hmmm. So, in the other 60% of the time the boom was followed by, what? Stable prices, where nobody who bought a house made a profit when they sold?
I say that 100% of the time housing booms have been followed by busts, if you consider a failed speculative investment in housing as a bust. Personally, when I make a bet that doesn't turn out, I consider it a bust, and perhaps this explains all my whining and crying and acting like a spoiled little child at every setback.
And when I make a bet that only gets me my money back, I consider that a bust, too, only one of a lesser degree. But that may just be me. For instance, I know that you are an enlightened and sophisticated person, and have all this unflappable serenity about you, and how nothing seems to bother you in your Buddha-like contentment, but I tend to go all to pieces at the least little thing. And I am sure that the last person in that real-estate speculation line, who got in the game late, and therefore lost the bet that prices would continue to rise, would agree with me, too.
The lesson here is obvious: house prices do not always rise. Duh.
Further, the magazine points out that the same study shows that the housing busts do twice as much economic damage as stock market busts. Bummer. But this intuitively correct, in that houses cost hundreds of thousands of dollars and stocks can be had for as little as a few bucks a pop. It would seem axiomatic that there would be a bigger fallout in housing busts than in stock busts, simply because the amounts involved are so disproportionate.
Amazingly, there is a quote from Alan Greenspan, too, who is quoted as saying that there is no bubble in house prices, "...arguing that there is no national housing market in America, and no sign of excess supply." Now this farcical sentence amazed me.
First, as much as I disdain Alan Greenspan and the Fed, I cannot imagine him saying that there is no bubble because there is no national market. Huh? What in the hell does that even mean? Just because prices are not rising uniformly throughout the country, because there is no national market, then there is NO bubble? Imagine the look on my face when I heard that, because I gotta admit that I never even heard even a mention of that theory before!
Further, I say that of COURSE there is no sign of excess supply, or even adequate supply, or else prices would not be rising! But that is a long way from saying anything about bubbles.
In bubbles, prices always rose, because supply was always less than demand. Just like in houses. In bubbles, the price rises far above historical trends. Just like in houses. In bubbles, one day the prices stop rising. This is the next step in our little story. In bubbles, the price falls back to, or below, historical trends. This is the next-next step in our story.
I could conclude that Alan Greenspan is insane, which I have always suspected when I am in a charitable mood. When I am not in such a mood, I believe that he is an agent of a enemy power sent to destroy the United States by destroying the economy. So far, it looks like I have been right, no matter WHICH mood I am in.
- Canada raised interest rates in response to rising inflation. Mexico has consumer price inflation running at over 5%. So, the country to the north of us has inflation rising, and the country to the south of us has inflation rising. Yet, somehow, the USA is immune? Hahaha!
Here at home the CPI came out, and we are still in complete denial about inflation. The number was up 0.3% for the month, which when multiplied by twelve comes out to a whopping 3.9%. Of the nine categories of prices listed in the WSJ article about the number, seven were up and two were down, and the strict average increase y/y was 2.3%. In the accompanying table, "all urban consumers" paid prices that were 3% higher than a year ago.
And yet yahoos, whom I suspect can't even spell "economist" but insist on so calling themselves, have all jumped up from playing with their crayons in their little playpens and said how this is so fantastic, and how inflation is so tame, and how this is positively the best news they have ever heard. They blithely strip out that pesky volatile food and energy component, since nobody uses food or energy anymore, and then they dance around the mutilated carcass of the CPI number shouting hosannas.
Wrong. Three percent inflation for last year, plus three percent inflation this year, and three percent inflation next year means that prices will be up at least 9% in three short years.
The perfect quote is from that same 4/17/03 WSJ article, and I quote, "The special 'chained' price index was up just 1.2% from a year earlier, near the bottom of the 1% to 2% range that many Federal Reserve officials consider ideal."
Setting aside for a moment the overt fraud of using "special chained" prices, which understates the nominal inflation, the truth is that prices should, in the ideal world, be naturally FALLING slightly, as competition and economies of scale and all that stuff lower the costs of production. Then the consumer, namely you and me, would then have more money in our pockets after buying the stuff we have to buy, and we can use that extra money to consume more stuff, thus raising our personal standard of living. But nooOOOOooo! Having LESS money left over at the end of every freaking month is good? A declining average standard of living is good? In fact, an average inflation of 1 to 2 percent a year is ideal? My God! How in the hell have we gotten to this point? All eyes point to the Fed.
And let me join with the Bundesbank and thinking people around the globe, and say that 3% price inflation is horrible, and demonstrates profound, abysmal incompetence on the part of the Fed and Alan Greenspan to even suggest otherwise.
And the people at the lower end of the wage scale, thanks to capital replacing workers, have incomes that always lag the rise in general, fast-adjusting wages. These people with slow-adjusting wages are being directly harmed. Again. And I will say that whacking the population on the head by lowering their standard of living by 3% a year is NOT "ideal", and that any Federal Reserve official, or any dimwit "economist" who says otherwise, should have their faces slapped hard and often.
But then again, this is just another example to prove that the Fed, and the vast majority of smug jackass people who call themselves "economists", are clueless nitwits, and you can tell them I said so. And that I stuck my tongue out at them in surprisingly childish disrespect.
- Theodore Butler, writing in James R. Cook's "Market Update" newsletter, is not only so immensely bullish on silver, but the title of his latest essay was "Pounding the Table", in which he figuratively pounds his fist on the table and strongly advocates buying silver out the ying-yang. He makes an impressive argument when he notes that there literally IS no more above-ground silver anymore, because it has all been used up, and also that demand is increasing, as it is used so extensively in manufacturing processes and stuff. As such, the supply-demand imbalance is quite impressive.
Without even thinking about it, I found myself rising up out of my chair, and walked over to the bookcase, and got an old copy of the CRD Commodity Yearbook. Imagine my own surprise when I realized I had gotten up off my fat, lazy keester, to go get a book! Getting up off my fat lazy keester to fetch something snack-like and, sniff sniff, positively reeking of chocolate is one thing. But for a book?
Anyway, looking at the chart of silver back to 1920, one thing seems certain; silver has not kept pace with inflation over that period.
One thing that I might add is that silver seems to historically trade, on average, somewhere between, oh, say, a sixteenth of the price of gold up to one-seventieth, like it is now. Remember when gold went to $850 in 1981? Well, silver went to $37. "Hmmm," I say to myself.
Nowadays the historical ratio between the two is waaaayyy off to the tail of that bell-curve. Now, if one believes that things revert to the mean, then all one has to do is set up a highly leveraged derivative that would prosper when the price-gap narrows. Namely, selling gold short and using the money to buy silver.
What makes it even more interesting is that he says that on 2/27and 28th it looks like there was a single big buyer of 6,000 contracts (30 million ounces) of silver options at $6 and $7 per ounce, which is, according to Theodore Butler, "In my memory, this was the largest single options transaction in the 20-year history of the COMEX silver options market." That this history-making trade occurred at prices that are 50% out of the money, and over such a short period, is verrrrryy interesting.
He goes into some ideas on who and why, but without nearly enough conspiracy theories or sex-scandals to suit me. Anyway, the bottom line is, he is "pounding the table" that, in essence, silver cannot possibly go down in price, silver may stay at this price for a while, or silver will almost certainly explode to the upside, to the tune of $40-$100 per ounce. Hey! Nice move! The big question is, "when?"
Well, the options expire on November 24, Mr. Butler says. You do the math.
- James R. Cook himself says, in speaking of things macroeconomic in general and the Fed in particular, that "This brand of monetary policy courts disaster. It's no more than raw inflating and monetary debasement practiced on a gargantuan scale. This unprecedented folly will reverberate through history. It promises the most negative possible outcome for the country." Now, personally the most negative outcome is one where I am affected in some adverse way.
Nevertheless, I'm not sure that the Fed's behavior is all that unprecedented. History is full of idiot countries doing this. Yes, their cataclysmic implosions, or what Mr. Cook refers to as "the most negative possible outcome," reverberated throughout history. Until recently, that is. Mere history does not reverberate in any craniums at the Federal Reserve anymore. Not only are they are not reverberating, but, as evidence proves, they are actually doing, and have been doing, the same damn thing!
He goes on to say, "Unfortunately, efforts to reinflate the bubble are a treadmill to disaster. Inflating is a policy that cannot last. We face two alternatives. Either the dollar will be destroyed through hyperinflation, or we will have a great depression. No other options exist." But, I say, look on the bright side! Maybe you'll be driving down the street and a bus will careen out of control, and then jump the median in the road, landing on and smashing into your car, killing you and your whole family instantly, and then neither you nor they will suffer either the hyperinflation OR the depression!
But, I am not even sure that the choice is between a hyperinflation or a depression. I can easily envisage both. And more.
Now let's turn our attention to Kurt Richebächer, who opines that, "Around the world, economies are sliding into recession, stock markets are crashing, interest rates are plunging and budget deficits are soaring - and above all, profits and business fixed investment are slumping. There has been nothing like it in the whole postwar period." Wow! Nothing? Wow! Now, what does that have to do with the stock market and how can I make a few bucks? He says, "At the same time, all macro and micro signs point to further sharp falls in stock prices and corporate profits."
Steve Puetz, of the eponymous Steve Puetz Letter, agrees with this bunch of gloomy dudes. He says, "The U.S. economy is inexorably heading for its longest and deepest recession." Apparently somewhat of a technical, quant-type guy, he says, "Mutual fund cash stands at record low levels. Over the past three decades, similar low cash levels materialized in May 1972, September 1976, and March 2000. In every previous case, severe multi-year bear markets followed. This is the first major sell signal that's flashing right now." So when will it be safe to buy? "Based on these major sell signals alone, it's probably safe to assume that there is still at least another two to three years left before the current bear market ends." Wowser! Note the qualifier of "at least".
- The Specialists are looking more and more bearish. And now that some of them are under investigation, this ought to make them, I would think, more nervous. These ARE the same guys who respond to complaints about the way that they rig things to their advantage by replying, "If you don't like it, then YOU come out here and put up YOUR money."
Of COURSE these guys rig their activities to give themselves profit! It is implicit in the rules that the market-maker cannot be allowed to go bankrupt. That is why these Specialists figure out how much they need to cover losses, and then they merely assign those losing bets to other contract holders via a lottery-like system. The losers are supposed to be picked by chance. But the winner will never be picked by chance. The winner is always the Specialist and the other market-makers.
And it has a certain necessity to it, I guess. But when you sell short an option, and watch in helplessness as it is sold against you to guarantee you a loss in order to bail out the Specialist, and without them having to even tell you about it for a couple of days, then my personal well-of-compassion tends to run a little dry.
But my petty gripes aside, they seem to be betting on a down market in the next couple of weeks, and probably sooner than that.
- I wandered over to the businesscycle.com website and casually clicked on their indicator of future inflation. Admittedly, their data set only goes back to 1994, but the numbers since January 2002 have been the highest of the whole series.
I'm not sure what that means, if anything actually, but since I am already 100% convinced, with a dead-bang, can't-miss, certainty of surging price inflation because of all of this Fed foolishness, I naturally interpret the data as complete validation of my entire theory, and one more bit of evidence to add to the mountain of evidence as to why I should be installed as the Number One Economist Hotshot in the Land, with a crown of some kind. Made of gold, of course, for that extra little bit of irony and symbolism.
- Bill Bonner, here on the Daily Reckoning site, wrote a nifty little essay entitled "Empire of Dirt", which is a witty and incisive journey down the path of history of empires, starting with the Romans, who had the first big-time empire. One interesting little tidbit from those days of the glory that was Rome was that, "Augustus ordered the government-owned mines in Spain and France should be exploited 24 hours a day, a measure which increased the money supply significantly and also led to rising prices. (It is estimated that between 27 BC and 6 BC, prices in Rome doubled)." Now, if I count correctly and that is 21 of our Earth-years, then the old HP 12C says that is an annual inflation rate of, let me check those figures again, 3.3%.
Now, I know what thought came into your mind right there. We have that kind of price inflation right now! So how could it have been so bad for the Romans, and yet all we hear is how that kind of inflation is, to hear the commentators and economics-airheads tell it, "tame, non-existent, benign, nothing to worry about, at the lowest level in 40 years, relax and smile smile smile!"
Back at our history lesson, things percolated along until "In 64 AD, in Nero's reign, the aureus was reduced by 10% of its weight. Thereafter, whenever the Romans needed more money to finance their wars, their public improvements, their social welfare services and circuses, and their trade deficit, they reduced the metal content of the coins. By the time Odoacer deposed the last emperor in 476, the denarius contained only 0.02% silver."
Well, sticking to the script, America used to have gold and silver money, too, and at 100% by weight. Now, showing how those stupid Romans dawdled and dallied for 413 years, good old American know-how and grim determination did the same thing to our money in less than 180 years, less than half the time! Their money was still had 0.02% silver in it, and ours has absolutely none! Romans. Hah! I snort in disdain.
The next empire was Spain. "For Spain, the conquests were extremely profitable - after they found huge quantities of gold and silver. But nothing ruins a nation faster than easy money. The money supply grew larger with every ship's return from the New World. People felt rich, but prices soon soared." Damn! See what I mean? Every time we get the money supply all goosed up and have people getting rich and having a wonderful time, those damn prices soar!
This all started, I supposed, around 1500. Then, "The Spanish government defaulted on its loans in 1557, 1575, 1607, 1627. and 1647. The damage was not only severe, it was long-lasting. The Iberian peninsula became the 'sick man of Europe' and remained on bed-rest until the 1980s." Wow! Talk about your bear markets, huh? A lousy fifty year empire and then 335 years of pain!
- Richard Russell editor of the Dow Theory Letter, writes, "What is so worrisome at this point is that great bull markets tend to beget great bear markets and 'great values.' Here's what I'm talking about. At the 1949 bear market bottom the S&P was selling at 5.4 times earnings (and those were honest earnings) while providing a dividend yield of 7.6%."
So, take Mr. Russell's figures, and let's assume that the earnings of the SP500 are entirely honest. To have a bottom in this 2001-2003 bear market equivalent to stocks in 1949, the SP500 would have to fall to 151! For a dividend yield of 7.6%, using current yields, the SP500 would have to fall to 217.
Let's mosey over and take a look at what the SP500 is selling for right now. I yelp "Yikes!" which is a word I am using here to indicate shock and surprise.
Speaking of earnings, the latest declared earnings, according to the latest Barron's, dropped 1.5% to $27.59, and now the new P/E is north of 32. Thirty-two!
- Doug Noland, the hardest-working man in economics today, writes that the year-to-date issuance of asset-backed securities is running 22% ahead of last year's record pace.
And he notes that stuff China has been making for the export market are also being sold to their own growing middle class. "The per capita disposable income of 500 million urban residents rose 8.4 percent in the first quarter to 2,355 yuan." If 500 million people is almost half of their total population, and thus half the people in China have had disposable income raised by over 8% in one year? Wow!
Now, if they get credit cards up and running at full steam, that 8% can be increased by a multiplier of, hmmm, how do you say "minimum payment due" in Chinese?
And let's not forget Russia! Bloomberg News reports "Russia's economy expanded 6.4 percent in the first quarter, the fastest growth since the last three months of 2000, after oil, gas and metals producers boosted exports and service companies tapped soaring domestic demand." Note the exquisite phrase, "soaring domestic demand."
This "soaring domestic demand" may be helping drive the 15% consumer price inflation they have, too. So, you gotta take that 6.4% economic growth and temper it with 15% inflation, but one is much harder put to discount "soaring domestic demand."
- The U.S. Treasury reported a federal deficit of $58.7 billion for March. Only half way through the fiscal year, Total Spending is up 6.7% to $1.078 Trillion, while Total Receipts are down 6.1% to $825 billion, and a budget deficit of $285 billion.
Now, Total Spending being up 6.7% is certainly nothing new, as I don't even remember a time in my whole life where is was NOT up, and it would be terribly exciting and novel to report that it had somehow gone down. No, it is that Total Receipts thing that has me tossing and turning in my sleep.
Less taxes being paid is a bad, bad thing. And a decline of 6% is horrific. And one reason it is horrific is that it will get worse from here. Same with state budgets. If you think things are bad now, you just wait. One day you will wistfully pine for the relative innocuousness of your problems today.
Actually, to be truthful, the thing that really keeps me tossing in my sleep is a little cartoon I saw a long time ago. The king and the queen are standing on the ramparts of the castle, and he says to her, "Oh, no! The barbarians are inside the gates and are registering to vote!"
I would be getting back to the point, but so many alarm bells are ringing in my head that my brain thinks the building is on fire.
- A buddy of mine, Douglas Osterman-Burgess, is a generic-cigarette distributor, mainly to convenience stores and places like that. And as such, he has a pretty good handle on things in the real world, whereas I only know of it from what I see on television and what I can glimpse by peeking through tightly drawn curtains. Plus, he is a bright guy who reads a lot, and as Yogi Berra once so famously said, "It's amazing what you can learn just by reading."
Putting this arsenal of firepower to work, he has something to say, and I gather that he has a real gloomy outlook based on many, many things, especially those he observes in the course of his work. The majority of which are, unfortunately, a litany of problems associated with the American work ethic, the American school system, and the problems caused by Congress, which are THE cause of the economic problems.
He reports that the nation-wide rise in cigarette taxes is causing a system-wide rise in the predictable smuggling of cigarettes, tax-stamp counterfeiting, tax-avoiding cash sales, etc. But as regards cigarettes themselves, he thinks that people do not abandon their usual brand without a big reason, much as people do not divorce a spouse without a big reason. Nevertheless, his fortune is being made in dealing in cheap smokes, as people are increasingly abandoning Marlboro's at four bucks a pack in favor of generic smokes at less than a buck-fifty a pack. He is, however, refreshingly candid about his success. "If nicotine is a drug, " he says, "then I figure that selling cut-rate drugs to a nation of addicts ought to be a no-brainer."
Anyway, on the bright side, Douglas says that he has talked to a lot of guys who would seem to have informed opinions, and they concede that Bush and the Fed have the firepower to keep this bloated, cancerous carcass of an economy going until after the elections in '04. And that they will move heaven and earth to do so until Bush can win re-election. So, that means we may have a little more time to casually buy more and more gold at artificially depressed prices. This is so, so sweet!
- Frank Shostak, an adjunct scholar at the Mises Institute, is one of those guys who make you scratch your head and say to yourself, "There are some really bright degreed guys around who really understand this stuff. So why aren't any of THEM in charge of the Federal Reserve?" Anyway, he writes, in his new Mises.com essay, "Does a Falling Money Stock Cause Economic Depression?" Well, cracking wise, I say that, personally, I have never experienced a falling money stock that DIDN'T cause me economic depression.
He writes, "Most economists ...are of the view that the policy makers of the Fed have learned the lesson of the Great Depression and know how to avoid a major economic slump." And what is that, you ask? Well, since the only tools they have is interest rates and money supply, then it follows as night follows day that their solution lies in more interest-rate bashing and money-supply expanding.
Let's apply those lessons to the busy mother of today. Problem: the toddler is drawing on the wall with his crayons. Old solution: take away the crayons and clean the wall. New Fed Solution: give the kid more crayons.
"Needless to say that such massive monetary pumping amounted to a massive exchange of nothing for something and to a severe depletion of the pool of real funding, that is, the essential source of current and future capital needed to sustain growth. When things start declining for whatever reason, banks get nervous" he says. "In response to this, banks curtail their lending activities and this in turn sets in motion a decline in the money stock."
Now, the Big Question is "How is it possible that lenders can generate credit out 'of thin air' which, in turn, can lead to the disappearance of money?" The answer is surprisingly simple. When I borrow money from you and subsequently pay you back with interest, the M1 money is all still there, and has traveled full circle back to where it came from.
On the other hand, since the Fed created the money out of thin air to start with, when the money comes back, there is no original owner of money, and so it disappears! He notes that right after the stock market crash in 1929, M1 dropped and kept dropping for years.
Then I took a look at our M1 with renewed interest. And it looks kinda peaked.
But this is just the start of the gloomy outlook that we seem to share. He continues, "Again, note that contrary to popular thinking, depressions are not caused by tight monetary policies, but are rather the result of previous loose monetary policies. On the contrary, a tighter monetary stance arrests the depletion of the pool of real funding and thereby lays the foundations for economic recovery. Furthermore, the tighter stance reveals the damage that was done to the capital structure by previous monetary policies."
One of the complaints I have about this article is that the growth of Fed credit is shown as a logarithmic graph. So, when you look at it, the line goes up at about a forty-five degree angle, and in a straight line. It doesn't look too bad, as it looks like the chart of everything for the last few decades.
But, had the graph had been nominal-dollar arithmetic, which is how things are in the REAL world, the graph would appear entirely different. Out here on the tail of that graphed line, which is where we are, representing as it does the up-to-the-minute here and now, that line of Fed credit would be zooming almost straight up. With the logarithmic scale, it seems to be merely increasing at a constant rate.
And what does this have to do with anything? Well, my little buckeroo, this represents the dark side of the Miracle of Compound Interest. When the Miracle of Compound Interest is working FOR you, then it truly is miraculous. But when it is working AGAINST you, then one is forced to come up with an antonym for "miracle" that is appropriate in degree.
- Mark M. Rostenko, editor of The Sovereign Strategist investment newsletter, writes, "With almost half of credit-card holding Americans (i.e. most Americans) effectively bankrupt, do we have the basis for a traditional economic recovery, that is pent-up demand"? Well, he doesn't think so and neither do I. He remarks that, "Recoveries happen after a period of slowdown during which consumers tighten up, and limit their purchasing in order to pay down some debt and improve their bottom lines. That creates 'pent-up demand' which uncoils like a spring as increasingly financially sound consumers hit the stores, eager to get back to shopping."
But that period of relative deprivation that builds up that pent-up demand is not happening. In fact, the opposite is happening, as consumers are taking on, paradoxically, more debt! He says, " Americans are in debt up to their ears, half of them are effectively bankrupt and most are likely living paycheck to paycheck in a time when unemployment is rising. And the folks at the Fed want us all to believe that lower interest and mortgage rates and increased borrowing will solve the problem! I'm not a thermodynamics professor nor an expert on volatile substances, but I think there's a reason why firefighters don't pour gasoline on burning houses. Somewhere in there is a lesson that the Fed would be very wise to heed."
But they won't. They can't. The time for paying heed to things was many, many moons ago. Ugh.
--- Mogambo Sez: If Robert Prechter is right, and social mood precedes and defines economics, which is a theory that I am increasingly starting to appreciate as what may be one of the most profound insights in the last few hundred years of economic thought, then it seems appropriate to start to panic. But it is part of a great feed-back mechanism, since losing your life's savings in a stock market collapse would almost certainly cause your mood to fall, too. All things are connected to all things.
There was an episode of the Simpsons in which Principal Skinner tells Ms. Krabappel that he admires her ability to be personally offended by broad social trends. At the time I thought it was another clever and funny line. But now that I am at the end of a long reflective period, I find that I am exactly like Ms. Kabappel. I, too, am being personally offended by broad social trends. And not only that, but I am also getting really, really scared of broad social trends, too.
Alone late and night in a locked, lead-lined bunker, my feverish mind puts the collapse guaranteed by Austrian economics together with Prechter's social mood theory and worsening economics statistics, especially exponentially increasing debt, and I get, uh-oh, here comes that feeling of panic! I reflexively grab for a handgun and a bottle of anti-anxiety pills.
Great picture of the SARS epidemic that wouldnt print. You can find it here:
http://www.jsmineset.com/s/Home.asp
Here's the rest of the article:
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The Four Horsemen of the Potential Apocalypse
As I was answering email questions today from readers of JSMineset.com, one of them had a significant effect on me. I had been thinking about writing this article even before I gave you the early Heads Up on SARS.
However, the 35 SARS cases in the US, the difficulties associated with stopping this infectious disease by quarantine alone, and the geographical scope of the SARS epidemic as illustrated in the above map, convinced me now was the time.
The World Health Organization (WHO) recently placed a travel advisory that discouraged people from visiting Toronto whose citizens are privy to one of the most modern health care systems in the world.
Looking at the SARS map, however, you soon realize that most of the countries affected don't have nearly the quality of heath care that Canadians do nor the capacity to accurately diagnose or track those infected.
We started with AIDS and have yet to find a cure. Recently West Nile Virus successfully made its coast to coast journey in the US. Bird Flu, which affects chickens, was recently reported to have spread to humans. (Symptoms reportedly include an urge to fly).
Now we have a more seditious killer out there called SARS. Shortly, when you arrive by air from any location reporting this infectious disease, not only will you be groped as usual, your shoes will be removed, your computer will be separated from you, your jacket taken away, and a probe will be stuck in your ear to check your temperature. (Warning: Thousands of menopausal women could face unnecessary delays).Thank goodness I am always four degrees below normal.
History says that if SARS increases significantly, infected people (suspected or otherwise) will be arrested and put into confinement. Today in the U.S. you wouldn't even be entitled to speak with a lawyer or notify relatives of your whereabouts. (If you're an el Queda operative, they will throw in a prayer mat, however).
The means to do this already exists in Patriot Act Two and will transmute quickly from accused terrorists to SARS. The public will cheer this development as they will view the SARS-infected person as a criminal to be dealt with harshly.
In answering this gold community member's question below, I have related the business effects of SARS as they pertain to gold's price. The impact on the populace throughout all human history of pandemics has been akin to being the odd man out in the "Mad Max" series of movies.
And now to the question posed by the JSMineSet reader
Q: Does SARS play into the price of gold significantly? It's being spoken about as a positive and a negative for gold's price. I know you are pegging the outcome on what the dollar is doing but is China/SARS a wildcard?:
A: In my opinion (IMO) there is no potentially greater challenge to the Federal Reserve than the potential Pandemic of SARS. All you need to do is look at what is happening in China and most certainly in Hong Kong where the population density is among the highest anywhere.
With no known cure, SARS will soon impact US business at a most inopportune time. A recent survey of Americans showed little concern about SARS with only 10% of those interviewed believing it would affect their lives.
They are missing the point because they are ignorant of the history of epidemics. The following can be expected:
1. Those who contract the disease will be treated like criminals.
2. Medical services will be denied to many of those infected.
3. Eventually, the punishment for failing to obey quarantine orders will be severe.
4. People will act as if there will be shortages of all kinds.
5. All public businesses will be affected.
6. Primary utility services will be affected.
7. Civil rights will be suspended.
8. Travel will stop.
The impact on business will be devastating. Cash flow will be curtailed thereby reducing profitability and eliminating a company's ability to service its debt. That means a liquidity squeeze. Because business is already under pressure, this liquidity squeeze mechanism is already functioning and will be further exacerbated.
The Federal Reserve has one major purpose for its existence and that is to prevent liquidity problems. Therefore, the electronic money printing machine that Governor Bernanke spoke about will be cranking out money at unprecedented rates, significantly increasing the rate of growth of monetary aggregates. The growth in monetary aggregates at such rates is called "Monetary Inflation." Gold always reacts to monetary inflation, therefore, gold will rise significantly.
A Democracy Turned Belligerent/Terrorism/Debt/Disease
In keeping with the upbeat theme of my earlier missive, a few comments are probably appropriate regarding the situation with North Korea. Following that, some additional musings on a number of other issues that are dear to my heart (and hopefully yours).
What is more dangerous to the World? Is it a despot of a small suspected or real nuclear power or a large, industrialized, technologically-advanced democratic society that fears the despot.
Well, we shall have an answer to this quite soon. For the despot, the answer is simple. Right now North Korea is playing an extremely dangerous game. Taunting the Bush Administration with an admission that it (North Korea) has a nuclear device is an act of insanity by a country run by a certified nut case.
A midget should never run over to a giant and announce before hand that he's going to jump on its toe and follow through with the threat.
My former partner, who is now a director of Bear Stearns, was a pretty wild fellow in his youth. Once he and a cab driver had an argument that ended in an altercation. Since the cab driver was twice his size, Vincent took his best shot. He kicked him with all his might in a man's most vulnerable place (and I'm not talking about his wallet).
The cab driver didn't even flinch even though Vincent had hit the Mother Lode with a great deal of force. The cab driver said with great anger but calmly, "Now I am going to kill you." Vincent, who distinguished himself in Vietnam as an Army special forces officer, was also a smart tactician and a great track and field man compared to the taxi driver who'd obviously eaten one too many donuts.
To hear that story told by others in that cab (embellished over the years, mind you) he looked like the Roadrunner of Wile E. Coyote fame. Thank goodness for that ability or I would never have had the wonderful years his association gave me.
I don't think North Korea should really keep demonstrating total insanity and its so-called nuclear capability at the same time.
This democracy has undertaken a preemptive strike philosophy against terrorism. We have already had a war with North Korea and know how formidable they are at conventional warfare. Therefore, the nuclear test that may well take place could be a gift from a B-52 or cruise missile. They are on a path of self destruction that this administration is capable of delivering.
Terrorism
Terrorism is far from over. We all know that. Isn't North Korea threatening to test a nuclear device right now an act of terrorism? The purpose of terror is to turn a free society into a police state. Has it succeeded? Have you reviewed Patriot Act Two. If you have not, you certainly should. Enough said.
Disease
This has been discussed above and it has significant implication for the business environment. Doesn't the name SARS cause terror in people who are exposed to it? Will the fear of a SARS pandemic turn free societies into belligerent police states? It certainly did in ever case throughout history.
Debt
If the largest national economy and the most militaristic country in the world was not also the largest debtor nation in the world, this gathering tide would not represent a significant problem but just an awful nuisance.
Debt is like the spinal cord of a nation. If the spinal cord is severely injured, the nation is crippled and may die. Debt killed the U.S.S.R. not an army. Chairman Volker of the Federal Reserve brought about the downfall of the Soviet Union, not a famous general.
He knew what he was doing and he did it. Debt makes the U.S. vulnerable and therefore the common share of the US is extremely vulnerable too. The means of fighting the problem is the mechanism that locks and loads its own destruction.
As debt is downgraded by a curtailment of cash flow, liquidity dries up. That is elementary. The Fed has no ability to decide what it will do. It is legally bound by the 1913 charter of its existence to burn down the barn if required. The fire is the Bernanke electronic money printing press and the barn is the US dollar.
Debt is the culprit that has the ability to bring an end to the capitalist system. Only gold, via reinstitution of the Federal Reserve Gold Certificate Ratio before gold trades over $529, can prevent what I see ahead as potentially devastating consequences.
What comes next? Well, that is an article in itself that I will write for you someday in the not-to-distant future. But right now let's stay with what is at our door step, not at the door step of our grandchildren.
Investment-wise, all this favors gold and disfavors the US dollar.
$USD down to 98.21 and sinking fast! when is mr. market going to wake up and smell the coffee? double top formed last two months - target 94??? when is gold going to react?
SARS website: a must read!
http://lassesen.com/sars/
the good news is that AGI had been advancing steadily for the last week - when i added to my son's shares at 1.00 only to see 1.12 as a hugh push came in at the close. that was a bullish sign for me - and one of the few times that i have bought at a low just before a turnaround - at least sometimes i do something right!
longjonsilver
i like many others have to evaluate my investments based upon the opinions of others - since i am not a geologist or a mining engineer. hence i pay for information that i believe is unbiased and well-informed. as you have said yourself, you once had such a service yourself. warren buffet has stated that one must buy the management as well as the company. one of the things that makes this investment interesting to me is the management of alamos gold. i have studied chester millar's career and have decided that he is one of the most competant people in the mining business - hence i have hitched up my wagon to his locomotive. you are right that this investment could turn out to be a pile of desert dirt - or the best move of my financial career - or somewhere in between, but again, i must base my decisions on the opinions of others. of course which opinion of whom is the critical decision. that is something that i must do alone.
longjonsilver
i agree 100% with geoffery heard on his essay. this war is absurd - we cant fight and win in baghdad on the ground - we cant bomb them into oblivion - all we can do is surround them and hope that they surrender/revolt against saddam. imbecile battle plan - makes the firebase concept in vietnam look like a genius move.
anyway the stupidity of americans to believe that we are going in there to remove/destroy wmd in the hands of a dangerous man - if that were the case we would have invaded north korea first - in addition NK is a far greater violater of human rights - which is another canard. what people cant/wont see is that the US$ as the reserve currency of hte world is the ultimate shell game/house of cards scam. other central bankers are loathe to expose our scam as they are running mini scams on their own people with their own fiat currencies. every single one of them would run our scam if they could get away with it - in fact that is exactly what the euro is - an attempt at a reserve currency to get a piece of the action. and financially illiterate americans think that we are rich because of productivity - what a farce. and the irony of it all is that it is the islamists that have started the only honest currency in the world today - the gold dinar.
ciao
longjonsilver
dont you think that of those six or so additional targets that at least one will be a significant source of either gold or silver? i think that the market action on friday - with the pog getting killed - and AGI up 3% or so to close at 1.35 loonies indicates that other persons seem to agree that this company is still a good deal - e charters notwithstanding.
please dont get me wrong mr charters - your presence on this board is very much appreciated - and your knowledge and experience is valued highly. you do of course, cause us to think more rationally about where we put our money to work! i for one want no more sunshine mining and refinings in my portfolio!
longjonsilver
well, ive been quiet by being away from my computer - on business in california - sold the old rancho - hated to see it go actually, but you know what ive learned the hard way in this junior mining sector? sell the rallies! gotta sell this rally in the real estate market - cant use stops here! never know where the top is, and its hard to drive a tractor from 3000 miles away! (also heard that a hurricane flattened los cocos - the once lovely town in now rebuilding). no, e charters didnt scare me, i havent sold one share of this puppy. what would the market say if a drill popped a good hole in one of the other exploration targets of AGI? would this then be a one mine company or two? facts are that there is a good chance that this is a district play - a district owned by ONE company - hah, three loonies would look cheap then, eh? remember that lots of insiders own stock in this one and its run by the best - chester millar. warren buffet (and who has done better than him with his investments?) says to buy the management, why not buy the best?
longjonsilver
it is true that you were using after tax profits and i was using pre-tax profits. however i think that you are misequating % profit with market cap as a multiple of earnings (pe ratio). i used your number until i thought this thru more completely.
most business typically sell for 15x earnings to give a pe of 15. at the end of bear markets the pe's go to about, say, 7x-10x, and during bull markets, 20x-30x. your use of 5-7 times profits is probably % profit as the inverse of pe's 15x is 6.67% - that is to say a company selling for 15 times its profit has a profitability of 6.67%.
therefore the target price of AGI is about twice what i stated in my previous post - if it is correct to use pre-tax profits. if it is correct to use after tax profits for calculating then a realistic target price is twice what you stated in your post. you figured a fair price of between 1.72 and 2.67. accepting all your other assumptions (55 million shares out, capex) the realistic target price is therefore 3.44 to 5.34.
however listening to the webcast by mccluskey, he clearly stated that the pilot plant would pay for development of the rest of the production - and that they expected another pp later this spring. how many shares? who knows! they also have said that they expect better recoveries than the PDG 66% - thus lowering their cash cost and increasing their profitability. your assumption of a mistake being made by building the pilot plant instead of the complete facility presumes that one precludes the other. given chester millar and his team's experience - as good as there is out there in heap leaching - im going to put my money on chester millar's judgement and experience.
longjonsilver
i get from the mccluskey presentation that the all-in cost will be 219$US/oz (cash cost of 169$US/oz) that leaves a 131$US/oz profit at 350 gold. 110,000 oz/year gives us a yearly profit of 21.5million$C. using your average figure of 6 we get 129 million market cap or 2.60$C/share for 50 million shares. using cash cost (i am not sure how you are figuring) we arrive at 178million market cap or 3.56$C/share
longjonsilver
i get from the mccluskey presentation that the all-in cost will be 219$US/oz (cash cost of 169$US/oz) that leaves a 131$US/oz profit at 350 gold. 110,000 oz/year gives us a yearly profit of 21.5million$C. using your average figure of 6 we get 129 million market cap or 2.60$C/share for 50 million shares. using cash cost (i am not sure how you are figuring) we arrive at 178million market cap or 3.56$C/share
longjonsilver
heres the previously mentioned albert matter article on the second best time to invest in a mine: (see original article for chart for best understanding)
The Classic Mining Company Share Price Cycle, or The Second Best Time to Buy Mining Shares
Author: Albert J. Matter
--------------------------------------------------------------------------------
The absolute best time to buy a mining stock, of course, is just prior to the drilling of the discovery hole, which makes the nightly news and sends the penny stock soaring to new highs! However, this is a difficult task as statistics show that 600 properties have to be drilled for each mine that is discovered. It can be an expensive proposition trying to cover your bets by speculating in all the penny dreadfuls.
However, from the work we have done over the past 30 years, the SECOND BEST TIME to buy a mining stock is when a single mining company is preparing to put an ore body into production. A purchase of mining stocks during this development/construction period has produced the best Risk/Reward Ratio.
"Mines are not discovered, they are made!"
Mines are usually "discovered" during an "up-cycle" in metal prices as the mining industry and the public enthusiastically spends money on exploratory drilling. One or two discoveries are made and the enthusiasm spills over into all the penny mining companies. As it may take 3 to 4 years to fully "prove" discovery while the "up-cycles" in metals prices are often as brief as 1-2 years, the discoveries will usually be brought into production in the next (and possibly, later) up-cycle of metals prices.
Model of Classic Mining Company Share Price Cycle
The difference between the real discoveries and the promotional clones is not signaled by their price action in the stock market. They both go up during the enthusiasm (see model on second page, Item 2-Anticipatory/discovery rise) and down when metal prices recede, (Item 4-Confirmation/disinterest slide). The fact is that the real ones identify themselves (those discoveries that are being 'made' into mines) by continuing to spend money on their properties when metal prices are depressed (Development/construction period) and funds are not readily available from a now unenthusiastic public, but rather only from management and serious investors.
Investing in discoveries is speculation. Investing in mine making is serious investing and yields the best risk/reward ratio.
Thus, the lowest risk/highest reward comes from buying a mining stock when it is being readied to go into production (Development, construction period) and is already fully financed. An even better time is if this period of pre- production coincides with the trough in a bear market for the stocks of the particular metal.
Low metal prices and disinterest from the speculator/investment community (who often drove the prices of stocks to excess during the discovery period) combine to produce a very depressed price for a mining stock during the confirmation/disinterest slide. This is precisely when a good ore body, financed by intelligent investors and operated by qualified management will fare well despite the prevailing prices for the metal.
Now for the Big Payoff:
Significant capital gains occur as the market begins to anticipate production and earnings (see below Production/Cash flow). The maximum appreciation is recorded if the mine is readied for production at a period when metal prices are down, but begins pouring metal and generating earnings when prices are trending up again.
In thirty years of investing in nine companies that have qualified (not that many do), all but one have equaled or exceeded their discovery highs by a factor of TWO. The rises from their confirmation/disinterest lows to their production/cash flow highs have produced 300-700% gains.
Our conclusion is that the best time to invest in a mine is during the development/construction period when good mining companies go about the work of 'making mines'. This is when the responsible principals of these companies are themselves putting additional money in, as are serious investors.
Albert Matter has extensive experience in securities brokerage and corporate finance. During the past thirty years he has participated in the financing of numerous public and private corporations and the structuring and negotiation of major corporate transactions. He is a successful manager of private investment funds with emphasis on mining investment analysis.
http://www.nationalgold.com/s/FeatureArticle.asp?ReportID=31909
longjonsilver
i was using a worst case scenario - they should have close to the 10m$C after the warrent money comes in. if i remember correctly they said that the pilot plant will pay for the full production plant - and remember that the high grade zone is near the top of the mountain - the first ore to be mined - and therefore profitability should be very good in the first few years. that means they might not have to raise much money if any with share dilution - in my previous example the 55 million shares was for easy figuring and worst-case scenario only 45 million shares makes the return 22% better.
of course i see the logic in that - what i dont want is share dilution. i favor what they seem to be thinking of doing - slower pace development, small scale highly profitable at first in the high grade zone, then use that money to pay for full production of the rest - then explore the rest of the sector for more ore to feed into the system. it might take a year or two longer for full production, but there will be a lot of upside without a lot of risk and the major part of the production will occur during the next few years of rising gold prices. anyway thats what i would do if i owned the whole deposit. i read on financial sense online about warren buffett
http://www.financialsense.com/transcriptions/Buffett.htm
that one should not even buy one share in a company if that company is not being managed the way you would if you owned it 100% - and that one should buy the management as much as anything else. thats why i upped my investment here to 39% of portfolio - its being managed the way i would do it if i owned all 45million shares of its stock.
longjonsilver
keep up the negativity there marcos: it sure worked last time!
lets use your numbers: 45million shares fully diluted. with 12 million$C in the bank. mccluskey said that they would need 10 million ($US?) for a pilot plant that will bring in income to finance the complete chilote. so if the share price makes 3$C thats 2$US or 5 million shares dilution on top of 45 million shares makes 50 million shares (lets be conservative - 10 million shares for development - 55 million shares total) - so no more dilution will be needed for complete mine development? tell me if im wrong.
wellllllllllll, then mccluskey said they expected to produce 110,000 ounces of gold a year (i was mistaken when i said 170,000 in an earlier post) - well thats 2 ounces of gold for every 1000 shares. at 350 gold thats 700$US/year cash flow for 1000 shares selling for .88US/share or 880$US/1000 shares. thats 1.26x cash flow - compare to WHT at almost 5x cash flow and you get an idea of what a good deal this really is. therefore at 350 gold and full production this puppy should sell for 4x current price or 5.24$C.
i can wait two years to get a four bagger on my money cant you?
good idea, lets have a 3$ contest also! ill guess june 3 for 3$.
longjonsilver
whats the form for warrents trading in toronto?
longjonsilver
ok heres the list so far:
longjonsilver guesses march 21
trading fool guesses april 7
any other bets?
cmon guys, yall like this stock? whadda think?
longjonsilver
thats why a search for value results in profits over investing in the pack: efficient market theory is a bunch of bunk and this company proves it! thank you russwinter for getting me interested in this one and marcos for pointing out the value back in december or whenever that caused me to begin tripling my position in AGI. while retail has been taking a profit on this on the last two weeks - ive been buying - it closed last nite at 39% of my portfolio! ya'll think thats enuf? someone (isopatch?) on SDII said that he had made far more profits doubling up than doubling down - thats been my experience too - usually doubling down means that you bought at the top and would have been better cutting your losses short. doubling up usually means that you bought near the bottom and are letting your profits run.
actually marcos, i think its my optimism that has fueled this run. lol i predicted 9plusC/share recently by dec 2004 with 350 gold. BUT what do you think AGI will be selling for dec 2003 if ing
http://www.gold-eagle.com/editorials_03/ing030503.html
is correct that the pog will be north of 500 in 2003?
the contest for marginability (2.00) for AGI is still open till, say, friday. any others want to hazard a guess? give date first close above 2.00$C.
longjonsilver
all these negative thoughts!
lets remember the facts -
1 - the best overall country risk for mining.
2 - the best overall mining development team.
3 - the best value of any development stage deposit
we have done comparisons to MFL, the MR/GLG deal, mccluskey did a comparison on the webcast with GAM, - all of which point to a 3$C share price as a fair value.
russ winter has done a comparison of WHT with MDG, GG, GLG, AGE
http://www.siliconinvestor.com/stocktalk/msg.gsp?msgid=18650830
here is an excerpt:
company enterprise value/cash flow enterprice value/reserves
GLG 25x $175
AGE 22x $241
MDG 22x $242
GG 17x $370
WHT <5x $124
now i know we cant compare a development company with a producer, BUT isnt it reasonable to say that AGI will be a producer by december 2004? this team has done it before!
now if i remember correctly (and correct me if im wrong) but mccluskey said that they expect to produce 177000 ounces of gold each year - at 350gold thats 62million US a year cash flow. at WHT valuations (5x) that makes AGI worth 310millionUS. ok lets use some dilution for mine development - 6 million shares that would make it 50 million shares fully diluted - or 6.20$US/share (9.30$C) - and thats just to get it to the level of WHT - which russwinter says is undervalued.
or lets use the next valuation parameter - ev/reserves. currently at about 15$/ounce or 17$/ounce fully diluted with 50 million shares - thats 7.29 times higher than our share price is now or 9.26$C/share.
correct me if im wrong, but we could get the ejidos on our side with a few undervalued shares in their portfolio, no?
longjonsilver
you sold at 1.13 - i bought at 1.18. i like what the presentation said: the closest comparison to mulatos is gammon lake - and their gold is selling for 50$/ounce - ours is on sale at 13$/ounce. he was probably refering to the share price of last week - 1.05 or so - probably around 17$/ounce now - still thats a triple from where we are now! - id like to see 3.60 for my shares - would make my portfolio look much better! notice that their mining supervisor is a mexican national - and has had extensive experience with the ejidos in other locations - that imho is a big plus for us - and i completely agree that we should begin production - on a limited scale at first before exploring for more. dont get too many irons in the fire - take care of business and get cash flow first!
they also mentioned getting better exposure in the marketplace this spring - i guess that means that some pr is planned - would like to see that!
longjonsilver
GNG did pp's in april may and june of last year. i suppose that they will have to go back to the well at least once more even if they hit massive paydirt - but hopefully the pp's will be at a much higher level.
i sold 60% of my position in tax loss season - still holding the rest awaiting more drill results.
longjonsilver
BOM has done the same - my shares are now listed as Alamos Gold - AGI. i agree with your analysis of the range for this stock - low was 102 one day - and my buy at 103 expired the day before - cant win them all!
longjonsilver
heres my short list for quality inexpensive (?) juniors for consideration:
AGI, ANOu (formerly YMCu), CKG, WTC, PAA, CQR, MR. perhaps PAA should not be considered a junior but a mid-tier. anyone have any other favs?
longjonsilver
td waterhouse is trading AGI.v online - though they have not converted NGT shares yet. i am well aware that there a lot of thieves north of the border - but at this stage of the bull market, only a few are operating overtly in the junior market - the rest are undercover or in other sectors. during the end of the bear market (2001) good advice was easy and cheap to get. good advice is getting harder to find and by the end of the bull market will be as scarse as hens teeth - by then the thieves will be out in full force and anybody buying juniors better be smarter about things than i am - thats why i am gradually putting my eggs in only 5 junior stocks - ones with competant, honest management that are undervalued - which AGI is a prime example. i am also interested in whatever bailey does after the sale of MFL - just like randy reifel you gotta like good management.
longjonsilver
tried to buy some AGI (AGIGF on the pink sheets) they wouldnt let me buy - only sell as the SEC has not approved this symbol - and wont till april 1. SOOOOOOOOOOO that means that there will be no buying pressure from the states until april - only selling pressure. this one might not run up as hard as we would like it to - at least not till april anyway. lot of good the SEC is - didnt know about enron, global crossing and other thieving companies, but lots of checking out of honerable management from canada. well what do you expect from washington - honesty? get real!
longjonsilver
of course im only thinking of development terms - actual production would be something different. think of the valuation of mid-tier miners - is 100$US/oz unreasonable? thats a ten-bagger from here! chester is known for his efficient building of a mine - wont be long now - what 2 years? any guesses? and of course there is exploration to be done as well. i think that i will put my shares away for safe keeping and trade the others - after all who better to build a mine than chester - when you've got the best why bother with the rest?
yes i meant the mcknight study. thats what i get talking off the top of my head. but the point still remains - we have several ways to evaluate this that all point to much higher share prices. of course i would like it if they found some silver in the rest of the district - i like it better than gold. guess i used to hold it in my hand when i was a kid - and then they came out with the "sandwich" coins.
longjonsilver
minefinders has 3.3 million ounces of gold resource and 165 million ounces of silver resource according to their website. yahoo has a market cap for minefinders of 168 million$US. the big valuation question concerns the relative value of silver and gold. at current prices of 4.60 and 350 the gold is worth 60% and the silver 40% of the deposit. 60% of 168million$US yields 101million$US for the market cap of the gold portion. using your figures for AGI we have the same number of gold ounces and a market cap of only 30million$US - thats over a triple from here!
lets see: we have the mckinney study, the metalica deal with glamis and now a comparison to minefinders - and all point to a three bagger from here hummmmmmmmmmmmmmmmmmmmmmm.
the big wildcard in the deal is the markets valuation of silver in the ground - it is apparently a lot higher than its spot value would imply! just look at the market caps of SSO and PAA.
longjonsilver
a good start for AGI.v - up 9.5% in its first day while the HUI and the XAU were down 2.5%. somebody wanted this one now that its finally merged. anyone want to wager on when this one is marginable at 2 canadian pesos? im guessing friday march 21.
longjonsilver
well then, hurry up! put some big orders in at market! lets get that share price going north - 1.50 is a good first step then 2.00.
longjonsilver
does anybody know whats planned for promotion? we need to get the share price up a LOT more before any more pp's - as we will have income from past (cheap) warrents. speaking of future pp's - does anybody know what is planned for equity/debt financing of the mine? i like this company - they get on with things rather than sitting on their duffs and eating up the treasury. just imagine AGI being the new glamour boy on the block - added to the HUI - now wouldnt that be swell - speaking of which, what are the plans for getting an amex listing?
longjonsilver
Press Release: Alamos Gold Incorporated is now AGI
here it is in full:
===========================================================================
Re: News Release - Thursday, February 20, 2003
National Gold and Alamos Minerals complete amalgamation
===========================================================================
2003-02-20 17:08 EST - Change Name, Amalgamation
See (C-AGI) Alamos Gold Inc
By certificate of amalgamation, Alamos Minerals Ltd. and National Gold
Corporation have amalgamated on the following basis.
1. The holders of 39,703,264 common shares of Alamos will be entitled to
receive one common share of the amalgamated company for every two shares
held.
2. The holders of 31,453,980 common shares of National will be entitled to
receive one common share of the amalgamated company for every 2.352 shares
held.
National warrants (NGT.WT)
The National warrants will remain listed and continue to trade under the
current symbol and Cusip number. The warrant exercise terms will remain the
same, however, the warrants will be exercisable into shares of Alamos Gold
Inc. on the basis of 2.352 National warrants required to acquire one Alamos
Gold Inc. share. Therefore, to acquire one share of Alamos Gold Inc., a
holder of 2.352 National warrants will be required to pay approximately
$1.2936 (55 cents x 2.352). No fractional shares will be issued.
The expiry date of the warrants remains as June 21, 2003.
Effective at the open Feb. 21, 2003, the common shares of Alamos Gold Inc.
will commence trading on the TSX Venture Exchange and the common shares of
Alamos and National will be delisted. The company is classified as a mining
exploration and development company.
Postamalgamation
Capitalization:
One billion common shares with no par value of which 33,224,923 common
shares are issued and outstanding
Escrowed:
Nil common shares
Transfer agent:
Pacific Corporation Trust Company
Symbol:
AGI (new)
Cusip No:
011527 10 8 (new)
===========================================================================
Copyright (c) 2002 NATIONAL GOLD CORPORATION (TSXV:NGT) All rights
reserved. For more information visit our website at
http://www.nationalgold.com/ or send mailto:info@nationalgold.com
Message sent on Thu Feb 20, 2003 at 3:08:08 PM Pacific Time
im glad you are distinguishing between vancouver and the rest of BC. ive been there twice and my impression is that its just LA with rain - bad public transit, automobile traffic, congestion, ethnic tensions, suburban flight, sky high real-estate prices, nuts in my book. however i enjoyed the little bit i saw of the rest of BC - the transcanada through to alberta - i can see why someone would like to live there. my dream would be to have a sailboat and gunkhole in the inland waterway - then board an airplane and do the same in mexico.
candente is right on imho - although i sold out of it a while back - the industry should pay and save in goldgrams - cant the larger miners force their suppliers (at least most of them) to accept goldgrams? i know legal tender laws and all, but it would be a way to get greater acceptance for the product - which is money after all isnt it?
when alamos gold gets going i guess we will all be eating fish tacos?
longjonsilver
yes, thats the one - in nayarit, near san blas - my renter, and friend, jose, plans to move there in 5-10 years when he gets his financial affairs arranged in california - big question is "will his american born wife consent to moving too?" tengo ganas de volver a mexico ever since i ate fish tacos in ensenada - sounds bad i know but for you other gringos they are really delicious - though not as good as the langosta in canta mar - best lunch i have ever eated, shrimp, lobster all the trimmings, including all the corona's i could drink, best restaurant in the area and only 10$US. they used to say i was the pocho gringo - now im just this weird california boy who moved to quebec - but the french are the nicest neighbors i have ever had.
anyway enough rambling - when the ranch sells im gonna pick up some more alamos gold - if its still cheap the end of march.
longjonsilver
hey - instead of bumming out on 340 gold try reading this and dreaming: dreams sometimes become reality!
http://www.investmentrarities.com/
click on weekly commentary - ted butler on silver
here's the jist:
barrick is planning on covering their silver shorts - they are first or second largest silver short in world - 35 million ounces total - going to deliver into their position this year and buy back future positions. shorts going long - dont you just love it?
lagrimas de la luna
read em and weep
longjonsilver
lets talk CQR a minute. i remember something posted by albert matter on the NGT website that showed the price over time chart of a typical pm junior stock that makes it to mid-tier status - it might still be there!
the stock started as a penny (say .10$) and then exploded upward when the drill results were announced (say 1.00$). then as the excitment died out and no new news releases the price slowly drifted back down (say .50$) then as the mine is being developed the price starts back up until production is achieved (say 2.00$) it then follows the price of gold by some leverage factor.
so the conclusion is that the highest profit and the highest risk is in the greenfield pennies, but the highest profit for the lowest risk is in the development stage miners - thats one reason why i have put 25% of my portfolio in NGT - highest profit/risk taken.
anyway, so you like real estate - i sold a shop/office/house in california last year at this time and am now selling a california ranch/development potential property. i am bearish on real estate - i think that there is too much debt out there for any sustained boom. only real estate that i will have left is my personal home in montreal area - the french/english wars of the last 30 years have depressed the prices to the levels of 1980 - i can afford that! the prices have come roaring back to life lately - from low levels - leaving us with a good profit.
anyway, the renter of my ranch is from los cocos - its on the pacific coast - he showed me some pictures - really beautiful. 3bd2bth house - block with tile roof - 2 blocks from beach is only 25,000US. he plans to retire, wealthy by mexican standards, back home in los cocos - i might join him by the way - ever been there?
langosta - la buena comida mexicana
longjonsilver
i hub ate my post yesterday, well then ill try again.
i guess that is another way to value alamos gold - the sale of the property to MR. Claude C says that MR is well managed so they probably didnt pay too much and the stage of development of that property is simular so maybe it is a comp as they say in real estate. maybe a triple from here is not so unreasonable if the pog stays about 360 or more, no?
CQR could easily be a ten bagger after these drill results - what if they got goldcorp grades on at least a few of their holes? the market could go nuts. ive only got 2.5% of my portfolio in CQR - good drill results could make it one of my larger holdings! bad drill results, well you still have jerooy - whatever that is worth! perhaps resolution of jerooy and they could sell it and develope a mine at red lake.
longjonsilver
yeah, i read the mcknight deal, and know that valuation has to be based upon a pog and certainly 360 is doable from now to the end of the year as a floor, soooooooo......... with AAS.v trading today at .51 that makes the newco worth 1.02 a share - the math is easier with AAS than NGT. three loonies is a triple from here - and ill love every penny of it i assure you! certainly we are seeing the uncertainty disappearing from this one and yeah, i know the best country risk, proven deposit, best mine developer available today, stage of mine development with least risk and greatest return, but really man, if i thought it was an assured triple in 3 months shouldnt i just raise my holdings from 25% to 100% of portfolio? i mean why fudge about this? which is more likely WTC to 11, CKG to 11, MR to 4.50, MNP to .75, CQR to .80, etc or newco to 3 loonies? maybe ive just gotten cynical in my 'old age' of junior investing.
quien sabe?
longjonsilver
three loonies or better? Wow! unless other things go up with it this puppy could be 50% of my portfolio! to get that we will have to get some newsletter writers on our side. i think however that jim sinclair has a good handle on the price of gold - over 400 in this leg of the gold bull. calandra thinks that the (western) public is buying because of the war - but as soon as the war recedes (assuming quick victory of course - problematic in my view) the renewed surge of gold will be seen as a monetary phenomona - and gold shares will burst to new highs with retail buying.
reports today (4figs thread) have locals in hong kong (jay chen) reporting strong chinese buying - both retail and banks. since indian buying is up 400% after liberalization of the gold trade - chinese buying might be as large or larger. for fundamental reasons i think that gold will perform much like sinclair predicts - over 400 on this leg and then a quick pullback (shorter than most think) and then as the dollar fall resumes (especially if the war in iraq is a go-it-alone deal - likely imho) the second leg begins shooting gold and its stocks upwards. donde vaya la plata?
longjonsilver