Conference Board of Canada Losing Their Way

I had a long standing belief that the Conference Board did thorough research and was not into propaganda until I read this piece.

The Conference Board had previously taken a stance that gold may not be such a great thing to invest in. Today they have demonstrated their lack of in depth knowledge and expose themselves to  serious reputational  risk with their piece entitled Fool’s Gold

http://www.conferenceboard.ca/economics/hot_eco_topics/default/13-04-26/fool_s_gold.aspx?utm_source=facebook&utm_medium=social&utm_campaign=cboc

Mr Beckman writes: “In hindsight, it is also apparent that some of the momentum behind surging gold prices in recent years was based on the views of numerous fringe groups with little credibility.”

The largest buyers are non-western central banks. India, Russia, China, Turkey. I guess they have no credibility when viewed through the eyes of Mr. Beckman. In addition, Eric Sprott, a Canadian billionaire and owner of Sprott asset management started exchange traded funds (ETFs) in gold (PGLD) and silver (PSLV) that are 100% backed by the real metal, unlike the GLD and SLV which are speculative plays on the metal.

Mr. Beckman also calls gold a bubble, but a bubble requires large distribution and mania, neither of which fit the picture of the gold market. Ask around and see how many people you know that have bought any gold in the past 5 years. If statistical evidence is any indication, fewer than 1% of the population has been buying gold – how is it possible to translate that into a bubble?

The gold plunge of Apri 12th, was 100% on the COMEX exchange, representing paper gold. 500 tons or roughly $25 billion worth was dumped on the market in an instant. Investors who want to get out of large positions would spread sales out over time so as not to lower their sales proceeds. Only a seller who has no interest in getting the best price for his asset would sell such a large volume of a commodity in a small market. Only a seller intent on manipulating the market price of a commodity would take such action.

Of course, those who really understand the history of money, the complexity of the global debt situation, the liquidity of markets and the interrelated banking of the western world would certainly understand why the non-western nations are moving away from the USD and looking for an alternative. It is the height of foolishness to presume we know more than the Chinese or Indian or Russian bankers.

By continuing this uneducated bashing of an industry that they obviously do not understand, the Conference Board is tarnishing their reputation as a think tank that can be relied upon to provide good advice to the Canadian government and its population.

The Consumer Electronics EndGame

Whenever I try to understand an industry, I always look at the extremes. In consumer electronics, there a number of areas that I gravitated towards in order to examine the maturity of the industry. The first and most obvious area is that of functionality. Apple’s newest iphone, in my humble opinion, surely has to be pushing the limits of functionality. The functionality scale began barely four decades ago with the portable phone and grew with the convergence of video games, internet applications, cameras, and GPS capability. It is difficult to imagine many new areas of convergence but there is still room for improving existing applications and adding features like biometric security and banking (i.e. the phone IS your credit card).

Another area of extremes in this space is speed. Again, from humble beginnings of corded devices and 300 baud dial-up modems; from 300ma batteries and vga graphics and from 64k computers being “all we’ll ever need”, we have come to a point where increases in computing speed are hardly noticeable. Consumers will be less influenced by improved speed of devices because they are becoming satisfied. We are at or near the extreme limits of speed for consumer devices now.

Multi-core processors and advanced integrated chipsets have gotten ever smaller over the years and again Apple has lead the way. Steve Jobs’ ability to push the limits has given us the super slim iphone 4g with more speed, more applications, and more functionality. Other companies can only try to emulate what Apple has developed and can only compete on price.

That being said, price is the final area I wanted to look at. Those clunky car phones of the 1960’s and 70’s, the stone ages of consumer electronics could cost as much as the car, so only a few wealthy early adopters would indulge. Today however, with seemingly everything but “beaming up” capabilities in the Star Trek era of phones, the prices are affordable ($450-$750 USD) – equivalent to just 2-4% of the price of a new mid-sized car.

So where will the industry go from here?

We are at or near the extreme limits in functionality, speed, price and size. Many industry players should disappear as Apple continues to dominate the market as there is no comparable product line from any other company. If they can avoid the anti-free market anti-trust groups and If they are able to lower the price further, they will destroy all other competition – as it should be in a free market. Given that, I would recommend shorting Research in Motion and other cell-phone-only companies as Apple’s creativity and business savvy has created the end game for this industry.

Will the Yuan Be the Next Reserve Currency?

The Chinese fill up America with goods that their own people would love to have. From their perspective, which I have read in News China on many occasions, is that the Chinese people want what Americans have – no news there! If you believe in peak oil, or in peak everything as is now becoming more popular, then there is simply not enough of everything for the Chinese to have what Americans have. So what can be done to satisfy the growing demands of the Chinese people?

On Sept. 7th, blogger Charles Hugh Smith on his Of Two Minds website wrote:

“global trade and currency flows are incredibly imbalanced, and rebalancing them is impossible without profoundly disruptive structural changes to the global economy. The entire system that every nation depends on is based on the U.S. being the sole “importer of last resort,” and the Grand Bargain to sustain domestic employment everywhere but the U.S. requires the U.S. to hold the “reserve currency” which it prints and distributes as payment for the vast flood of others’ surpluses.

Get rid of the fiat dollar and you also get rid of structural surpluses exported to the U.S.

Get rid of structural surpluses exported to the U.S. and you end up with global depression and political instability.

That’s why the dollar “works” and cannot be replaced, short of replacing the entire global Capitalist economy: “the world’s reserve currency” and the ability to absorb the world’s surplus production are inseparably bound. Get rid of one and you also get rid of the other. That would spell the end of all export-dependent mercantilist economies. “

I thought, wow, that is exactly what China would want to do to level the playing field with the Western World. They now have significant infrastructure and could have the reserve currency. The USD “works” for those it benefits the most, the recipients of all those ‘surplus goods’, and moving to a gold-backed security would work best for those that dollar does not benefit as much. The Chinese have enough paper dollars to buy all the gold miners in the world and could quickly create a fractionally backed gold Renminbi/yuan. Doing so would very quickly make China the dominant economic player in the world. It would be a dangerous move in the short term, but history is full of dramatic changes.

There will obviously be a lot of drama while the global currency plays out and I suspect that regardless of whether or not a new gold backed security evolves, the price of gold will go significantly higher from here. The Chinese have told their people to buy gold. I doubt they did so without a long term goal in mind.

Shaun Larocque for Rockenomics

The Hindenburg Currencies

Most adults today still know the story of the Hindenburg disaster. Like dozens of airships before it , the Hindenburg German passenger airship LZ 129 Hindenburg caught fire and was destroyed. The actual cause of the fire remains unknown, although a variety of hypotheses have been put forward for both the cause of ignition and the initial fuel for the ensuing fire. The incident shattered public confidence in the giant, passenger-carrying rigid airship and marked the end of the airship era.

The Hindenburg was powered by a diesel engine and kept aloft by large amounts of hydrogen. Despite many prior accidents with hydrogen fuelled airships, it took a major catastrophe for the lesson to be learned that hydrogen was not a satisfactory gas to be used to lift airships. Helium has become the gas of choice as it is non-flammable and very safe, but the airship industry still struggles today.

 

Like the airship industry of the 1930’s, the currency markets continue to experiment with different forms of mediums of exchange. Many have previously crashed and burned, from the recently failed Bitcoin experiment, to the hyperinflationary disaster that occurred in Zimbabwe and the ongoing common currency debacle that is the Euro, you would think the world would wake up to the experimental nonsense of pumping hot air into fiat currencies.

To keep the American Hindenburg currency afloat this week and fully aware that he is likely in the final year of his presidency, American President, Barack Obama created 447 billion magical dollars out of thin air to create imaginary jobs; and nobody questioned how taxpayer supported workers are actually adding to the GDP. If it was this easy to create jobs, and there’s been a jobless recovery since the recession of 2008, then why didn’t he simply waft his magical job creator a few times before? Oh, right, he has but that’s when he called it economic stimulus.

The European Hindenburg currency also got another lift this week when German judges ruled in favour of allowing the European Central Bank to buy the sovereign debt they already purchased and further indebting the Rhinelanders.

Most people have to know deep down that the fiat experiments, the Hindenburg currencies, are all going to crash and burn. They just hope it doesn’t happen in their lifetime. They want their governments to continue doing everything they can to pump up the currency with more hot air so their stocks don’t lose their nominal value. They want QE to infinity and beyond. The gold bugs want it too. They don’t know what the catalyst will be that causes the final fiat fire, but they do know that the source of fuel for Hindenburg currencies is an unstable gas that is destined to implode. Every leader in the industrialized world knows it too.

Buy physical gold…….buy physical silver.

Then bide your time and watch the fiat fireworks.

Rockenomics© is written by Shaun Larocque. Reproduction rights are granted provided the article is reprinted in its entirety. Additional Rockenomics© articles are published at The Pinnacle Digest.

One Month Left to Buy Affordable Gold

Helicopter Ben remains grounded until the next FOMC meeting in September which will allow hoarders and long term investors a little more time to buy the yellow metal before it really takes flight. While there is no guarantee that QE3 will officially be launched in September, we can rest assured that an unofficial version has long been underway to continue to funnel America’s remaining wealth into the criminal government backed banks on Wall Street.

It does not matter that gold has dropped 12% this week as the corporatist media barrage keeps reminding us. What really matters is that gold is still up 42% year over year and well entrenched in this 10 year gold bull run. The fact the Bernanke has held off an official increase in money printing does not change any of the fundamental reasons for buying precious metals – real money – to replace the paper in your wallet.

• U.S. Government debt will increase 1.3 trillion this year
• Interest rates will be manipulated at near zero for 2 more years
• Federal Reserve bailed out global banking system with $16 trillion since 2007
• China grumbling about loaningAmerica money is getting louder
• Inflation is beginning to take hold – courtesy of previous money supply increases
• COMEX manipulation of markets is becoming obvious and it will implode
• Governments are buying gold
• China is encouraging its citizens to buy gold.
• Etcetera
• Etcetera

The evidence is overwhelmingly positive for gold and many of the people who spend the time blogging and reading blogs on Pinnacle Digest already know it. We are continuing to buy more and more while we bide our time waiting for the inevitable collapse of the current monetary system. We’re all boy scouts, not only fully prepared but anticipating the worst case scenarios. One expected trigger for continuing collapse is the admittance of a QE3 program or the same thing by another name. When it does come, it will most likely be announced at the FOMC meeting. Given the expected damage about to be inflicted by Irene, what better excuse for Bernanke move into QE3 than a major rebuilding effort of the eastern seaboard?

I can see it quite clearly. From Virginia to Massachusetts, Irene spreads widespread damage. FEMA makes a quick assessment and declares a massive disaster area. Obama acts quickly to try to regain some votes and Bernanke of course does the announcement saying its imperative that QE3 be started to allow for the reconstruction.

I can make up these scenarios just as fast as Gerald Celente and it doesn’t really matter which one you choose because the end result will be the same – more money printing and more reasons to buy gold (and silver). Even if it does take more than 30 days, I am about 99.5% certain that QE3 will happen and that will spell the end of affordable gold.

Shaun Larocque for Rockenomics

To Spend or Not to Spend

What to do? Until last week I had it figured out. The fundamentals were pretty clear that U.S. government debt was going to continue growing unabated until the greenback was dead; ditto for the strength in precious metals although not in straight line; and all of the Keynesian central bankers around the world would track the US dollar, lemming-like until their own currencies went over the cliff. The fall of the greenback would accelerate with the growing debt and with its creditors increasingly reluctant to hold them, the interest rates would be forced to rise.

And then it happened…

The Federal Reserve, the protector of the US Dollar, boldly pronounced that it would be holding US interest rates firm at near zero for the next two years.

All of the forces of evil were perfectly aligned to allow a contrarian to borrow and spend knowing that inflation would gobble up the personal debt right along with the government debt, but alas this 2 year freeze on interest rates creates a conundrum. What does a contrarian do now? This changes everything – doesn’t it?

At zero, the bloodsucking big banks will continue to borrow vast amounts of money and invest at a hair above zero in US Treasuries for the next two years. That is now guaranteed. It is also guaranteed that lending to job creating businesses and individuals will remain at a virtual standstill so the real unemployment rate will have to rise. More unemployment means more people on the cash or food stamps handout list and fewer people paying taxes. Sounds to me like nothing is really changing except the opportunity for government debts to grow at an even faster pace without any new spending, just fulfillment of prior commitment or put another way, some of those unfunded liabilities are being moved on to the funded liability side of the balance. But not to worry, the Fed will just print more money so the government won’t default.

Since the debt ceiling was pushed higher to save the country from a cataclysmic default we are now reassured that the new debt limit will be reached sometime within the next 30 months. What we don’t know is if America’s real creditors will still be playing the game at that time. I’m fairly certain that the creditors will change the rules to their advantage – they certainly need to if they want to keep playing, but beyond the next debt ceiling impasse, lies the abyss for the US Dollar.

The same abyss exists for the Euro, the Canadian dollar, the Aussie dollar and even the Chinese renminbi if the rules aren’t changed and the only rule change that can save a fiat currency is to make it a non-fiat currency. The Chinese have been telling their people to buy gold and silver for several years now. They’ve become the world’s largest importers of many metals even though they are also usually the largest producer. It is my opinion that China would be the natural choice to change the rules to save their own currency, but will they have the wherewithal to make those changes before the USD collapses?

With the fundamentals intact and with an interest rate freeze strengthening the case for the US dollar demise, a contrarian would be even wiser to borrow and spend today than they would have been just 10 days ago.

Note: By spending, I mean investing, contrary to President Obama who means spending when he says investing. I am planning to spend the borrowed money on physical metals and mining stocks.

A Billion Grams of Silver

A decade ago when silver traded at $4.50 an ounce, it was difficult to get excited about any silver miner, but after ten more years of global fiscal mismanagement, it is becoming glaringly obvious that physical metals will once again be required to support a new currency. It is my belief that future metal backed currencies will be denominated in grams not ounces or dollars – paper grams if you will. You can easily see the possibilities with ½ gram and 1 gram silver notes.

To accomplish a changeover to metal backed currencies, it will require a tremendous amount of in ground reserves and mining friendly governments. Fortunately we have both in Canada and in the near future we could have a fully permitted mine in Canada with over a billion grams of silver. This resource is Ni 43-101 compliant and looks to be expanded in multiples. Using a 20% discount from today’s metal prices, the in ground resource at this mine is valued at $50.20 a share. Given the discounted value of the measured and indicated resource and keeping in mind that this company is trading between 55 and 80 cents over the past month, one can see that there is tremendous opportunity here to go with the risk.

The mine is often considered for its zinc value rather than its silver value and with two of the world’s largest zinc mine’s set to close in the next 18 months, the zinc price is set to soar beginning in 2013. Nyrstr just bought up Breakwater Resources in preparation for this.

Intrigued? Then you’ll also be interested to know that the final permit for this mine could come as early as this fall.

Here are a few more details:

The mine already has a 1,000 ton per day mill on site.
A refurbished winter road is in place.
Eric Sprott of Sprott Assett Management is the largest shareholder.
The Hunt Brothers used to own the mine – these are the guys who tried to corner the silver market in the 1970’s.

Oh yeah, you want the name don’t you? Look up Canadian Zinc on the TSX – not Canada Zinc as that is a different company.

The Slingshot Scatter Effect of the Reserve Currency : Time for Canada to Raise Rates

The global economy is currently experiencing the slingshot portion of the slingshot scatter effect of the reserve currency for the second time in the past 4 years. I’ve dubbed this effect for the rapid but predictable way that money moves in times of fear from whatever investment it is currently in to the reserve currency before slowly moving out of the reserve currency to safer locations. It is predictable in the sense that all money in U.S. denominated stocks and bonds will be liquidated into U.S. dollars, initially parked in a short term money market accounts. This flight to safety has nothing to do with people believing the USD is a safe haven, but merely the lack of an alternative. To quote Ayn Rand, “Whenever evil wins, it is only by default”

This surge in the reserve currency immediately following the debt ceiling resolution, and coinciding with the largest drop in the DJIA in many, many years, will be misinterpreted by lots of wall street gurus to be a sign of strength in the greenback, when the exact opposite is true. The aggressive selling of investments is related to fear of the US dollar and by default the USD gains relative value to other currencies. In my October 2008 article, “Going Down, 5th Level Basement” , in which I called the bottom for many mining stocks, I wrote “The massive flow of funds out of the stock market by everyone from mom and pop to big hedge fund managers had to go somewhere until the slide is over “, and “I believe that once the flow of funds to the U.S. dollar wanes (there is a finite limit to how much money can be pulled from the markets), then we will be back to an equilibrium that will rely on confidence in the currency.

As there is little confidence in any of the fiat currencies around the world, only those currencies that are deemed the safest will regain support, primarily the Aussie dollar, the Canadian dollar and the Swiss Franc. The pull on the slingshot is occurring right now just as it did when the subprime crisis hit until the flow of funds ebbed late in 2008.

When the slingshot reverses course, it will do in short order this time since fewer investors are holding US dollars this time around. The fall will be far less severe but the rise in commodities will be stronger. This is because the largest holder of U.S dollars is now the government itself and China will ease up more on their currency to lower the effects of domestic inflation. All of these currency movements will power commodities, particularly gold and silver to much higher levels as the US dollar experiences a major fall relative to these commodity supported currencies.

At this moment, both Canada and Australia have an opportunity to improve their national standards of living by raising interest rates just marginally. It will show the world that these countries not only have the natural resources to support the currency, but also the confidence to provide leadership when it is sadly lacking in the rest of the world. The inflow of funds would be staggering if such a move were made and job creation would follow. What more can any country ask for at this juncture in time.

Grab Silver with Both Hands and Hang On

The dynamics of the silver market over the next decade are incredible. Both industrial demand and investment demand will by themselves significantly exceed new supply.

I encourage you to watch David Morgan’s Lecture at the Sound Money Conference from January, 2011 to gain the valuable background knowledge to understand the silver market.

After watching the video, you will have heard David talk a few times about investor Eric Sprott and the silver ETF that his firm created. Both it and the investment funds set up by EuroPacific Capital are legitimate holders of all the silver their funds claim. David hints at or speculates that others like SLV do not have the silver they claim to have, instead holding promissory notes for them.

He also spoke briefly about how two Texans and a few Arabs were alone responsible for driving up the price of silver in the late 70’s to $50/ounce. He also demonstrates how the above ground available supply of silver at that time was four times greater than it is today. In a very simplistic assumption, silver could extend to $200/ounce if all else were the same as it was during its historic rise. But things are not the same. The market conditions that caused the Hunt brothers to buy up the silver are immeasurably worse today than they were back then.

While I won’t rehash everything David spoke about, I will provide you with my own long term investment plan that incorporates all the economic warnings and takes advantage of the opportunities that exist in silver. I wrote about part of this strategy earlier in an article entitled Time to Get Your 10-Year Mortgage?. Since that time, rates have moved up marginally but it is very prudent to get your borrowing locked in at these historically lower than average rates and to do so for as long as possible. This 10 year mortgage allows me to go long in my investments without having to worry about the short term fluctuations and instead focus on the fundamentals that David Morgan spoke about for the silver market.

To invest in silver, you’ll want both physical metal – stay away from numismatics, proof sets, and anything else that has some imagined value other than the silver content – as well as some non-physical as in Sprott’s silver ETF (PSLV) and if you are willing to engage in some risk, leverage up your investments with silver mining stocks. I call Sprott’s PSLV a non-physical silver because his fund holds the silver and you don’t.

The best pure silver stock out there, in my opinion, is Silver Wheaton as it only holds silver royalties and is known as a silver streaming stock. I don’t own it yet though I did own its predecessor Wheaton River a few years ago. I need to correct this glaring omission soon!

After that, my risk tolerance is pretty high and I turn to near producing juniors. As mentioned in a previous article, I am buying into Canadian Zinc, owners of the very silver mine that the Hunt Brothers were about the exploit before their empire crashed down.

The way I see it, David Morgan among others has been doing his homework in this area far better than any typical Wall Streeter (I’ve done mine as well first buying into silver at $7.17/ounce but the best is yet to come). I thoroughly trust his fundamental research. While there can be a speculative swing to the downside, it can’t last and over time we will see this demand pressure or lack of supply cause a movement towards an equilibrium at a much, much, higher price. Your 10 year or longer mortgage will buy you all the time you need.

Looking for Truth While Investing

Many investors, both the newbies and the well seasoned, put their money into stocks that have little to no hope of ever making money with hopes of snagging that elusive ten-bagger. I’ve done it myself on a variety of occasions as I’ve invested before doing full due diligence. This is not the same as investing when you know and understand the risks and are willing to accept those risks. The truth is that the truth is very difficult to uncover because of the large number of competing interests.

Most companies, if not all companies, will bend the truth in order to make them appear better than what they are. Take for instance the bubbles of the last 15 years. During the dot com frenzy, every start up internet company with enough savvy to try to go public, managed to bring in a ton of investors based solely on the number of page views or ‘eyes’ as they were once called. It didn’t matter if there was no business plan and no plan to make money, so long as there was a plan to increase the eyes. Needless to say, most of the dot com companies went belly up.

During the housing bubble, lots of people bought houses for next to nothing down and made a fortune when the house doubled in value in a few short years, but when the bubble burst, those who invested late in the game lost a huge pile and many went bankrupt. They thought they knew the truth about the housing market but were sadly mistaken. Truth tellers are rarely listened to, but you should seek them out to understand the risks.

So where do you find the truth? It’s out there if you dig for it and you have to be willing to look in unconventional places and in unconventional ways. Take for example the cost of energy. The truth is that we will some day run out of oil – the analogy being that you can only squeeze so much juice out of an orange – so we will someday have to turn to the sun which will provide far more energy than the inhabitants of the earth will ever use. The struggle is to convert solar energy efficiently. In the meantime, we are stuck using nuclear energy and fossil fuels. I discount wind and wave energy as they simply could never have the capacity to replace fossil fuel. There will be good investments in wind energy but it will forever be a very small component of the energy market. Winds Works Power Corp is one such company that appears to have a strong business model and will be making investors money in the near future as they have just secured financing and acquired two additional wind projects in Germany.

The Japanese crisis has put a very dim light on nuclear energy even though historically it had been proven to be very reliable when built and maintained at the highest standards. I’m very aware of Chernobyl as I subscribed to the Soviet News & Views during the 1980s and it certainly wasn’t built to the highest standards.

When looking at fossil fuels, the above charts show that the USA has a very dominant share of the global pie when it comes to Oil Shale deposits, but a very small share of liquid petroleum deposits. Liquid petroleum is the stuff of gushers and the Texas oil tycoons while oil shale is far less glamorous but it is the oil shale where future American oil revenues will have to come from. Few companies are doing meaningful R&D in oil shale extraction but a tiny company called Enshale is doing it well. They were recently granted a patent on one of their processes and have continued to expand their oil shale leases. The company has a tiny pilot plant producing 35 barrels of oil a day from which they are working on improving the process. It is likely the company will have to significantly dilute the shares to grow the company but the process works and they have a large estimated but not yet proven resource. Check out Bullion Monarch Mining, the parent company of Enshale. (Images provided by Enshale)

In another example of finding the truth, take a look at the silver market. Marketing savvy tipsters are trying to get unsuspecting investors to buy into some newly discovered silver deposit that supposedly sits under the Great Wall in China. It’s unproven and in a highly sensitive historical area. If you are looking for silver in the ground, then follow the experts – the Hunt Brothers. These are the guys who tried to corner the silver market in the 1970’s. They were developing the world’s largest silver mine when their empire collapsed along with the price of silver in 1980. Today, that mine is possibly months away from final permitting and is owned by Canadian Zinc. Supporting the redevelopment of the Prairie Creek Mine is another proven professional investor, Eric Sprott. If you invest in this company you know the simple truths – a huge proven resource with a high probability of it being expanded and great financial backing but they don’t yet have the final permit. The risk is that they may NEVER get the final permit. If you are willing to take that risk, then invest accordingly.

As a final example, take a look at the pharmaceutical industry. I dare anyone to expose the truth about anything in this convoluted, politicized, patent crazy mess. I’ll point you to the very controversial Dr. Burzynski (www.burzynskimovie.com/) where if nothing else, you can witness first hand the degree of government intervention and corporatism. Unless you have first hand knowledge about a pharmaceutical company you want to invest in, I would recommend not investing in this area at all, even though the demographics show that drugs for seniors will see a huge surge over the next decade.

I invest in fundamentals and I’m not afraid to take risks as long as I fully understand them and that’s the truth.