Contrarian Stock Market Investing News - Featuring Bargain Stocks » Galland

The Eye of the Storm

Tara Useller — Mon, 21 Dec 2009 15:09:59 +0000

Louis James, Senior Analyst and Editor for Casey’s International Spectator, has compiled a year-end collection of the Casey Research team’s 2010 outlooks and offers them to Contrarian Profits readers.

Louis James (Casey’s International Speculator):

At a recent Casey Research editors’ meeting, the team took on the question of whether the somewhat steady recovery since last February’s washout bottom in the broader markets had any of us thinking that the recession might be over. The gathering of minds included: Doug Casey, Managing Director David Galland, CEO Olivier Garret, Casey Chief Economist Bud Conrad, Senior Energy Analyst Marin Katusa (my counterpart on the energy side), myself heading the metals division, and several other editors.

Doug’s guru-vision remains locked on the disaster channel. The U.S. economic problems, he says, remain so profound and, if anything, have been worsened by the government’s actions, that Americans are headed for a significant lowering of their standard of living.

As this reality unfolds, it will send out shock waves that will impact much of the world: the Greater Depression.

And the next step, Doug believes, will be a change in interest rates. The Bright Boys in DC will resist doing this, but while they seem willing to let the dollar slide to ease their mounting debts, they don’t want it to crash. They may soon be forced to raise interest rates. When that happens, Wall Street usually moves in the opposite direction – which could be the end of the “Things Aren’t as Bad as We Thought” rally of 2009.

Bud Conrad – in proper, responsible chief economist-style – considered the question carefully and conceded that there do indeed seem to be many “green shoots” now, but still concluded that conditions will continue deteriorating. He sees the government deficits in the driver’s seat, the main variable to keep a watch on.

As the U.S. government persists with its spending spree, valiantly dousing the deficit fire with more debt-gasoline, it will continue destroying the dollar, and that will push ever more people into gold.

A year ago, Bud predicted that gold would top $1,150 by year-end 2009. His call was bolder than most forecasters’ – but he was right. Looking at the numbers today, Bud’s new baseline 2010 forecast is for gold to top $1,450. He sees a “possibility of further international instability or currency debasement as adding to that baseline.” In plain language, Bud’s confident that resource stocks of all sorts will, on average, benefit greatly from the demise of the U.S. dollar.

Somehow, I can’t shake the image of Bud singing Don’t Fear The Reaper with Blue Öyster Cult for back-up… but that’s really more like something Marin would do.

Speaking of Marin Katusa, he commented that there is money to be made in the current rebound environment, but speculators should be extremely cautious: “You should know you’re dancing with the devil in the pale moonlight. You need to make sure you know the dance steps: get in early and exit before you get the dip by the devil at the end of the song.” (Marin not only has made huge amounts of money for our subscribers, he sings in a rock band, so he knows what he’s talking about.)

My own thinking has evolved into seeing 2009 as being like the eye of a monstrous storm.

The sky has cleared substantially, and the sea looks amazingly calm, given what we’ve just been through. But it’s not over yet; the trailing edge of the storm always delivers the most damage, and that’s yet to come. Anyone fooled into abandoning shelter is taking a terrible risk.

This doesn’t mean we should stay huddled in our huts, however – it makes more sense to go out, restock supplies, repair what damage we can, and get ready for the deluge to come. The renewed fury of the storm will sink many more ships, but it will also make vast fortunes for those who invest in the ships that survive and even thrive in the tumult.

Essential strategy: For the near term, buy only an initial “tranche” (portion of your desired position) in the most storm-proof (cash-rich) companies you can find – ideally with great discovery or development stories that will deliver exciting news regardless of market conditions – and hold a good chunk of cash in reserve for the next big buying opportunity.

Nothing goes up in a straight line, as share prices over the last month have amply demonstrated. There are some great picks that have been heading up all year that are now paused in their advances. Any more correction in precious metals could put them on sale, temporarily, offering great buying opportunities with a lot of the technical (e.g., discovery) risk removed from the plays. You’ll kick yourself if you don’t have any cash on hand to take advantage of them – and kick twice as hard if you paid too much for a large whack of something that goes on sale.

Worried about sitting on cash with the U.S. dollar in a death spiral? Remember: gold is also cash, highly liquid, and with terrific speculative upside to boot.

With gold having just corrected sharply (as I predicted it would in Casey’s International Speculator), gold is unquestionably the best investment we can recommend right now – fluctuations aside, it has nowhere to go but up for quite some time. Perhaps as long as a decade.

That, plus our essential “eye of the storm” strategy as above is what we’re recommending to all our subscribers – and indeed to all investors around the world who want to not only survive the trailing edge of the financial storm still to come, but thrive because of it.

While gold has gone up 38% since last December, junior gold stocks can provide even greater gains than the yellow metal itself. Currently, for example, Louis is following eight juniors that have all the right conditions to become takeover targets by gold majors… which would drive share prices through the roof. If you want to get in early, this is the time: with our special holiday offer, you’ll save $400 on a one-year subscription of Casey’s International Speculator – but only until midnight, December 18. Hurry up and click here to learn more.

Slow Down . . . or Else

David Galland — Mon, 16 Nov 2009 11:07:23 +0000

Slow Down… or Else
By David Galland, Managing Editor, The Casey Report

On a whim following our Denver Summit – and despite truly abysmal weather – Casey Research CEO Olivier Garret and I cabbed it down to a local public golf course for a quick nine holes. Afterwards we were returning to the hotel through a neighborhood best described as poor, but not disreputable. While our cab made its way down a side street, a radar gun-wielding policeman leaped out of the bushes down the block, pulled the trigger, and waved our immigrant cab driver to the curb. The offense, we soon learned, was going five miles an hour over the speed limit in a school zone… well after school was out and with no other children in sight.

Waiting for our ticket to be issued, we watched as another of Denver’s finest jumped out of a hidey hole on an intersecting street, fired off his radar gun, and proceeded to pull over another slow-moving perp. With such a low tolerance for excess speed, it struck me that what the police were doing had a lot less to do with protecting the public and much more with revenue harvesting. And that the school zone was just a cover for a bonus penalty on the ticket.

Being naturally curious, I subsequently poked around and confirmed my impression. Studies have proven that, in bad economic times, municipalities look to replace flagging revenues by turning the dial up on ticketing.

These studies show that, in the year following a downturn in revenues, municipalities issue “significantly more” tickets. Specifically, a 10% decrease in revenue growth results in a 6.4% increase in the growth of traffic tickets.

In Red Ink in the Rearview Mirror by the St. Louis Fed, the authors make some astute observations about the nature of this sort of revenue harvesting. The following excerpt is worth a read and some further pondering, as it paints a clear stripe down the road leading to your wealth.

The notion that local governments may use traffic tickets as a revenue tool has received considerable attention in recent years largely because of the growing use of traffic cameras to enforce red-light violations. While most studies find that red-light cameras have reduced right-angle collisions and red-light violations, some studies have also noted a significant increase in rear-end collisions following the installation of the cameras, making their net effect on safety a point of contention.

Combined with the fact that local governments frequently share in the ticket fines with camera manufacturers, many observers have concluded that red-light cameras are revenue generation devices rather than tools to improve public safety. In a more general sense, this view essentially holds that local traffic enforcement policies, much like other government policies, may be a function of two (often opposing) motives of public officials – political interests and public interests (Becker 1986; Saffer and Grossman 1987; Mixon 1995).

Given the limited revenue-raising options, erosion of property and sales tax bases, and a general distaste for tax increases by the public, local policy makers are under increased pressures to find alternative revenue sources (Tannenwald 2001; Crain 2003; Brunori 2006).

[…] Traffic tickets provide an attractive revenue source for local governments because the amount of revenue that can be generated is often unrestricted, they provide a mechanism to capture revenue from non-residents and non-voters, and most traffic offenses possess a low strict-liability threshold to achieve a conviction (as opposed to the higher criminal intent standard).

That reminds me of the reign of Caligula and how he instituted rules allowing for the wealth confiscation of anyone found less than enthusiastic about his particular form of government. Over time, this became a major source of revenue for the increasingly bankrupt state.

As was revealed more recently in California’s budget wrangling, the states and municipalities are experiencing rapid declines in their revenues. With property tax revenues plummeting, local governments – and there are about 90,000 local taxing authorities in the U.S. – are scrambling to find new revenue sources, including levying income and sales taxes.
And by turning up the heat on cab drivers that go five miles an hour over the speed limit.

Then there’s this from the British, who may have a great sense of humor, but it seems to be balanced by their lack of irony, given they provided the stage for Orwell’s 1984. According to the Times of London…

People who emit more than their fair share of carbon emissions are having their pay docked in a trial that could lead to rationing being reintroduced via the workplace after an absence of half a century.

Britain’s first employee carbon rationing scheme is about to be extended, after the trial demonstrated the effectiveness of fining people for exceeding their personal emissions target. Unlike the energy-saving schemes adopted by thousands of companies, the rationing scheme monitors employees’ personal emissions, including home energy bills, petrol purchases and holiday flights.

Workers who take a long-haul flight are likely to be fined for exceeding their annual ration unless they take drastic action in other areas, such as switching off the central heating or cutting out almost all car journeys. Employees are required to submit quarterly reports detailing their consumption. They are also set a target, which reduces each year, for the amount of carbon they can emit.

Those who exceed their ration pay a fine for every kilogram they emit over the limit. The money is deducted from their pay and the level of the fine is printed on pay slips. Those who consume less than their ration are rewarded at the same rate per kilogram.
(You can read the full article here.)

The whole carbon footprint issue and the massive taxes associated with it are literally nothing more than a ploy to keep the government and its supporters in (taxpayer-provided) high corn. That it is a ruse is clear when you examine a recent Bloomberg poll on what the public is actually concerned with…
To view the results of the poll click here

(Thanks to Whatsupwiththat.com for bringing that poll to our attention.)
This is all headed in the wrong direction, and for the decidedly wrong reason of not wanting to address the underlying problem of too much, and too expensive, government.

The list of slippery acts of officialdom trying to boost its revenues at the expense of those with low political coverage could fill a book, but I will leave off by sharing an eye-opening video from ABC News, about the government grabbing safe deposit boxes and selling the contents.

If you want to avoid being stripped of your wealth, it is time to stand up. Alternatively, the point where you’ll want to consider voting with your feet is rapidly approaching.

Doing nothing, on the other hand, will just leave you as a sheep to the shearing pen, or worse.

Keeping an eye on the big trends is the main job of the Casey Report editors – even on their time off. Following their keen instincts what’s ahead and translating their findings into actionable opportunities to profit is the formula that has made subscribers to The Casey Report double- and triple-digit gains on a regular basis. How do they do it, and what’s in it for you? Click here to learn more.

David Galland Says Gold Could Hit $1,000 ‘Almost Overnight’

David Galland — Thu, 18 Sep 2008 13:00:09 +0000

Gold prices closed up $70 yesterday – the biggest one-day spike since 1980. This marked a sharp reversal from a two-month correction that shaved over 25% off the price of the precious metal.

David Galland says profit taking by institutional investors has ‘trampled’ metal prices. But the deepening crisis on Wall Street, geopolitical tensions and a traditional September bounce could send gold soaring back towards $1,000 an ounce. David says this could “happen literally almost overnight.”

Here’s a no-brainer long-term investment strategy to stick to: buy and hold resources now.

This from The Daily Reckoning:

As we take a longer view on the precious metals here at Casey Research, I’m not much for commenting on current market gyrations or the various sub-themes that regularly emerge in the blogs.

First and foremost, as to the purported discrepancy between the price of gold on commodities exchanges and that of physical gold, in my view, any real discrepancy would be jumped on by the arbitragers so fast, it might even break the land-sound barrier.

As for the shortage of gold and silver bullion products, we would attribute this to a couple of factors. The first is that there has been some poor planning on the part of the mints. Secondly, the poor planning is likely due to a failure to appreciate how many people are coming to the conclusion that it is better to own at least some precious metals, instead of holding only the unbacked paper of governments.

As for gold’s recent steep fall in the face of the clear signs of physical demand, it seems clear that this was largely caused by gold traders taking profits. At every step up in this bull market, the precious metals have been stuck, for months at a time even, in trading ranges… the bottom of which evokes buying and the top of which triggers selling.

It is always worth keeping in mind that the defining feature of commodities exchanges is the leverage the instruments that trade on these exchanges offer. Consequently, the traders who call those exchanges home are able to marshal considerable juice in their quest for a new Lexus with 16-way driver seat features and custom leather interior.

The salient point is that while those of us who believe in the values offered by gold and silver like to think of them as “substantial” markets, when it comes to futures markets, they are like a gnat on the tail of an elephant. To make the point, consider that the cash value of foreign-currency contracts traded globally each 24-hour period is on the order of $3.2 trillion. By comparison, over the same 24-hour period, on average, $26 billion worth of gold trades hands. For silver, the number is even smaller, just $4.5 billion.

All of which is to say that (a) these are markets that can be “pushed around” by the traders, and (b) when a large number of traders shift into “take profits” mode, the price of the metals can be trampled.

The long and short of it is that range trading will go on for awhile, until something occurs in the psychology of the market that shifts the majority into the long side… at which point the upper end of the trend is decisively broken and the range is reset to a higher level. It is my contention that the top of the range for gold is now $1,000, and we could see it continue to test that level, then fall back, for some time. But really, who can say? It could happen literally almost overnight.

Shifting to a somewhat nearer-term perspective, however, it is worth looking at the chart from Seasons of Gold, the archived article from the April 2006 edition of the International Speculator.

While the chart hasn’t been updated lately, the data used is so long-term – 30 years – that updating it wouldn’t have changed anything by any noticeable amount.

Viewing the chart, it doesn’t take a lot of imagination to assemble a scenario whereby the continued strong investment demand for physical gold meets the traditional strength of the Indian wedding season buying that contributes so much to the historical pick-up in gold prices in September.

Toss in the effective nationalization of Freddie Mac (NYSE:FRE) and Fannie Mae (NYSE:FNM), putting the U.S. taxpayer as the guarantor of last resort on fully half of the mortgages in the nation…and mix in some of the ripe geopolitical apples now falling from tall trees, or the imminent realization that oil isn’t going back to $50 or that the inflation phenomenon is not temporary, and we could see a big bump in the gold price over the next couple of months.

Time to go long in the futures market? Well, on that topic, all I can say is, tread carefully…and use as little margin as possible just now.

That’s because, as wild as things have been in pretty much all the markets, we haven’t seen anything yet. If there is one thing you can take to the bank, it is that, in the months just ahead, the volatility of virtually all markets is going to go ballistic. For the attentive trader, that can mean big, and repeated, opportunities for profit. But for the casual trader, high volatility can lead to quick loss making.

Sticking to a longer-term perspective – buying and holding and, if resources allow, buying more on the dips – is the way to go.

Source: Whither Gold?