Showing posts with label Jeff Clark. Show all posts
Showing posts with label Jeff Clark. Show all posts

Tuesday, June 6, 2017

Do These Three Things to Profit When Stocks Fall

By Jeff Clark, editor, Delta Report

The stock market has entered “the worst six months of the year.” The S&P 500 makes its best gains between November 1 and April 30. The period between May 1 and October 31 tends to be negative. The exact historical figures vary depending on who you ask. But there’s a good reason the Wall Street cliché machine advises to “sell in May and go away.” Stocks don’t do very well this time of year. And most of the major stock market disruptions of my lifetime occurred during this six month window.

Smart investors should take some time off. Enjoy the fruits of the “Trump rally.” Cash in your 13% gain on the S&P 500 since last Halloween and enjoy the summer. We’ll see you back in the action in time for Thanksgiving. But, if you want to make some money while the rest of the world is losing it, then stick around. Smarter investors could have the best six months ever.

Think about this for a moment…
Over the past 20 years, the Volatility Index (VIX)—a measure of the price investors are willing to pay to insure their portfolios against a significant market decline—has traded between a low of about 10 to a high of about 80. Recently, the VIX closed at 11—one of the lowest readings in the past 20 years. This happened at a time when the S&P 500 closed near an all time high. So with the broad stock market trading at its highest level ever, insurance is about as cheap as it has been in the past 20 years.

In other words, as we enter the worst six months of the year, put options—bets that the stock market will fall—are as cheap as they’ve been in two decades. This is a remarkable opportunity to profit as stock prices decline. Speculators can risk relatively small amounts of capital and achieve HUGE returns if stock prices fall. But there are a few tricks to profiting on the downside.

How to Profit as Stocks Fall
Over the long term, stocks go up. Don’t argue about it. That’s just how it is. The stock market moves higher over time. So short sellers—those folks who profit as stock prices fall—face an uphill battle.
Of course, there are situations where short sellers will ultimately profit even if the broad stock market moves higher.

For example, companies that commit fraud, take on insane amounts of leverage, or overhype a fad business almost always eventually crash and burn. But opportunities to short the stock in these firms are few and far between. For the most part, traders who are looking to short sell are going to trade on momentum. They’re going to look for overbought situations that look ready to reverse.

They’re going to buy cheap, out of the money put options. They’re going to be lightning fast, taking profits as the trade moves in their favor. And they’re not going to stress out about losing 100% on a trade because they kept their position size small enough to digest the loss.

How This Great Trade Went South
Let me tell you a story about the absolute best and worst put option trade I’ve ever seen. The trader made the most money I’ve ever seen on one put option trade, then he gave it all back. In September 1987, I was running the trading desk for a small regional brokerage firm. We had a handful of big name clients, folks who appeared regularly on the Financial News Network (the precursor to CNBC). One of these clients was a value oriented newsletter writer. His investment style was ultra-conservative and ultra-prudent.

So in September 1987, when this client bought a large number of put options on the S&P 100 (OEX), I took note. It was the first option position this client had ever purchased. He was buying these put options to hedge his managed-money portfolios against a sudden crash in the stock market.
It worked perfectly.

When the stock market crashed on October 19, 1987, the put options this client purchased rallied enough to completely offset the decline in his stock portfolios. It was, in my opinion, the most perfect hedge anyone executed prior to the crash. But it turned out to be a disaster for his accounts. You see, the money manager never sold the options.

Despite the market crashing, despite the VIX jumping above 100, despite the options he purchased trading for 20 times the amount he paid, he wanted to maintain the hedge. He wanted to keep his insurance in case stocks dropped even more.

They didn’t....When his options expired in November, even though the broad stock market was almost 25% lower than where it was when he bought the puts, his put options expired worthless. Stocks hadn’t rallied much off the October crash bottom. The S&P 500 was maybe 5% higher. The stocks this advisor held in his managed accounts were still suffering from the crash. And he never collected from the insurance he bought to protect his clients from the crash.

His clients suffered from the decline in the market, and they suffered from paying the option premium that was supposed to protect them from a crash. So what appeared to be a brilliant move in September 1987 turned out to be an expensive mistake by late November. His clients suffered from a decline in their stock holdings, and they also suffered as the OEX put options expired worthless.

A Simple Lesson
The lesson here is simple, when you’re betting on a broad stock market decline, you need to buy cheap put options AND you need to be willing to cash out of the trade when it moves in your direction—even if you think the move will go farther.
In my experience—which goes back more than three decades—if you want to profit on the short side of trading stocks, you need to get three things right…
  1. You need to target stocks that are overextended to the upside and have negative divergence on the technical indicators.
  2. You need to buy cheap put options, and you need to be willing to lose 100% of the premium you pay for the options. It should be less of a loss than short selling the stock.
  3. You need to be willing to take profits quickly. As stocks fall, the implied volatility of the option premium increases. You don’t need to wait for the stock to achieve your downside target. The option premium will often inflate to reflect the downside potential. Be willing to sell into that.
Best regards and good trading,
Jeff Clark
Editor, Delta Report


Justin's note: Tomorrow, Jeff will be releasing a brand-new presentation on what he calls “the biggest breakthrough of my career.” In it, he’ll reveal a trading strategy that he’s been developing for over five years… has a success rate of 90.2%average gains of 50%… and an average trade length of just two days.

E.B. Tucker, editor of The Casey Report, and Doug Casey have been talking all about it these past few months. They think it’s one of the most fascinating moneymaking ideas they’ve ever encountered.
Most people will be watching this presentation at 12 p.m. ET tomorrow… but as a Casey reader, E.B. will be sending you the video early, so you can start watching ahead of the crowd at 9 a.m.
We hope to see you there.


The article Do These Three Things to Profit When Stocks Fall was originally published at caseyresearch.com.



Stock & ETF Trading Signals

Monday, May 11, 2015

Silver is Vital to Human Existence. Check Out the New Way We Intend to Profit.

By Jeff Clark

It’s the news everyone dreads—a call from the hospital. And it’s about one of the most important people in the world…...Your mother.

Every ALL CAPS ITEM below contains silver or is required in its use.

You hear the nurse talking urgently through your TELEPHONE and you realize it’s serious….

You grab your REMOTE CONTROL and turn down the volume on your PLASMA TV that’s playing your favorite DVD movie. You push the BUTTON and the SPEAKERS go mute. You press “save” on the KEYBOARD of your COMPUTER.

“Yes, she’s okay,” the nurse tells you. “But you need to come to the HOSPITAL right away.” That’s all you need to hear. You yell to your spouse and grab your CELLPHONE to call your siblings. “Is she alright?” your wife asks frantically. She was using the VACUUM CLEANER and WASHING MACHINE and didn’t hear the conversation.

“Yes, but hurry,” you reply, reaching to turn off the STOVE.

Your wife springs into action—she pushes the TOYS out of the way, grabs a WATER BOTTLE from the REFRIGERATOR and closes the MICROWAVE door.

You run to the bedroom and put on that new SUNBLOCK SHIRT she got you and check yourself in the MIRROR. You notice the glint off your SOLAR PANELS shines brightly through the WINDOW. You’re sweating and are glad the AIR CONDITIONER and AIR PURIFIER are working.

Your wife opens the LATCH to the front door. You notice she’s wearing those EARRINGS you got her for Christmas, the ones you put in with the CD of her favorite singer.

You unlock the car with your REMOTE KEY and rev up the ENGINE. Your wife opens the POWER WINDOWS while you adjust the POWER SEATS.

You leave the RADIO off, and are impatient at the STOPLIGHT, even though you can already see the CELLPHONE TOWERS on top of the hospital. Your wife is talking to your other family members on her CELLPHONE.

You pull up to the toll booth and the SCANNER beeps you through quickly. Your wife glances at her WATCH, and you remember she needs a new BATTERY.

You enter the hospital through the AUTOMATIC DOOR and a receptionist uses an IPAD to give you the room number. The indoor temperature is cool and you remember reading about the new INSULATION the hospital used in construction. You quickly push the ELEVATOR BUTTON for the second floor.

You reach the room and there is your mother, lying on a RECLINING BED, with a BREATHING TUBE in her mouth. She’s connected to NUMEROUS HOSPITAL DEVICES, some of which display readouts on a COMPUTER SCREEN. You try not to panic, as you see various SURGICAL INSTRUMENTS lying on a nearby SILVER tray.

“Your mother is on MEDICATION,” says a doctor walking into the room. He has a STETHOSCOPE around his neck and EYEGLASSES perched on his nose. “She fell and sustained some injuries, but she will be okay.” You see the BANDAGES on her face and arms, and the doctor notices your concern.

“We’ll take some X-RAYS to be sure she didn’t break any bones,” he says. “And she’s already on ANTIBIOTICS, so we’ll catch any infection before it starts.” You take a deep breath of relief as you realize she’ll be okay. You grasp your mother’s arm and notice she’s still wearing her favorite BRACELET.

The doctor uses a LAPTOP to update her status. The nurse uses a WATER PURIFIER to fill the water pitcher and sets it on the ANTI-SCRATCH surface of the nearby table. You settle into a PLASTIC CHAIR beside your mother and take a deep, relaxing breath. It then dawns on you just how much…..

Silver Is Essential to Modern Life


There are numerous medical examples like this every day, where silver served a cornerstone purpose to treat a hospital patient. In fact, if you’ve ever been treated by a doctor or admitted to a hospital, you’ve been a direct recipient of one or more of the medical benefits of silver. From simple bandages to life-saving equipment in operating rooms, silver is quite literally a lifesaving precious metal.

Silver is used in nearly every major industry today, from biocides and electronics to solar panels and batteries. In fact, silver is so embedded in modern life that you do not go one day without using a product made with or by silver. It’s everywhere, even if you don’t see it.

Due to the exponential increase in the number of uses for this precious metal, demand has exploded. Check out silver’s growth…
  • Jewelry and silverware use is up 27.2% since 2011.
  • India imported 5,500 tonnes of silver last year, 180% more than just two years ago.
  • Solar power accounted for 29% of added electricity capacity in America last year. “Eventually solar will become so large that there will be consequences everywhere,” says the US Solar Energy Industries Association.
  • China’s solar industry is exploding—it represented about 0.2% of the global market in 2009, but last year soared to 17%.
  • Silver demand in China exceeded a quarter million ounces last year for the first time in history.
  • New uses for silver continue to be discovered. The latest fashion—a “scough”—uses silver nanoparticles to trap and kill germs and pollutants.
  • Total industrial demand is projected to increase 5% per year through 2016—and outpace global GDP growth.
  • In spite of the fall in price, ETF demand soared in 2014, as total holdings exceeded the 2011 record high.
Demand is relentless.

But Here’s the Best Part…


If you’re an investor, the price of silver is poised for a massive rebound, after one of the most severe bear markets in history. Silver has declined three consecutive years—and hasn’t fallen four straight years since 1991. The price is so undervalued that adjusted for inflation, $17 silver is equivalent to about $4 in the year 2000!

In fact, silver is currently trading below its price before the financial crisis struck in 2008, and before the first QE program was introduced. It’s basically trading as if no money has been printed!

There is a clear disconnect between this precious metal and its price.

And that is our opportunity. The silver price has overreacted so dramatically to the downside that it is one of the most compelling investments today. In fact, it’s hard to find a more distorted market full of opportunity.

While hopefully you won’t need silver to save your life anytime soon, we’re convinced it will be a portfolio-saving investment in the very near future.

Just like gold, a stash of silver bullion will help us maintain our standard of living. In fact, silver may be more practical to use for small purchases, as there will be times you may not want to sell a full ounce of gold. And in a high inflation/decaying dollar scenario, the silver price is likely to exceed consumer price inflation, giving us further purchasing power protection.

The bottom line is that silver is quite possibly the buying opportunity of this decade. The next few years could be very exciting. And if you like bargains, silver’s neon “Sale!” sign is flashing like a disco ball.
To take advantage of this potentially life-changing setup, we have a special offer in the just-released issue of BIG GOLD…..

All investors should own a stash of sovereign bullion coins—Eagles, Maple Leafs, Philharmonics, etc. They’re the most recognizable around the world and the most liquid, an important trait when it comes time to sell.

However, we’ve identified a potentially lucrative trend in the silver market, where we can buy bullion coins with numismatic potential. In other words, these coins could increase in value much more than standard bullion coins. Even many veteran silver investors have not caught on to this trend.

How do we know these coins have numismatic upside? Because it’s already happened with similar coins. In fact, a similar coin from 2011 is now selling for near a 100% premium. And this occurred while precious metals were in a bear market!

Right now, you can buy this coin for roughly the same premium as a silver Eagle. In other words, there is essentially no risk to buying these coins—if for some reason they never accrue any numismatic value, they’ll still always sell for at least the price of bullion since they contain a full ounce.

And here’s the best part: our recommended dealer has discounted these coins exclusively for BIG GOLD readers. The price is lower than you’ll find anywhere else in the bullion market, handing us even further savings. We also include a similar discount on a gold coin with numismatic potential.

There’s much more to our May issue… We detail why we think the next bull market in gold could kick into high gear very soon (it’s in Jeff Clark’s introduction). It’s a development most mainstream investors are completely overlooking—which is our opportunity, because they’ll be surprised by this event and rush into the precious metals market literally overnight. If we’re right, it could light a fire under the gold price.

But you need to invest now, before it takes place, and while the discounted premium on these coins is still available. Either way, don’t let the current bear market fool you—it’s stretched to an extreme and will shift into a new bull market soon. Markets cycle, as history has repeatedly shown, and this market is due for its next upcycle.

Test drive BIG GOLD at no risk, with a 3 month, money back guarantee. It comes with the discount on the two bullion products that have numismatic potential, plus all our current stock recommendations, including tables that show the prices they’d hit if they matched past bull markets. The potential gains are enormous—and a tremendous opportunity if you don’t own precious metals stocks.

If you don’t like it, cancel. But we think you’ll find tremendous value for the low price. Get started now.

Jeff Clark
COT Precious Metals Analyst


Get our latest FREE eBook "Understanding Options"....Just Click Here!

Friday, March 13, 2015

Will Warren Buffett Really Let This Deep Value Slip By?

By Jeff Clark, Senior Precious Metals Analyst

Right now, even the staunchest gold investors are weary of the years-long drubbing the gold price has taken since its $1,921 peak in August 2011. Whether the frustrating experience is the work of a market rigging conspiracy, government manipulation of data to hide inflation, those blindingly loyal Keynesians who keep pounding us with messages that gold is nothing but a “shiny bitcoin,” or the gullibility of mainstream investors who tell themselves that, gee, since Warren Buffett is a billionaire, his “gold has no utility” mantra must be right, it hasn’t been fun. The nasty downcycle has offered no respite.

That’s all about to change.

If there’s one constant in the resource sector, it’s the boom-bust-repeat cycle that over the past 40 years has been almost predictable. This is particularly the case with gold stocks.

We charted every major cycle for gold stocks (producers) from 1975—when gold again became legal to own in the US—to the present. You can easily see that not only do gold stocks cycle up and down repeatedly, but the percentage gains for buyers at a cycle bottom can be downright mouthwatering.


What’s interesting about where we sit today in early 2015 is that gold stocks have now logged the second-deepest bear market since 1975—rougher even than the selloff following the 1980 mania.

This history teaches three “how to get rich” lessons.
  1. For the recent bear market, the bottom for gold stocks is almost certainly in.
  1. The next major cycle in gold stocks will be up.
  1. The profits could be spectacular, because as the patterns show, triple-digit gains have been common.
Gold stocks have finished the bust that tormented investors for more than three years and are now preparing for another boom. All you have to do is hold on and wait for the next cycle to begin. No timing required.

The only thing we don’t know is if Mr. Buffett will see this chart and jump on the in-your-face deep value that gold stocks are showing right now.

Gold stocks will soon go vertical again—just as they have many times in the past—and investors with just a smidgen of patience will see their gold portfolios driven by a hurricane-force bull market. Virtually all gold stocks will go much higher. As in the past, gains for the strongest juniors will be 10-to-1, and you can expect a few superstars to return 100-to-1.

I talk about this rich opportunity with some of the most successful investors in the gold sector—Pierre Lassaonde, Frank Holmes, Rick Rule, Bob Quartermain, Ron Netolitzky, Doug Casey, and Louis James. Check out our free webcast, Going Vertical, a can’t miss one hour event that will show you the life-changing profits waiting just ahead.

And yes, we extend our invitation to Warren Buffett.



Get our latest FREE eBook "Understanding Options"....Just Click Here!

Thursday, March 5, 2015

Going Vertical.....Our Next Online Event

There are again signs on the horizon that the next gold bull market may not be far off.

On February 11, Bloomberg reported, “Gold producers with cash on hand are on the hunt for cheap mining assets as rising prices drive shares higher.” $2.7 billion in deals have already been announced or completed year to date—compared to a total of $10.5 billion in 2014.

Private equity firms (the “smart money”) are circling the mining industry for great deals. GDX, the Market Vectors Gold Miners ETF, currently has an aggregate price to book ratio of 1.06, while its little brother, the Market Vectors Junior Gold Miners ETF (GDXJ), trades at 76% of book value.

A stronger US dollar and falling oil prices are presenting two deflationary forces that are good for gold. The last two times oil dropped more than 50% in one year—1986 and 2008—gold rallied over 25% the following year.

Here's our video primer for this weeks event "Are you Going to Buy Low and Sell High this Time Around"

Investors are waking up to the fact that gold is rallying. Among the top 10 non leveraged ETFs are five gold miners ETFs. As of early February, investors had already poured $885.4 million in new assets into GDX—one of the best results among sector ETFs—and GDXJ attracted nearly $226 million.

No one can say for sure if this is the beginning of the next gold bull market. However, what is clear is that once the bull market does get started, the best of the best gold stocks will go vertical.

Successful gold producers may go up 150-200%. But the top ranked junior miners—the companies with quality management and great assets will take a moonshot. 500%, 1,000%, and more is not out of the question.

Casey Research’s free online event GOING VERTICAL aims to help investors understand where we are in the gold cycle, what to expect, and how to prepare their portfolio so they have a real shot at the jackpot when gold rises again.

Just Click Here to Reserve Your Spot

Eight industry stars discuss the most pressing issues of the day......

Pierre Lassonde, cofounder and chairman of Franco-Nevada
Rick Rule, founder and chairman of Sprott Global Resource Investments
Ron Netolitzky, chairman and director of Aben Resources
Doug Casey, chairman of Casey Research
Frank Holmes, CEO and CIO of U.S. Global Investors
Bob Quartermain, president, CEO, and director of Pretium Resources
and Casey Research precious metals experts Louis James and Jeff Clark.

Topics they will talk about in GOING VERTICAL include: 2015 outlook on the gold market; up, down, or sideways?—What to expect from gold’s next leg up, and how even stocks that have dropped 75% or more can come back with a vengeance—How to make money on junior miners even in the midst of a downturn—Which country may end up controlling the price of gold and what that means for investors—4 signs that a bear market is turning into a bull market—Which types of companies institutional investors will flock to first when gold goes up, and how to “front run” them—3 reasons why the best gold producers might double when the gold sector recovers—and much more.

Also, some of the experts talk about their favorite gold and silver companies, naming names—and Louis James reveals one of his favorite junior mining stock with vertical potential.

Register now to watch the event on Tuesday, March 10, 2:00 p.m. EDT. Even if you know you can’t make it at that time, register anyway that way you’ll get an email with a link to the video recording after the event and can watch it at your leisure.

Click Here to Learn More and Register

See you on Tuesday,
Ray C. Parrish
aka the Crude Oil Trader

Get our latest FREE eBook "Understanding Options"....Just Click Here!

Wednesday, March 4, 2015

What Top Hedge Fund Managers Really Think About Gold

By Jeff Clark, Senior Precious Metals Analyst

In the January BIG GOLD, I interviewed a plethora of experts on their views about gold for this year. The issue was so popular that we decided to republish a portion of the edition here.

Given their level of success, these fund managers are worth listening to: James Rickards, Chris Martenson, Steve Henningsen, Grant Williams, and Brent Johnson. Some questions are the same, while others were tailored to their particular expertise.

I hope you find their comments as insightful and useful as I did…...

James Rickards is chief global strategist at the West Shore Funds, editor of Strategic Intelligence, a monthly newsletter, and director of the James Rickards Project, an inquiry into the complex dynamics of geopolitics and global capital. He is the author of the New York Times best  seller The Death of Money and the national best seller Currency Wars.

He’s a portfolio manager, lawyer, and economist, and has held senior positions at Citibank, Long Term Capital Management (LTCM), and Caxton Associates. In 1998, he was the principal negotiator of the rescue of LTCM sponsored by the Federal Reserve. He’s an op-ed contributor to the Financial Times, Evening Standard, New York Times, and Washington Post, and has been interviewed by the BBC, CNN, NPR, C-SPAN, CNBC, Bloomberg, Fox, and the Wall Street Journal.

Jeff: Your book The Death of Money does not paint an optimistic economic picture. What will the average citizen experience if events play out as you expect?

James: The end result of current developments in the international monetary system will almost certainly be high inflation or borderline hyperinflation in US dollars, but this process will take a few years to play out, and we may experience mild deflation first. Right now, global markets want to deflate, yet central banks must achieve inflation in order to make sovereign debt loads sustainable. The result is an unstable balance between natural deflation and policy inflation. The more deflation persists in the form of lower prices for oil and other commodities, the more central banks must persist in monetary easing. Eventually inflation will prevail, but it will be through a volatile and unstable process.

Jeff: The gold price has been in a downtrend for three years. Is the case for gold over? If not, what do you think kick-starts a new bull market?

James: The case for gold is not over—in fact, things are just getting interesting. I seldom think about the “price” of gold. I think of gold as money and everything else as a price measured in gold units. When the dollar price of gold is said to be “down,” I think of gold as a constant store of value and that the dollar is simply “up” in the sense that it takes more units of gold to buy one dollar. This perspective is helpful, because gold can be “down” in dollars but “up” in yen at the same time, and often is when the yen is collapsing against the dollar.

The reason gold is thought to be “down” is because the dollar is strong. However, a strong dollar is deflationary at a time when the Fed’s declared policy is to get inflation. Therefore, I expect the Fed will not raise interest rates in 2015 due to US economic weakness and because they do not want a stronger dollar. When that realization sinks in, the dollar should move lower and gold higher when measured in dollar terms.

The looming global shortage of physical gold relative to demand also presages a short squeeze on the paper gold edifice of futures, options, unallocated forward sales, and ETFs. The new bull market will be kick started when markets realize the Fed cannot raise rates in 2015 and when the Fed finds it necessary to do more quantitative easing, probably in early 2016.

Jeff: Given what you see coming, how should the average retail investor position his or her portfolio?

James: Since risks are balanced between deflation and inflation in the short run, a sound portfolio should be prepared for both. Investors should have gold, silver, land, fine art, and other hard assets as an inflation hedge. They should have cash and US Treasury 10-year notes as a deflation hedge. They should also include some carefully selected alternatives, including global macro hedge funds and venture capital investments for alpha. Investors should avoid emerging markets, junk bonds, and tech stocks.

Steve Henningsen is chief investment strategist and partner at The Wealth Conservancy in Boulder, CO, a firm that specializes in wealth coaching, planning, and investment management for inheritors focused on preservation of capital. He is a lifetime student, traveler, fiduciary, and skeptic.

Jeff: The Fed and other central banks have kept the economy and markets propped up longer than some thought they could. How much longer do you envision them being able to do so? Or has the Fed really staved off crisis?

Steve: I do not believe we are under a new economic paradigm whereupon a nation can resolve its solvency problem via increasing debt. As to how long the central banks’ plate spinning can defer the consequences of the past 30-plus years of excess credit growth, I hesitate to answer, as I never thought they would get this far without breaking a plate. However incorrect my timing has been over the past two years, though, I am beginning to doubt that they can last another 12 months. Twice in the last few months the stock market plates began to wobble, only to have Fed performers step in to steady the display.

With the end of QE, a slowing global economy, a strengthening dollar, and the recent sharp drop in oil prices, deflationary winds are picking up going into 2015, making their balancing act yet more difficult. (Not to mention increasing tension from poking a stick at the Russian bear.)

Jeff: Gold has been in decline for over three years now. What changes that? Should we expect gold to remain weak for several more years?

Steve: I cannot remember an asset more maligned than gold is currently, as to even admit one owns it receives a reflexive look of pity. While most have left our shiny friend bloodied, lying in the ditch by the side of the road, there are signs of resurrection. While I’m doubtful gold will do much in the first half of 2015 due to deflationary winds and could even get dragged down with stocks should global liquidity once again dissipate, I am confident that our central banks would again step in (QE4?) and gold should regain its luster as investors finally realize the Fed is out of bullets.

The wildcard I’m watching is the massive accumulation of gold (and silver) bullion by Russia, China, and India, and the speculation behind it. Should gold be announced as part of a new monetary system via global currency or gold-backed sovereign bond issuance, then gold’s renaissance begins.

Jeff: Given what you see coming, how should the average investor position her or his portfolio?

Steve: Obviously I am holding on to our gold bullion positions, as painful as this has been. I would also maintain equity exposure via investment managers with the flexibility to go long and short. I believe this strategy will finally show its merits vs. long-only passive investments in the years ahead. I believe that for the next 6-12 months, long-term Treasuries will help balance out deflationary risks, but they are definitely not a long-term hold. Maintaining an above average level of cash will allow investors to take advantage of any equity downturns, and I would stay away from industrial commodities until the deflationary winds subside.
Precious metals equities could not be hated more and therefore represent the best value if an investor can stomach their volatility.

Grant Williams is the author of the financial newsletter Things That Make You Go Hmmm and cofounder of Real Vision Television. He has spent the last 30 years in financial markets in London, Tokyo, Hong Kong, New York, Sydney, and Singapore, and is the portfolio and strategy advisor to Vulpes Investment Management in Singapore.

Jeff: The Fed and other central banks have kept the economy and markets propped up longer than some thought possible. How much longer do you envision them being able to do so? Or has the Fed really staved off crisis?

Grant: I have repeatedly referred to a singular phenomenon over the past several years and it bears repeating as we head into 2015: for a long time, things can seem to matter to nobody until the one day when they suddenly matter to everybody. It feels as though we have never been closer to a series of such moments, any one of which has the potential to derail the narrative that central bankers and politicians have been working so hard to drive.

Whether it be Russia, Greece, the plummeting crude oil price, or a loss of control in Japan, there are a seemingly never-ending series of situations, any one (or more) of which could suddenly erupt and matter to a lot of people at the same time. Throw in the possibility that a Black Swan comes out of nowhere that nobody has thought about (even something as seemingly trivial as the recent hack of Sony Pictures by the North Koreans could set in motion events which can cascade very quickly in a geopolitical world which has so many fissures running through it), and you have the possibility that fear will replace greed overnight in the market’s collective psyche. When that happens, people will want gold.

The issue then becomes where they are going to get it from. Physical gold has been moving steadily from West to East despite the weak paper prices we have seen for the last couple of years, and this can continue until there is a sudden wider need for gold as insurance or as a currency. When that day comes, the price will move sharply from being set in the paper market—where there is essentially infinite supply—to being set in the physical markets where there is very inelastic supply and the existing stock has been moving into strong hands for several years. Materially higher prices will be the only way to resolve the imbalance.

Jeff: You’ve written a lot about the gold market over the past few years. In your view, what are the most important factors gold investors should keep in mind right now?

Grant: I think the key focus should be on two things: first, the difference between paper and physical gold; and second, on the continuing drive by national banks to repatriate gold supplies. The former is something many people who are keen followers of the gold markets understand, but it is the latter which could potentially spark what would, in effect, be a run on the gold “bank.” Because of the mass leasing and rehypothecation programs by central banks, there are multiple claims on thousands of bars of gold. The movement to repatriate gold supplies runs the risk of causing a panic by central banks.

We have already seen the beginnings of monetary policy divergence as each central bank begins to realize it is every man for himself, but if that sentiment spreads further into the gold markets, it could cause mayhem.
Keep a close eye on stories of further central bank repatriation—there is a tipping point somewhere that, once reached, will light a fire under the physical gold market the likes of which we haven’t seen before, and that tipping point could well come in 2015.

Jeff: Given what you see coming, how should the average investor position his or her portfolio?

Grant: Right now I think there are two essentials in any portfolio: cash and gold. The risk/reward skew of being in equity markets in most places around the world is just not attractive at these levels. With such anemic growth everywhere we turn, and while it looks for all the world that bond yields are set to continue falling, I think the chances of equities continuing their stellar run are remote enough to make me want out of equity markets altogether.

There are pockets of value, but they are in countries where the average investor is either disadvantaged due to a lack of local knowledge and a lack of liquidity, or there is a requirement for deep due diligence of the kind not always available to the average investor.

The other problem is the ETF phenomenon. The thirst for ETFs in order to simplify complex investing decisions, as well as to throw a blanket over an idea in order to be sure to get the “winner” within a specific theme or sector, is not a problem in a rising market (though it does tend to cause severe value dislocations amongst stocks that are included in ETFs versus those that are not). In a falling market, however, when liquidity is paramount, any sudden upsurge of selling in the ETF space will require the underlying equities be sold into what may very well be a very thin market.

In a rising market, there is always an offer. In a falling market, bids can be hard to come by and in many cases, nonexistent, so anybody expecting to divest themselves of ETF positions in a 2008 like market could well find themselves with their own personal Flash Crash on their hands.

Unlevered physical gold has no counterparty risk and has sustained a bid for 6,000 straight years (and counting). Though sometimes, in the wee small hours, those bids can be both a little sparse and yet strangely attractive to certain sellers of size.

Meanwhile, a healthy allocation to cash offers a supply of dry powder that can be used to gain entry points which will hugely amplify both the chances of outperformance and the level of that performance in the coming years.

Remember, you make your money when you buy an asset, not when you sell it.

Caveat emptor.

Chris Martenson, PhD (Duke), MBA (Cornell), is an economic researcher and futurist who specializes in energy and resource depletion, and is cofounder of Peak Prosperity. As one of the early econobloggers who forecasted the housing market collapse and stock market correction years in advance, Chris rose to prominence with the launch of his seminal video seminar, The Crash Course, which has also been published in book form.

Jeff: The Fed and other central banks have kept the economy and markets propped up longer than some thought possible. How much longer do you envision them being able to do so? Or has the Fed really staved off crisis?

Chris: Well, if people were being rational, all of this would have stopped a very long time ago. There’s no possibility of paying off current debts, let alone liabilities, and yet “investors” are snapping up Italian 10 year debt at 2.0%! Or Japanese government bonds at nearly 0% when the total debt load in Japan is already around $1 million per rapidly aging person and growing. I cannot say how much longer so called investors are willing to remain irrational, but if pressed I would be very surprised if we make it past 2016 without a major financial crisis happening.

Of course, this bubble is really a bubble of faith, and its main derivative is faith based currency. And it’s global. Bubbles take time to burst roughly proportional to their size, and these nested bubbles the Fed and other central banks have engineered are by far the largest ever in human history.

As always, bubbles are always in search of a pin, and we cannot know exactly when that will be or what will finally be blamed. All we can do is be prepared.

Jeff: If deflationary forces pick up, how do you expect gold to perform?

Chris: Badly at first, and then spectacularly well. It’s like why the dollar is rising right now. Not because it’s a vastly superior currency, but because it’s the mathematical outcome of trillions of dollars’ worth of US dollar carry trades being unwound. So the first act in a global deflation is for the dollar to rise. Similarly, the first act is for gold to get sold by all of the speculators that are long and need to raise cash to unwind other parts of their trade books.

But the second act is for people to realize that the institutions and even whole nation states involved in the deflationary mess are not to be trusted. With opaque accounting and massive derivative positions, nobody will really know who is solvent and who isn’t. This is when gold gets “rediscovered” by everyone as the monetary asset that is free of counterparty risk—assuming you own and possess physical bullion, of course, not paper claims that purport to be the same thing but are not.

Jeff: Given what you see coming, how should the average investor position her or his portfolio?

Chris: Away from paper and toward real things. If the outstanding claims are too large, or too pricey, or both, then history is clear; the perceived value of those paper claims will fall.

My preferences are for land, precious metals, select real estate, and solid enterprises that produce real things. Our view at Peak Prosperity is that deflation is now winning the game, despite everything the central banks have attempted, and that the very last place you want to be is simply long a bunch of paper claims.

However, before the destruction of the currency systems involved, there will be a final act of desperation by the central banks that will involve printing money that goes directly to consumers. Perhaps it will be tax breaks or even rebates for prior years, or even the direct deposit of money into bank accounts.

When this last act of desperation arrives, you’ll want to be out of anything that looks or smells like currency and into anything you can get your hot little hands on. This may include equities and other forms of paper wealth—just not the currency itself. You’ll want to run, not walk, with a well-curated list of things to buy and spend all your currency on before the next guy does.

We’re not there yet, but we’re on our way. Expect the big deflation to happen first and then be alert for the inevitable central bank print a thon response.

Because of this view, we believe that having a very well balanced portfolio is key, with the idea that now is the time to either begin navigating toward real things, or to at least have that plan in place so that after the deflationary impulse works its destructive magic, you are ready to pounce.

Brent Johnson is CEO of Santiago Capital, a gold fund for accredited investors to gain exposure to gold and silver bullion stored outside the United States and outside of the banking system, in addition to precious metals mining equities. Brent is also a managing director at Baker Avenue Asset Management, where he specializes in creating comprehensive wealth management strategies for the individual portfolios of high-net-worth clients. He’s also worked at Credit Suisse as vice president in its private client group, and at Donaldson, Lufkin & Jenrette (DLJ) in New York City.

Jeff: The Fed and other central banks have kept the economy and markets propped up longer than some thought possible. How much longer do you envision them being able to do so? Or has the Fed really staved off crisis?

Brent: As much as I dislike the central planners, from a Machiavellian perspective you really have to give them credit for extending their influence for as long as they have. I wasn’t surprised they could engineer a short-term recovery, and that’s why, even though I manage a precious metals fund, I don’t recommend clients put all their money in gold. But I must admit that I have been surprised by the duration of the bull market in equities and the bear market in gold. And while I probably shouldn’t be, I’m continually surprised by the willingness of the investing public to just accept as fact everything the central planners tell them. The recovery is by no means permanent and is ultimately going to end very, very badly.

But I don’t have a crystal ball that tells me how much longer this movie will last. My guess is that we are much closer to the end than the beginning. So while they could potentially draw this out another year, it wouldn’t surprise me at all to see it all blow up tomorrow, because this is all very much contrived. That’s why I continue to hold gold. It is the ultimate form of payment and cannot be destroyed by either inflation, deflation, central bank arrogance, or whatever other shock exerts itself into the markets.

Jeff: As a gold fund manager, you’ve watched gold decline for over three years now. What changes that? And when? Should we expect gold to remain weak for several more years?

Gold has been in one of its longest bear markets in history. Many of us in the gold world must face up to this. We have been wrong on the direction of gold for three years now. Is this due to bullion banks trying to maximize their quarterly bonuses by fleecing the retail investor? Is it due to coordination at the central bank level to prolong the life of fiat currency? Is it due to the Western world not truly understanding the power of gold and surrendering our bullion to the East? I don’t know… maybe it’s a combination of all three. Or maybe it’s something else altogether.

What I do know is that gold is still down. Now the good news is… that’s okay. It’s okay because it isn’t going to stay down. The whole point of investing is to arbitrage the difference between price and value. And right now there remains a huge arbitrage to exploit. As Jim Grant said, “Investing is about having people agree with you… later.”

Now all that said, I realize it hasn’t been a fun three years. This isn’t a game for little boys, and I’ve felt as much pain as anyone. I think the trend is likely to change when the public’s belief in the central banks starts coming into question. We are starting to see the cracks in their omnipotence. For the most part, however, investors still believe that not only will the central banks try to bail out the markets if it comes to that, but they also still believe the central banks will be successful when they try. In my opinion, they are wrong.

And there are several catalysts that could spark this change—oil, Russia, other emerging markets, or the ECB and Japan monetizing the debt. This “recovery” has gone on for a long time. But from a mathematical perspective, it simply can’t go on forever. So as I’ve said before, if you believe in math, buy gold.

Jeff: Given what you see coming, how should the average investor position her or his portfolio?

Brent: The answer to this depends on several factors. It depends on the investor’s age, asset level, income level, goals, tolerance for volatility, etc. But in general, I’m a big believer in the idea of the “permanent portfolio.” If you held equal parts fixed income, equities, real estate, and gold over the last 40 years, your return is equal to that of the S&P 500 with substantially less volatility. And this portfolio will perform through inflation, deflation, hyperinflation, collapse, etc.

So if you are someone who is looking to protect your wealth without a lot of volatility, this is a very strong solution. If you are younger, are trying to create wealth, and have some years to ride out potential volatility, I would skew this more toward a higher allocation to gold and gold shares and less on fixed income, for example.

Because while I generally view gold as insurance, this space also has the ability to generate phenomenal returns and not just protect wealth, but create it. But whatever the case, regardless of your age, level of wealth, or world view, the correct allocation to gold in your portfolio is absolutely not zero. Gold will do phenomenally well in the years ahead, and those investors who are willing to take a contrarian stance stand to benefit not only from gold’s safety, but also its ability to generate wealth.

One other thing to remember about gold is that while it may be volatile, it’s not risky. Volatility is the fluctuation in an asset’s daily/weekly price. Risk is the likelihood of a permanent loss of capital. And with gold (in bullion form), there is essentially no chance of a permanent loss of capital. It is the one asset that has held its value not just over the years, but over the centuries. I for one do not hold myself out as being smarter than thousands of years of collective global wisdom. If you do, I wish you the best of luck!

Of course, bullish signs for gold have been mounting, which begs the question: could the breakthrough for the gold market be near?

Well, no one knows for sure. But what we do know is that when the market recovers, the handful of superb mining stocks that have survived the slaughter won’t just go up—they’ll go vertical.

Which is why we're hosting a free online event called, GOING VERTICAL, headlined by a panel of eight top players in the precious metals sector, names you'll no doubt recognize. Each of our guests give their assessment on where the gold market is right now, how long it will take to recovery, and what practical steps you need to take to prepare including - which stocks you should own now.

This free video event will air March 10th, 2pm Eastern time. To make sure you don't miss it, click here to register now.



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Tuesday, February 3, 2015

2015 Outlook: What You Really Need to Know

By Jeff Clark, Senior Precious Metals Analyst

In the January issue of BIG GOLD, I interviewed 17 analysts, economists, and authors on what they expect for gold in 2015. Some of those included what we affectionately call our Casey Brain Trust—Doug Casey, Olivier Garret, Bud Conrad, David Galland, Marin Katusa, Louis James, and Terry Coxon. The issue was so popular that we decided to reprint this portion.

I think you’ll find some very insightful and useful reading here (click on a link to read his bio)…..

Doug Casey, Chairman

Jeff: The Fed and other central banks have kept the economy and markets propped up longer than you thought they could. Has the Fed succeeded in staving off crisis?

Doug: I’m genuinely surprised things have held together over the last year. The trillions of currency units created since 2007 have mostly inflated financial assets, creating bubbles everywhere. There’s an excellent chance that the bubble will burst this year. I don’t know whether it will result in a catastrophic deflation, extreme inflation, or both in sequence. I’m only sure it will result in chaos and extreme unpleasantness.

Jeff: Are we still going to get rich from gold stocks? Or should we face reality and start exiting?

Doug: The fact so many people are discouraged with gold and mining stocks is just another indicator that we’re at the bottom. Gold and silver are now, once more, superb speculations. And I think we’ll see some 10-to-1 shots in gold stocks—if not this year, then 2016. I can afford to wait with those kinds of returns in prospect.

Olivier Garret, CEO

Jeff: The crash in the general markets we warned about didn’t materialize. Have those risks dissipated, or should we still expect to see a major correction?

Olivier: Last October the risk of a very severe market correction was indeed very serious; hence our call to subscribers to batten down the hatches, tighten their portfolios, and have cash and gold on hand. We warned of further downturn across all commodities, including oil. We also highlighted the dollar would be strong and that an excellent short term speculation was to be long 10 to 30 year Treasuries, as they would be considered a safe haven.

Let’s look at where we are today. Clearly, the S&P did not extend its correction after its initial dip in mid-October. In light of the possibility of a perfect storm coming, the Fed announced that it may not end QE in early 2015 as anticipated if the economy failed to continue to pick up. Then the Bank of Japan announced its version of QE infinity, followed by the largest Japanese pension fund’s decision to invest in equities worldwide.

The bulls were reassured and came back with a vengeance; the crash was averted. That said, fundamentals are still very weak, and market growth is concentrated within the largest-cap stocks. Mid- and small-caps are hurting, and many economic indicators are still concerning.

Jeff: What about lower energy prices—aren’t these good for the economy?

Olivier: In theory, yes. In practice, there is another crisis brewing. Most of the development of new shale resources in the US has been financed by debt based on oil prices of $80 and above. This easy debt was immediately securitized, just like home mortgages were in 2003-2006, and we have a monstrous bubble about to pop with oil around $55. The potential risk of another derivative crisis is as high or higher than in 2007.

Jeff: Does that mean the inevitable is imminent?

Maybe, maybe not. We know central bankers will do whatever it takes to provide liquidity to the markets. That said, I do not believe central bankers are wizards endowed with supernatural powers that enable them to stem all crises. Bernanke told us in 2007 and 2008 that there was no real estate crisis and that he had everything under control—will Janet Yellen be better?

My view is that our subscribers should be prepared for the worst and hope for the best. Sacrifice a bit of performance for safety, and use money you can afford to lose to speculate on opportunities that could bring outsized upside. I believe subscribers should continue to hold cash (in dollars), gold (the ultimate hedge against crisis), and stocks in best-of-breed companies that are unlikely to collapse during a financial meltdown.

For speculations, I still believe that we should be invested in the best gold producers, in well-managed explorers with good management and first-class resources, in long-term Treasuries, and top-quality tech companies.

Jeff: As a former turnaround professional, what would signal to you that the gold market is about to turn around?

Olivier: Two things: market capitulation, and valuations for the best companies not seen in decades. The cure for low prices is low prices.

Cyclical markets do turn around, and I would rather buy low and hold on until the market turns around than buy in the later stage of a bull market. At this point, the gold market presents amazing value for the patient investor. In my opinion, that is all that matters. The gold market may take longer than I want to turn around, but I know I am near an all time low.

Bud Conrad, Chief Economist

Jeff: What role do big banks and government currently play in gold’s behavior? Is this role here to stay?

Bud: I’ve looked at the huge demand for gold from China, Russia, India, and private investors and been surprised the price has eroded over the last three years. My explanation is that the “paper gold futures market” sets the price of gold, with very little physical gold being traded. There are two parts of futures market trading: one is the minute by minute trading of only paper contracts that dominate 99% of the trading, in which every long position is matched by a short position. That is why the futures market is called “paper gold.”

Almost all trades are unwound and rolled over to another contract. Only a few thousand contracts are held into the second process, called the “delivery process.” Just a handful of big banks dominate that delivery process, so they are in a position to affect the market. There is surprisingly little physical gold used in the delivery process compared to the 200,000 ongoing paper trading of the contracts not yet in delivery every day, where no physical gold is used.

Big players can place huge orders to move the “paper price” for a short term, but eventually 99% of these paper positions are unwound before delivery, so their effect in the longer term is canceled. The delivery process is the only time where physical gold is actually sold (delivered) or purchased (stopped). The gold price can be influenced in one direction in this process by bringing gold to the market from their own account (or the reverse).

Big banks gain a big benefit from the Fed driving their borrowing rate to zero with the QE policy. Banks lend that money at higher rates and have become very profitable. If gold were soaring, then the Fed would be less inclined to keep rates low, as it would be concerned that the dollar is purchasing less and inflation is returning. So banks are happy to have the gold price contained so the Fed is more likely to keep rates low.


The above chart shows that in the delivery process for the December 2014 contract, only three banks—JP Morgan, Bank of Nova Scotia, and HSBC—handled most of the transactions. Big banks can act as either traders for other customers or as trading for the banks themselves in their in-house account. In the December contract, 90% of the gold was purchased by HSBC and JP Morgan for themselves, and Bank of Nova Scotia provided over half of the gold from its in house account. With so few players, the delivery market is prone to being dominated and price being set.

Jeff: So if the big players influence the market, why should we own gold?

Bud: I see the regulators issuing big fines to banks who have been caught manipulating foreign exchange, LIBOR, and even the London Gold Fix (which is being changed) as evidence that the methods used to influence the futures market will be curtailed by the regulators. So gold will become the recognized alternative to paper money issued in excessive amounts to fix whatever problems the governments want.

I also see the collapse of the petrodollar as leaving all currencies in limbo, which will lead to big swings in the currency wars, where ultimately gold will be the winner. Governments themselves are recognizing the value of gold, as I’m sure Russia does after the ruble collapsed in half since last summer.

David Galland, Partner

Jeff: What personal benefits have you achieved from living in Argentina?

David: Most important, my stress levels have fallen significantly. Even though I wouldn’t consider myself a high stress type, I used to be on meds for moderately high blood pressure and for acid reflux… both of which I take as signs of stress. After a few months back in Cafayate, I am med-free.

Second, living in the Argentine outback provides perspective on what actually matters in life. Life in Cafayate is very laid back, with time for siestas, leisurely meals, and any number of enjoyable activities with agreeable company. There is none of the ceaseless dosing of bad news that permeates Western cultures. After a week of unplugging, you realize that most of what passes as important or urgent back in the US is really just a charade.

Finally, my personal sense of freedom soars, as life in rural Argentina is very much live and let live.
In sharp contrast, returning to the USA for even a short visit reveals the national moniker “land of the free” as blatant hypocrisy. There are laws against pretty much everything, and worse, a no-strikes willingness to enforce them. That a person can get mugged by a group of police over selling loose cigarettes tells you pretty much everything you need to know.

Jeff: Gold and gold stocks have been hammered. What would you say to those precious metals investors sitting on losses?

David: I doubt anything anyone can say will prove a panacea for the pain some have suffered, but I do have some thoughts. Like many of our readers, I have taken big losses as well, but because I have long believed in moderation in most things, especially the juniors, I have taken those losses only on smallish positions.

Specifically, about 20% of our family portfolio is in resource investments, with about half in the stocks and the rest held as an insurance position in the physical metals, diversified internationally. So a 70% loss on 10% of our portfolio, while painful, is not the end of the world.

I guess my primary message would be to continue to view the sector for what it is: physical metals for insurance, and moderate positions in the stocks—big and small—as speculative investments.

I remain convinced the massive government manipulations that extend into all the major markets must eventually begin to fail, at which time investors will come back into the resource sector in droves. When the worm begins to turn, I anticipate the physical metals will recover first—and $1,200 gold is starting to look like a fairly solid foundation. The BIG GOLD companies, which I’m starting to personally get interested in, will rally soon thereafter.

When the producers decisively break through resistance levels on the upside, it will be time to refocus on the best juniors.

But regardless, per my first comment, while these stocks can offer life-changing returns, being highly selective and moderate in the size of your positions is the right approach. Then you can sit tight and wait for the market to prove you right.

Marin Katusa, Chief Energy Investment Strategist

Jeff: I loved your book The Colder War. And I liked your concluding recommendation to buy gold. Are events playing out as you expected? And does the fall in the oil price change the game at all?

Marin: First off, thank you. A lot of personal time was spent completing the book. And yes, most of the events are playing out as expected in the book. I expect this trend to continue over the next decade, as the Colder War will take many years to play out.

As I stated to all our energy subscribers and to attendees at the last Casey Conference in San Antonio, we expected a significant drop in oil prices, but it has happened a lot faster than I expected. I think we will continue to see volatility in oil; we’ll probably get a rally to the mid-$60s for WTI, but I think it will hit $45 before January 1, 2016.

This definitely makes Putin’s strategy harder to implement—but we are in the Colder War, not the Colder Battle, and wars are made of many battles. Putin’s strategy is still being implemented, and it will play out over many years.

Jeff: You’re calling for the end of the petrodollar system. This is very bullish for gold, but won’t that process take many years? Or should investors buy gold now?

Marin: The process is well underway, and yes, as I point out in the book, the demise of the petrodollar will take many years—but it will happen.

Each investor must evaluate his position and situation, but I don’t believe anyone knows when the bottom in gold will happen, and I see gold as insurance. You never know exactly when you need health insurance, but speaking from personal experience, it’s good to have, and good to have as much as you can afford, because when you need it, trust me, you won’t regret it.

Resources are in the “valley of darkness” right now—but this is part of the cycle. The key is portfolio survival. If you can get to the other side, the riches will be much greater than you can fathom. I’m speaking from personal experience. I’ve been through this before, and while it was stressful, what happened on the other side blew away my own expectations. We are in a cyclical business, and this bottom trend has been nasty—longer and lower than most have expected—but I am excited, because this is what I have been waiting for and what will take my net worth to a new level.

I see no difference in the outcome for yourself, Louis James, and all of those who follow you and survive to the other side. I believe there will be significant upside in gold stocks, especially certain junior gold explorers and developers. Subscribers are in good hands with you and Louis in that regard, and I always read my BIG GOLD and International Speculator when I get the email, regardless of where I am—the most recent being in an airport in Mexico. Keep up the great work, Jeff; even though it’s a difficult market, you’re doing the right things. It will pay off—maybe not on our desired schedules, but it will pay off.

Louis James, Chief Metals & Mining Investment Strategist

Jeff: The junior resource sector tends to progress in cycles. Is the current down cycle about over, or should investors expect the recovery to drag out for several more years?

L: That’s essentially a market timing question—literally the million-dollar question we all wish we could answer definitively. That’s not an option, and I’m sure your readers know better than to listen to anyone who claims to be able to time the market with any precision or reliability.

That said, I don’t want to dodge the question; for what it’s worth, Doug Casey and I both feel that gold has likely bottomed. Yes, it’s true that I felt that December 2013 was the bottom—but it’s also true that most of our stocks are up since then. So, gold may have put in a double bottom, but our stocks outperformed the metal and the market.

Either way, if we’re right, the next big move should be upward, and that’s as good for BIG GOLD readers as it is for International Speculator readers.

I should also add that precious metals are not just “resources”—gold is money, not a regular commodity like pork bellies or corn. It’s the world’s most tested and trusted means of preserving wealth. So even though resource commodities tend to move as a group in cycles, gold and silver can be expected to act differently during times of crisis.

And 2015 looks fraught with crises to me… I am cautiously quite bullish for this year.

Jeff: Where will gold speculators get the biggest bang for their buck in 2015?

L: If you mean when, statistically the first and fourth quarters of the year tend to be the strongest for gold, making now a good time to buy.

As to what to buy, it depends on whether you want to maximize potential gains or minimize risk. The most conservative move is to stick with bullion, which is not a speculation at all, but a sort of forex deal in search of safety. For more leverage with the least amount of added risk, there’s the best of the larger, more stable producers that you recommend in BIG GOLD. For greater wealth-creation potential, as opposed to wealth preservation, there are the junior stocks I follow in the International Speculator.

As to where in the world to invest, I’d say it’s easier to get in on the ground floor investing in an exploration or development company working in less well-known countries—you always pay more of a premium for North American projects where the rule of law is well established. That’s obviously riskier too, but that doesn’t mean you have to go to a kleptocratic regime with a history of nationalization. There are stable places off most investors’ radars, like Ireland and Scandinavia. Africa plays may be oversold in the wake of the Ebola outbreak, but that story isn’t done yet, so even I am waiting before going long there again.

Terry Coxon, Senior Economist

Jeff: In spite of profligate money printing over the past six years, there’s been minimal inflation. Should we give up on this notion that money printing causes inflation?

Terry: No, you shouldn’t. As Milton Friedman put it, the lags between changes in the money supply and changes in prices are “long and variable.” I’m surprised we haven’t yet seen the inflationary effects of a better than 60% increase in the M1 money supply. But the Federal Reserve has essentially guaranteed that those effects are coming, since they are committed to keep printing until price inflation shows up. And when it does appear, the delayed effects of all the money creation that has occurred to date will start to take hold. There won’t be “just a little” inflation.

Jeff: What do you watch to tell you the next gold bull market is about to get underway?

Terry: Beats me. I won’t know it is happening until it’s already started. But because high inflation rates are already baked in the cake, so is another strong period for gold. That’s a reason to own gold now, and the reason is compelling if you believe, as I do, that there’s little downside. At this point, given the metal’s weak performance since 2011, virtually everyone who lacks a clear understanding of the reason for owning it has already sold. So it’s safe to buy.

 10 other analysts were also interviewed, plus Jeff recommended a new stock pick. Tomorrow’s BIG GOLD issue has another new stock recommendation—an exciting company that has the biggest high-grade deposit in the world. Now is the time to buy, before gold enters the next bull market!

Check it Out Here

The article 2015 Outlook: What You Really Need to Know was originally published at caseyresearch.com.


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Wednesday, September 3, 2014

How is Doug Casey Preparing for a Crisis Worse than 2008?

By Doug Casey, Chairman


He and His Fellow Millionaires Are Getting Back to Basics


Trillions of dollars of debt, a bond bubble on the verge of bursting and economic distortions that make it difficult for investors to know what is going on behind the curtain have created what author Doug Casey calls a crisis economy. But he is not one to be beaten down. He is planning to make the most of this coming financial disaster by buying equities with real value—silver, gold, uranium, even coal. And, in this interview with The Mining Report, he shares his formula for determining which of the 1,500 "so called mining stocks" on the TSX actually have value.

The Mining Report: This year's Casey Research Summit is titled "Thriving in a Crisis Economy." What is the most pressing crisis for investors today?

Doug Casey: We are exiting the eye of the giant financial hurricane that we entered in 2007, and we're going into its trailing edge. It's going to be much more severe, different and longer lasting than what we saw in 2008 and 2009. Investors should be preparing for some really stormy weather by the end of this year, certainly in 2015.

TMR: The 2008 stock market embodied a great deal of volatility. Now, the indexes seem to be rising steadily. Why do you think we are headed for something worse again?

DC: The U.S. created trillions of dollars to fight the financial crisis of 2008 and 2009. Most of those dollars are still sitting in the banking system and aren't in the economy. Some have found their way into the stock markets and the bond markets, creating a stock bubble and a bond superbubble. The higher stocks and bonds go, the harder they're going to fall.

TMR: When Streetwise President Karen Roche interviewed you last year, you predicted a devastating crash. Are we getting closer to that crash? What are the signs that a bond bubble is about to burst?

Missing the 2014 Casey Research Summit (Thriving in a Crisis Economy) could be hazardous to your portfolio.
Sept. 19-21 in San Antonio, Texas.
DC: One indicator is that so-called junk bonds are yielding on average less than 5% today. That's a big difference from the bottom of the bond market in the early 1980s, when even government paper was yielding 15%.

TMR: Isn't that a function of low interest rates?

DC: Yes, it is. Central banks all around the world have attempted to revive their economies by lowering interest rates to all time lows. It's discouraging people from saving and encouraging people to borrow and consume more. The distortions that is causing in the economy are huge, and they're all going to have to be liquidated at some point, probably in the next six months to a year. The timing of these things is really quite impossible to predict. But it feels like 2007 except much worse, and it's likely to be inflationary in nature this time. The certainty is financial chaos, but the exact character of the chaos is, by its very nature, unpredictable.

TMR: Casey Research precious metals expert Jeff Clark recently wrote in Metals and Mining that he's investing in silver to protect himself from an advance of what he calls "government financial heroin addicts having to go cold turkey and shifting to precious metals." Do you agree or are you more of a buy-gold-for-financial-protection kind of guy?

DC: I certainly agree with him. Gold and silver are two totally different elements. Silver has more industrial uses. It is also quite cheap in real terms; the problem is storing a considerable quantity—the stuff is bulky. It's a poor man's gold. We mine about 800 million ounces (800 Moz)/year of silver as opposed to about 80 Moz/year of gold. Unlike gold, most of silver is consumed rather than stored. That is positive.

On the other hand, the fact that silver is mainly an industrial metal, rather than a monetary metal, is a big negative in this environment. Still, as a speculation, silver has more upside just because it's a much smaller market. If a billion dollars panics into silver and a billion dollars panics into gold, silver is going to move much more rapidly and much higher.

TMR: Are you are saying that because silver is more volatile generally, that is good news when the trend is to the upside?

DC: That's exactly correct. All the volatility from this point is going to be on the upside. It's not the giveaway it was back in 2001. In real terms, silver is trading at about the same levels that it was in the mid-1960s. So it's an excellent value again.

TMR: In another recent interview, you called shorting Japanese bonds a sure thing for speculators and said most of the mining companies on the Toronto Stock Exchange (TSX) weren't worth the paper their stocks were written on, but that some have been priced so low, they could increase 100 times. What are some examples of some sure things in the mining sector?

DC: Of the roughly 1,500 so-called mining stocks traded in Vancouver, most of them don't have any economic mineral deposits. Many that do don't have any money in the bank with which to extract them. The companies that I think are worth buying now are well-funded, underpriced—some selling for just the cash they have in the bank—and sitting on economic deposits with proven management teams. There aren't many of them; I would guess perhaps 50 worth buying. In the next year, many of them are likely to move radically.

TMR: Are there some specific geographic areas that you like to focus on?

DC: The problem is that the whole world has become harder to do business in. Governments around the world are bankrupt so they are looking for a bigger carried interest, bigger royalties and more taxes. At the same time, they have more regulations and more requirements. So the costs of mining have risen hugely. Political risks have risen hugely. There really is no ideal location to mine in the world today. It's not like 100 years ago when almost every place was quick, easy and profitable. Now, every project is a decade long maneuver. Mining has never been an easy business, but now it's a horrible business, worse than it's ever been. It's all a question of risk/reward and what you pay for the stocks. That said, right now, they're very cheap.

TMR: Let's talk about the U.S. Are we in better or worse shape as a country politically and economically than we were last year? At the Casey Research Summit last year, I interviewed you the morning after former Congressman Ron Paul's keynote, and you said that you hoped that the IRS would be shut down instead of the national parks. There's no such shutdown going on today, so does that mean the country is more functional than it was a year ago?

DC: It's in worse shape now. The direction the country is going in is more decisively negative. Perhaps what's happening in Ferguson, Missouri, with the militarized police is a shade of things to come. So, no, things are not better. They've actually deteriorated. We're that much closer to a really millennial crisis.

TMR: Your conferences are always thought provoking. I always enjoy meeting the other attendees—it's always great to talk to people from all over the world who are interested in these topics. But you also bring in interesting speakers. In addition to your Casey Research team, the speakers at the conference this year include radio personality Alex Jones and author and self-described conservative paleo-libertarian Justin Raimondo. What do you hope attendees will take away from the conference?

DC: This is a chance for me and the attendees to sit down and have a drink with people like Justin Raimondo and author Paul Rosenberg. I'm looking forward to it because it is always an education.
Another highlight is that instead of staging hundreds of booths of desperate companies that ought to be put out of their misery, we limit the presenting mining companies in the map room to the best in the business with the most upside potential. That makes this a rare opportunity to talk to these selected companies about their projects.

TMR: We recently interviewed Marin Katusa, who was also excited about the companies that are going to be at the conference. He was bullish on European oil and gas and U.S. uranium. What's your favorite way to play energy right now?

DC: Uranium is about as cheap now in real terms as it was back in 2000, when a huge boom started in uranium and billions of speculative dollars were made. So, once again, cyclically, the clock on the wall says buy uranium with both hands. I think you can make the same argument for coal at this point.

TMR: You recently released a series of videos called the "Upturn Millionaires." It featured you, Rick Rule, Frank Giustra and others talking about how you're playing the turning tides of a precious metals market. What are some common moves you are all making right now?

DC: All of us are moving into precious metals stocks and precious metals themselves because in the years to come, gold and silver are money in its most basic form and the only financial assets that aren't simultaneously somebody else's liability.

TMR: Thanks for your time and insights.

You can see Doug LIVE September 19-21 in San Antonio, TX during the Casey Research Summit, Thriving in a Crisis Economy. He'll be joined on stage by Jim Rickards, Grant Williams, Charles Biderman, Stephen Moore, Mark Yusko, Justin Raimondo, and many, many more of the world's brightest minds and smartest investors. To RSVP and get all the details, click here.



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Monday, August 11, 2014

Top 7 Reasons I’m Buying Silver Now

By Jeff Clark, Senior Precious Metals Analyst

I remember my first drug high.

No, it wasn’t from a shady deal made with a seedy character in a bad part of town. I was in the hospital, recovering from surgery, and while I wasn’t in a lot of pain, the nurse suggested something to help me sleep better. I didn’t really think I needed it—but within seconds of that needle puncturing my skin, I WAS IN HEAVEN.

The euphoria that struck my brain was indescribable. The fluid coursing through my veins was so powerful I’ve never forgotten it. I can easily see why people get hooked on drugs.

And that’s why I think silver, purchased at current prices, could be a life-changing investment.

The connection? Well, it’s not the metal’s ever-increasing number of industrial uses… or exploding photovoltaic (solar) demand… nor even that the 2014 supply is projected to be stagnant and only reach 2010’s level. No, the connection is….

Financial Heroin

The drugs of choice for governments—money printing, deficit spending, and nonstop debt increases—have proved too addictive for world leaders to break their habits. At this point, the US and other governments around the world have toked, snorted, and mainlined their way into an addictive corner; they are completely hooked. The Fed and their international central-bank peers are the drug pushers, providing the easy money to keep the high going. And despite the Fed’s latest taper of bond purchases, past actions will not be consequence-free.

At first, drug-induced highs feel euphoric, but eventually the body breaks down from the abuse. Similarly, artificial stimuli and sub-rosa manipulations by central banks have delivered their special effects—but addiction always leads to a systemic breakdown.

When government financial heroin addicts are finally forced into cold-turkey withdrawal, the ensuing crisis will spark a rush into precious metals. The situation will be exacerbated when assets perceived as “safe” today—like bonds and the almighty greenback—enter bear markets or crash entirely.

As a result, the rise in silver prices from current levels won’t be 10% or 20%—but a double, triple, or more.

If inflation picks up steam, $100 silver is not a fantasy but a distinct possibility. Gold will benefit, too, of course, but due to silver’s higher volatility, we expect it will hand us a higher percentage return, just as it has many times in the past.

Eventually, all markets correct excesses. The global economy is near a tipping point, and we must prepare our portfolios now, ahead of that chaos, which includes owning a meaningful amount of physical silver along with our gold.

It’s time to build for a big payday.

Why I’m Excited About Silver

When considering the catalysts for silver, let’s first ignore short-term factors such as net short/long positions, fluctuations in weekly ETF holdings, or the latest open interest. Data like these fluctuate regularly and rarely have long-term bearing on the price of silver.

I’m more interested in the big-picture forces that could impact silver over the next several years. The most significant force, of course, is what I stated above: governments’ abuse of “financial heroin” that will inevitably lead to a currency crisis in many countries around the world, pushing silver and gold to record levels.

At no time in history have governments printed this much money.

And not one currency in the world is anchored to gold or any other tangible standard. This unprecedented setup means that whatever fallout results, it will be of historic proportions and affect each of us personally.
Specific to silver itself, here are the data that tell me “something big this way comes”….

1. Inflation-Adjusted Price Has a Long Way to Go

One hint of silver’s potential is its inflation-adjusted price. I asked John Williams of Shadow Stats to calculate the silver price in June 2014 dollars (July data is not yet available).

Shown below is the silver price adjusted for both the CPI-U, as calculated by the Bureau of Labor Statistics, and the price adjusted using ShadowStats data based on the CPI-U formula from 1980 (the formula has since been adjusted multiple times to keep the inflation number as low as possible).


The $48 peak in April 2011 was less than half the inflation-adjusted price of January 1980, based on the current CPI-U calculation. If we use the 1980 formula to measure inflation, silver would need to top $470 to beat that peak.

I’m not counting on silver going that high (at least I hope not, because I think there will be literal blood in the streets if it does), but clearly, the odds are skewed to the upside—and there’s a lot of room to run.

2. Silver Price vs. Production Costs

Producers have been forced to reduce costs in light of last year’s crash in the silver price. Some have done a better job at this than others, but check out how margins have narrowed.


Relative to the cost of production, the silver price is at its lowest level since 2005. Keep in mind that cash costs are only a portion of all-in expenses, and the silver price has historically traded well above this figure (all-in costs are just now being widely reported). That margins have tightened so dramatically is not sustainable on a long-term basis without affecting the industry. It also makes it likely that prices have bottomed, since producers can only cut expenses so much.

Although roughly 75% of silver is produced as a by-product, prices are determined at the margin; if a mine can’t operate profitably or a new project won’t earn a profit at low prices, the resulting drop in output would serve as a catalyst for higher prices. Further, much of the current costcutting has come from reduced exploration budgets, which will curtail future supply.

3. Low Inventories

Various entities hold inventories of silver bullion, and these levels were high when U.S. coinage contained silver. As all U.S. coins intended for circulation have been minted from base metals for decades, the need for high inventories is thus lower today. But this chart shows how little is available.


You can see how low current inventories are on a historical basis, most of which are held in exchange-traded products. This is important because these investors have been net buyers since 2005 and thus have kept that metal off the market. The remaining amount of inventory is 241 million ounces, only 25% of one year’s supply—whereas in 1990 it represented roughly eight times supply. If demand were to suddenly surge, those needs could not be met by existing inventories. In fact, ETP investors would likely take more metal off the market. (The “implied unreported stocks” refers to private and other unreported depositories around the world, another strikingly smaller number.)

If investment demand were to repeat the surge it saw from 2005 to 2009, this would leave little room for error on the supply side.

4. Conclusion of the Bear Market

This updated snapshot of six decades of bear markets signals that ours is near exhaustion. The black line represents silver’s decline from April 2011 through August 8, 2014.


The historical record suggests that buying silver now is a low-risk investment.

5. Cheap Compared to Other Commodities

Here’s how the silver price compares to other precious metals, along with the most common base metals.

Percent Change From…
1 Year Ago 5 Years Ago 10 Years
Ago
All-Time
High
Gold -2% 38% 234% -31%
Silver -6% 35% 239% -60%
Platinum 3% 20% 83% -35%
Palladium 14% 252% 238% -21%
Copper -4% 37% 146% -32%
Nickel 32% 26% 17% -64%
Zinc 26% 49% 128% -47%


Only nickel is further away from its all-time high than silver.

6. Low Mainstream Participation

Another indicator of silver’s potential is how much it represents of global financial wealth, compared to its percentage when silver hit $50 in 1980.


In spite of ongoing strong demand for physical metal, silver currently represents only 0.01% of the world’s financial wealth. This is one-twenty-fifth its 1980 level. Even that big price spike we saw in 2011 pales in comparison.

There’s an enormous amount of room for silver to become a greater part of mainstream investment portfolios.

7. Watch Out for China!

It’s not just gold that is moving from West to East….


Don’t look now, but the SHFE has overtaken the Comex and become the world’s largest futures silver exchange. In fact, the SHFE accounted for 48.6% of all volume last year. The Comex, meanwhile, is in sharp decline, falling from 93.4% market share as recently as 2001 to less than half that amount today.
And all that trading has led to a sharp decrease in silver inventories at the exchange. While most silver (and gold) contracts are settled in cash at the COMEX, the majority of contracts on the Shanghai exchanges are settled in physical metal. Which has led to a huge drain of silver stocks….


Since January 2013, silver inventories at the Shanghai Futures Exchange have fallen a remarkable 84% to a record low 148 tonnes. If this trend continues, the Chinese exchanges will experience a serious supply crunch in the not-too-distant future.

There’s more….
  • Domestic silver supply in China is expected to hit an all-time high and exceed 250 million ounces this year (between mine production, imports, and scrap). By comparison, it was less than 70 million ounces in 2000. However, virtually none of this is exported and is thus unavailable to the world market.
  • Chinese investors are estimated to have purchased 22 million ounces of silver in 2013, the second-largest amount behind India. It was zero in 1999.
  • The biggest percentage growth in silver applications comes from China. Photography, jewelry, silverware, electronics, batteries, solar panels, brazing alloys, and biocides uses are all growing at a faster clip in China than any other country in the world.
These are my top reasons for buying silver now.

Based on this review of big-picture data, what conclusion would you draw? If you’re like me, you’re forced to acknowledge that the next few years could be a very exciting time for silver investors.

Just like gold, our stash of silver will help us maintain our standard of living—but may be even more practical to use for small purchases. And in a high-inflation/decaying dollar scenario, the silver price is likely to exceed consumer price inflation, giving us further purchasing power protection.

The bottom line is that the current silver price should be seen as a long-term buying opportunity. This may or may not be our last chance to buy at these levels for this cycle, but if you like bargains, silver’s neon “Sale!” sign is flashing like a disco ball.

What am I buying? The silver bullion that’s offered at a discount in the current issue of BIG GOLD. You can even earn a free ounce of silver at another recommended dealer by signing up for their auto accumulation program, an easy way to build your portfolio while prices are low.

Check out the low-cost, no-risk BIG GOLD to capitalize on this opportune time in silver

The article Top 7 Reasons I’m Buying Silver Now was originally published at Casey Research


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