Monthly Archives: April 2011
Barrick Gold’s Big Copper Buy Speaks to the Future.
“Watch where the big companies make their direct investments and that is where the markets will follow.” That golden rule is what the head of investments at JP Morgan, Carl Van Horn, taught me some three decades ago. So I take Barrick Gold’s (ABX) purchase of Canada’s Equinox Minerals for $7.6 billion, one of the world’s largest copper producers, a complete reaffirmation of my long term focus on hard assets of all descriptions.
The deal tells us much about the future of the world economy. For a start, it shows how much Barrick believes in the future price appreciation of not only gold, but the red metal as well. He obviously spoke to some hedge fund friends of mine who have been warehousing 100 pound copper ingots around the country at undisclosed locations since 2002, unwilling to liquidate until it hits $6 a pound. Barrick beat out a competing hostile bid from China’s Minmetals, which has been scouring the world to lock in its own long term sources of raw materials.
The deal also tells us something about Barrick. Peter Munk built this company up from a few depleted Canadian mines to the world’s largest gold producer, virtually overnight. His move to take off all his hedges in the futures market 18 months ago, when the barbarous relic was nudging through $1,050 an ounce, was one of the greatest management decisions in corporate history. But Barrick is now developing marginal mines in Africa and Chile, and it has clearly reached limits on its growth. The Equinox deal provides a strategic expansion of its existing copper production, which is often found alongside gold deposits.
Barrick Is Looking Golden These Days
Quote of the Day
“The dollar has become a carry trade rag these days. As Rodney Dangerfield would have said, it gets no respect whatsoever,” said Boris Schlossberg of GFT Forex.
My Victory Lap on Silver.
“If you don’t rush out and buy silver right now at $13.70 an ounce, I’m going to pick you up and shake you by the lapels of your coat until your false teeth pop out and fall clattering to the ground.” This is exactly how I led my newsletter on May 9, 2009 (click here.) I reaffirmed that recommendation in my 2011 Global Forecast last January when silver was still trading only at $31 (click here.) Today the white metal traded just a few pennies short of my long term target of $50 an ounce, having taken two years to get there.
My logic at the time seems positively Delphic in retrospect. The historic silver/gold ratio was 12 to 70, and with gold then trading at 65 times the price of silver, the latter seemed like a screaming buy. Today, silver is trading at a somewhat less compelling 31 times the price of gold. To reach the top end of the 100 year range it needs to rise to $124 an ounce. In the meantime, silver producers, like my favorite, Silver Wheaton (SLW), have started to flatten out.
Geologically, silver is 17 times more common than the yellow metal. All of the gold ever mined is still around, from King Solomon’s mine, to Nazi gold bars in Swiss bank vaults, and would fill two and a half Olympic sized swimming pools. But most of the silver mined has been consumed in various industrial processes, and is sitting at the bottom of toxic waste dumps around the world.
Silver did take a multiyear hit when the world shifted from silver based films to digital photography during the nineties. Now, rising standards of living in emerging countries are increasing the demand for silver, especially in areas where there is a strong cultural preference, as in Latin America. That set up the classic supply demand squeeze that I predicted so long ago, back when I was still wearing a “5” handle.
Now that the $50 target is a done deal, prognostications from late comers that go as high as $100 an ounce abound. Tomorrow, no one would be surprised to see silver $10 higher….or $10 lower. Nelson Bunker Hunt, and his co-conspirator brother William Herbert Hunt, together sparked the speculative frenzy that first drove silver to $50 some 32 years ago and were later driven into a chapter 11 filing, are probably kicking themselves today.
It Will Now Cost You Half a Benjamin
Thanks for the Japanese Red Cross Donation.
It was with great pleasure that I authorized the issuance of a check for $7,800 to the Japan section of the American Red Cross to aid earthquake and tsunami victims. I wish to thank new subscribers who joined the Macro Millionaire mentoring program in March, as it was a portion of their subscription fees that made the contribution possible.
I have been in touch with officials in Japan who say the money is greatly appreciated and will immediately be put to good use. Worldwide charitable contributions to them have reached $80 million. While small compared to the $240 million raised in the wake of the Haiti earthquake last year, the funds will play an important part in the emergency relief effort. The Japanese are a people not accustomed to receiving charity, but the scale of the disaster was so immense and severe that exceptions were made.
Thanks for the Helping Hand
Last Chance to Participate in the Mad Hedge Fund Trader’s April 28 Phoenix Luncheon.
Come join me for lunch for the Mad Hedge Fund Trader’s Global Strategy Update, which I will be conducting in Phoenix, Arizona on Thursday, April 28, 2011. A three course lunch will be followed by a 45 minute PowerPoint presentation and a 30 minute question and answer period.
I’ll be giving you my up to date views on stocks, bonds, currencies commodities, precious metals, and real estate. And to keep you in suspense, I’ll be throwing a few surprises out there too. Enough charts, tables, graphs, and statistics will be tossed at you to keep your ears ringing for a week. Tickets are available for $239. Or you can pay me six American eagle silver dollars at the door.
I’ll be arriving an hour early and leaving late in case anyone wants to have a one on one discussion, or just sit around and chew the fat about the financial markets.
The lunch will be held at a posh Phoenix area resort, the details of which will be emailed directly to you with your confirmation.
I look forward to meeting you, and thank you for supporting my research. To purchase tickets for the luncheons, please go to my online store.
Quote of the Day
“I think we’re headed towards VAT taxes. It’s only a question of how long it takes for them to wake up and figure it out. You can’t tax the wealthy enough to close the budget deficit we have,” said Leon Cooperman of hedge fund Omega Advisors.
Report from Libya.
Over the weekend, I managed to catch up with a friend of mine who just escaped from Libya by the skin of his teeth. Sent there by an oil major to explore for deep water oil and gas in the Gulf of Sidra, he spent the first few weeks of the revolution staying at his home in an expatriate compound in Tripoli, out of harm’s way.
When he went out to forage for food, a car with four rebels pulled up alongside. One said “If you want to save your life, leave.” He managed to grab a seat on one of the last flights out of the country before the coalition attack, carrying just a handbag. The next day the fighting spilled over into his neighborhood. A week later his employer sent someone to see what was left. The entire compound had been looted, stripped bare of anything of value, and all the cars were stolen. My friend had lost all his worldly possessions.
He is now on an extended vacation awaiting a new assignment, and filling out compensation requests, which the company has promised to make whole. I asked him exactly how much oil really was in Libya. He said that his firm had succeeded in finding commercially viable gas deposits off shore. But the government demanded such aggressive terms for further development that there was nothing left for the company.
The majors were ready to walk away from Libya even before the recent troubles started. Perhaps this is why the attack went forward so quickly. The real potential in Libya was in the older fields inland which had yet to benefit from modern technology. But the Khadafy regime had yet to permit access to these areas.
In the meantime, the company is keeping 125 local staff on the payroll, in case there is a quick return to Libya. How the personal department manages this without a functioning banking system in the country is beyond my imagination. But oil majors have the world’s most sophisticated and competent managements, so I image they’ll somehow pull it off. A new regime will certainly be much more open to dealing with foreign companies. And after all, Khadafy is only president for life.
There Goes the Company Car
You’re Only President for Life
Quote of the Day
“There is an extraordinary amount of crowding out that is occurring as a consequence of the United States Treasury preempting the flow of savings in the economy. Approximately one third of the decline in capital investment as a share of cash flow is directly attributable to the crowding out of all other borrowers by the US Treasury,” said Dr, Alan Greenspan, former chairman of the Federal Reserve.