Patacôncio
05-06-2003, 15:11
CASH IS TRASH
Jeffrey Simon
The above quote was heard on CNBC Tuesday June 3, 2003. The phrase was in the context of the need to convince consumers that holding cash, or savings, is bad and it should be spent. How inspiring is that?
Supply and demand is the most fundamental of all economic principles governing how much a thing is worth. Equilibrium is the condition that results when supply equals demand. Excess demand whether it is for stocks, bonds, gold or currencies exerts upward pressure on prices. Excess supply exerts downward pressure on prices.
The US Dollar has demand as a currency so long as its supply is strictly limited, when supply exceeds demand its value diminishes. For any currency to function as an acceptable and desired medium of exchange it needs to be respected. I believe that we are now in the early stages of seeing the US dollar lose respect. It is apparent that its supply is not limited, rather it is limitless. Credit creation and easy money have flooded the world with dollars.
Crossed Wires!
The United States has a Treasury Secretary that says a strong dollar is defined in terms of willingness to hold and perceive value. The United States has a President that is “committed” to a strong dollar but takes all the necessary actions to weaken it. The United States has a Federal Reserve Bank that is “committed to fighting deflation” by creating an unlimited supply of money. I have to ask, do President Bush, Treasury Secretary Snow and Federal Reserve Chairman Greenspan talk to each other? Talk about crossed wires, each is sending out a different signal! After a while it all becomes just white noise.
As long as our highest Government officials can not agree on what they want for the US dollar what incentive do I have to hold them? Around the globe it appears that many people are beginning to ask the same question.
Illicit Flows?
On May 13, 2003 I ran across a small article in the Wall Street Journal, the headline was: “In a First, Illicit Capital Now Streams Into China” (James T Areddy, WSJ, 05/13/03). You know how sometimes things just stick in your mind, for me this headline was one of those things. The article explained how at one time money was smuggled out of China but, now money is being smuggled back into China. In a country where capital flows are strictly controlled, as is the case in China, how does $7.79 billion manage to still flow in? The Chinese balance of payments recorded these funds in the “errors and omissions” column.
All countries, some more secretively than others, have a certain amount of official corruption. I believe that it is the people with the “right” connections that manage to move money in and out of a controlled state. The question is why is money moving into China now?
Capital flows to where it is most appreciated and has the greatest opportunities for investment; currently China is more favorable than the United States. However, the people “in the know” may have advance knowledge that changes are occurring. These changes are making the Yuan, or some other currency, perhaps gold, more attractive to hold than the US Dollar.
Reading between the lines
If I am reading between the lines correctly, I suspect, that because the illicit money is flowing into China, the well connected “in the know” people may be taking advance positions to profit from an adjustment in the exchange rate between the Chinese Yuan and the US Dollar. No wonder ever accused the Chinese of not being good business people; they want to hold the asset they view as most valuable. Whether the dollars flowing into China are converted to Yuan is yet to be seen.
A couple of other changes are also occurring in China. First, there is the opening up of the Shanghai Gold Exchange. Second, there is the deregulation of the internal market to allow the Chinese citizens to purchase gold. The opportunity to own Gold gives more than one billion Chinese people a domestic alternative to the Chinese Yuan and, to the privileged few, the US Dollar as a way to preserve wealth in the face of a depreciating US Dollar.
I find it interesting that the relaxation of gold ownership laws just happens to coincide with record illicit capital inflows, perhaps there is a correlation. At some point the Chinese currency will need to have its peg to the US Dollar increased. At that point it will take more dollars to buy Yuan and less Yuan to buy Gold, the current peg is 9.90 Yuan to 1 US Dollar. Recently, The Economist magazine considered the Chinese currency as the most undervalued currency in the world, by over 50%. I believe the fund flows into China are not coincidental and are reflective of smart money moving out of the dollar, especially so because it is a tightly controlled environment.
Gold please step up to the plate
Further in Gold’s favor, but not yet available, is the application before the Securities Exchange Commission for the exchange traded Equity Gold Trust (symbol to be GLD) similar to that now available in Australia. The Australian product has already been very well received. Each unit is to represent 1/10 of an ounce of gold to be held in secure vaults.
I have read reports indicating that if the offering is as well received in the United States the demand for Gold could exceed 200 tonnes in the first year. Compare this to the reported total demand for gold of 4000 tonnes annually, of which only 130 tonnes is investment demand, (Stewart Bailey, Mineweb, 06/03/03) and the numbers are truly impressive. Assuming this only diverts some of the current investment demand for gold, this level of demand would represent an increase in annual investment demand for gold of over 150 per cent from current levels.
When all of the above is taken together with the fiscal irresponsibility of the United States Government it is hard to imagine Gold not going higher over time. As increasing numbers of investors around the world come to appreciate the value of holding an appreciating asset instead of the depreciating US Dollar, Gold should shine.
Additionally we are beginning to see the beginnings of competitive currency devaluations. The Euro zone, Japan and Canada have all made statements regarding the increase in the value of their currencies versus the US Dollar. It seems no country wants their currency to appreciate against the US Dollar. If all currencies are to devalue against each other then Gold will be the obvious winner. After all what other currency is there?
Separately, it looks like we are also beginning to see some other commodities, such as copper and silver, also benefit from the flood of money. A see of liquidity is looking for a home in anything but dollars. Commodity inflation and dollar deflation is a very distinct possibility.
Action Nugget:
Gold: A good test for gold and gold shares will be to see how the metal and the shares react to further strength in the equity markets. I am still expecting some near term weakness, but I am not a seller, rather I will use this opportunity to purchase some additional gold and gold stocks.
Gold stocks I like include: NEM, PDG, GG, IAG, WHT. There are many others that I also like and own this list is not meant to be comprehensive but rather representative of what I consider to be some of best available.
Silver: No real comments here, but watch this area. We should see some support come into the market in the $4.25 – $4.50 area. I do not see the market working much lower from here, but anything is possible.
Silver stocks I like include: CDE, HL, and PAAS. This area is looking enticing, but I think that I will wait until I see some support for the metal.
Copper: Copper is looking very good but a little over bought in this area. A couple of copper stocks I have my eye on are Phelps Dodge (PD) and Southern Peru Copper (PCU). For now I am content to only trade these stocks, although PCU is somewhat illiquid. I have been in and out of PD recently but I am watching closely. I am considering starting to accumulate a position.
See below for weekly images of Gold, Silver and Copper.
Bonds: The interest rate yield curve is once again inverted between 3 and 6 months time horizon. Each time the yield curve has inverted in the past a recession has occurred. Greenspan on 06/03/03 acknowledged “there is still little evidence of the economic rebound” Chairman Greenspan also indicated the Federal Reserve would “lean over backwards” to prevent deflation. I take this to mean the printing presses and the credit creation machines will work overtime.
Stocks: The Stock Market itself is pricing in a strong second half for the year. I think the market has it wrong. Right now the stock market is rising on a sea of liquidity, but the fundamentals, in my opinion, do not support current valuations. The world is awash in money and it is looking for a home. Financial assets are looking for financial assets, money for money’s sake. This reminds me of the speculative bubble days of 2000. I will not be at all surprised if we reach 10,000 on the Dow before the bubble bursts, again.
Hard evidence of a portending slow down was presented on 06/03/03 when both Ford and GM indicated they would cut third quarter production due to historically high inventory levels. Autos have contributed a large part to “keep America rolling” mainly because they are giving them away with thousands of dollars in incentives. The problem with incentives is they are like drugs, after awhile you need larger and larger doses to have an effect. I saw an ad on TV for a local car dealer here in San Diego offering $8000 in incentives on a Ford Explorer….somebody take my inventory…please!
I have no core positions in general common stocks at this time, but I am trading some large cap stocks such as Citigroup, General Electric and Microsoft. I am also patiently waiting for an opportunity to initiate some short positions, but not yet.
Until next time…..Invest with knowledge,
http://www.gold-eagle.com/editorials_03/images/simon060503b.gif
Jeffrey Simon
jeff@marketnugget.com
June 5, 2003
You can read more from Jeffrey Simon at: www.marketnugget.com . A new article is posted each Wednesday and periodically more frequently. To receive email notification of new postings please send a request to jeff@marketnugget.com with Notify in the subject line.
Disclaimer: The author is an active investor and holds positions in many of the securities mentioned on this site. Please conduct your own due diligence and know your tolerance for risk. Make any investment decision with knowledge and make sure you understand your investment. All investments involve risk. Research is the key to success. The author is not, and does not hold himself out to be, a financial advisor. The foregoing article represents the opinion of the author.
In http://www.gold-eagle.com/editorials_03/simon060503.html
Um xoxo da minha Patroa !
PS Vou enviar o meu NIB ao palerma que disse isto !!! ehehhhehehhhhheh :D :D :D
PS Nunca vi gajos mais bears e malucos que estes. Eu sou fanático por ouro ... mas daí a ser "cegueta" ... haahhaahahhhaah
Jeffrey Simon
The above quote was heard on CNBC Tuesday June 3, 2003. The phrase was in the context of the need to convince consumers that holding cash, or savings, is bad and it should be spent. How inspiring is that?
Supply and demand is the most fundamental of all economic principles governing how much a thing is worth. Equilibrium is the condition that results when supply equals demand. Excess demand whether it is for stocks, bonds, gold or currencies exerts upward pressure on prices. Excess supply exerts downward pressure on prices.
The US Dollar has demand as a currency so long as its supply is strictly limited, when supply exceeds demand its value diminishes. For any currency to function as an acceptable and desired medium of exchange it needs to be respected. I believe that we are now in the early stages of seeing the US dollar lose respect. It is apparent that its supply is not limited, rather it is limitless. Credit creation and easy money have flooded the world with dollars.
Crossed Wires!
The United States has a Treasury Secretary that says a strong dollar is defined in terms of willingness to hold and perceive value. The United States has a President that is “committed” to a strong dollar but takes all the necessary actions to weaken it. The United States has a Federal Reserve Bank that is “committed to fighting deflation” by creating an unlimited supply of money. I have to ask, do President Bush, Treasury Secretary Snow and Federal Reserve Chairman Greenspan talk to each other? Talk about crossed wires, each is sending out a different signal! After a while it all becomes just white noise.
As long as our highest Government officials can not agree on what they want for the US dollar what incentive do I have to hold them? Around the globe it appears that many people are beginning to ask the same question.
Illicit Flows?
On May 13, 2003 I ran across a small article in the Wall Street Journal, the headline was: “In a First, Illicit Capital Now Streams Into China” (James T Areddy, WSJ, 05/13/03). You know how sometimes things just stick in your mind, for me this headline was one of those things. The article explained how at one time money was smuggled out of China but, now money is being smuggled back into China. In a country where capital flows are strictly controlled, as is the case in China, how does $7.79 billion manage to still flow in? The Chinese balance of payments recorded these funds in the “errors and omissions” column.
All countries, some more secretively than others, have a certain amount of official corruption. I believe that it is the people with the “right” connections that manage to move money in and out of a controlled state. The question is why is money moving into China now?
Capital flows to where it is most appreciated and has the greatest opportunities for investment; currently China is more favorable than the United States. However, the people “in the know” may have advance knowledge that changes are occurring. These changes are making the Yuan, or some other currency, perhaps gold, more attractive to hold than the US Dollar.
Reading between the lines
If I am reading between the lines correctly, I suspect, that because the illicit money is flowing into China, the well connected “in the know” people may be taking advance positions to profit from an adjustment in the exchange rate between the Chinese Yuan and the US Dollar. No wonder ever accused the Chinese of not being good business people; they want to hold the asset they view as most valuable. Whether the dollars flowing into China are converted to Yuan is yet to be seen.
A couple of other changes are also occurring in China. First, there is the opening up of the Shanghai Gold Exchange. Second, there is the deregulation of the internal market to allow the Chinese citizens to purchase gold. The opportunity to own Gold gives more than one billion Chinese people a domestic alternative to the Chinese Yuan and, to the privileged few, the US Dollar as a way to preserve wealth in the face of a depreciating US Dollar.
I find it interesting that the relaxation of gold ownership laws just happens to coincide with record illicit capital inflows, perhaps there is a correlation. At some point the Chinese currency will need to have its peg to the US Dollar increased. At that point it will take more dollars to buy Yuan and less Yuan to buy Gold, the current peg is 9.90 Yuan to 1 US Dollar. Recently, The Economist magazine considered the Chinese currency as the most undervalued currency in the world, by over 50%. I believe the fund flows into China are not coincidental and are reflective of smart money moving out of the dollar, especially so because it is a tightly controlled environment.
Gold please step up to the plate
Further in Gold’s favor, but not yet available, is the application before the Securities Exchange Commission for the exchange traded Equity Gold Trust (symbol to be GLD) similar to that now available in Australia. The Australian product has already been very well received. Each unit is to represent 1/10 of an ounce of gold to be held in secure vaults.
I have read reports indicating that if the offering is as well received in the United States the demand for Gold could exceed 200 tonnes in the first year. Compare this to the reported total demand for gold of 4000 tonnes annually, of which only 130 tonnes is investment demand, (Stewart Bailey, Mineweb, 06/03/03) and the numbers are truly impressive. Assuming this only diverts some of the current investment demand for gold, this level of demand would represent an increase in annual investment demand for gold of over 150 per cent from current levels.
When all of the above is taken together with the fiscal irresponsibility of the United States Government it is hard to imagine Gold not going higher over time. As increasing numbers of investors around the world come to appreciate the value of holding an appreciating asset instead of the depreciating US Dollar, Gold should shine.
Additionally we are beginning to see the beginnings of competitive currency devaluations. The Euro zone, Japan and Canada have all made statements regarding the increase in the value of their currencies versus the US Dollar. It seems no country wants their currency to appreciate against the US Dollar. If all currencies are to devalue against each other then Gold will be the obvious winner. After all what other currency is there?
Separately, it looks like we are also beginning to see some other commodities, such as copper and silver, also benefit from the flood of money. A see of liquidity is looking for a home in anything but dollars. Commodity inflation and dollar deflation is a very distinct possibility.
Action Nugget:
Gold: A good test for gold and gold shares will be to see how the metal and the shares react to further strength in the equity markets. I am still expecting some near term weakness, but I am not a seller, rather I will use this opportunity to purchase some additional gold and gold stocks.
Gold stocks I like include: NEM, PDG, GG, IAG, WHT. There are many others that I also like and own this list is not meant to be comprehensive but rather representative of what I consider to be some of best available.
Silver: No real comments here, but watch this area. We should see some support come into the market in the $4.25 – $4.50 area. I do not see the market working much lower from here, but anything is possible.
Silver stocks I like include: CDE, HL, and PAAS. This area is looking enticing, but I think that I will wait until I see some support for the metal.
Copper: Copper is looking very good but a little over bought in this area. A couple of copper stocks I have my eye on are Phelps Dodge (PD) and Southern Peru Copper (PCU). For now I am content to only trade these stocks, although PCU is somewhat illiquid. I have been in and out of PD recently but I am watching closely. I am considering starting to accumulate a position.
See below for weekly images of Gold, Silver and Copper.
Bonds: The interest rate yield curve is once again inverted between 3 and 6 months time horizon. Each time the yield curve has inverted in the past a recession has occurred. Greenspan on 06/03/03 acknowledged “there is still little evidence of the economic rebound” Chairman Greenspan also indicated the Federal Reserve would “lean over backwards” to prevent deflation. I take this to mean the printing presses and the credit creation machines will work overtime.
Stocks: The Stock Market itself is pricing in a strong second half for the year. I think the market has it wrong. Right now the stock market is rising on a sea of liquidity, but the fundamentals, in my opinion, do not support current valuations. The world is awash in money and it is looking for a home. Financial assets are looking for financial assets, money for money’s sake. This reminds me of the speculative bubble days of 2000. I will not be at all surprised if we reach 10,000 on the Dow before the bubble bursts, again.
Hard evidence of a portending slow down was presented on 06/03/03 when both Ford and GM indicated they would cut third quarter production due to historically high inventory levels. Autos have contributed a large part to “keep America rolling” mainly because they are giving them away with thousands of dollars in incentives. The problem with incentives is they are like drugs, after awhile you need larger and larger doses to have an effect. I saw an ad on TV for a local car dealer here in San Diego offering $8000 in incentives on a Ford Explorer….somebody take my inventory…please!
I have no core positions in general common stocks at this time, but I am trading some large cap stocks such as Citigroup, General Electric and Microsoft. I am also patiently waiting for an opportunity to initiate some short positions, but not yet.
Until next time…..Invest with knowledge,
http://www.gold-eagle.com/editorials_03/images/simon060503b.gif
Jeffrey Simon
jeff@marketnugget.com
June 5, 2003
You can read more from Jeffrey Simon at: www.marketnugget.com . A new article is posted each Wednesday and periodically more frequently. To receive email notification of new postings please send a request to jeff@marketnugget.com with Notify in the subject line.
Disclaimer: The author is an active investor and holds positions in many of the securities mentioned on this site. Please conduct your own due diligence and know your tolerance for risk. Make any investment decision with knowledge and make sure you understand your investment. All investments involve risk. Research is the key to success. The author is not, and does not hold himself out to be, a financial advisor. The foregoing article represents the opinion of the author.
In http://www.gold-eagle.com/editorials_03/simon060503.html
Um xoxo da minha Patroa !
PS Vou enviar o meu NIB ao palerma que disse isto !!! ehehhhehehhhhheh :D :D :D
PS Nunca vi gajos mais bears e malucos que estes. Eu sou fanático por ouro ... mas daí a ser "cegueta" ... haahhaahahhhaah