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There are many
current global opportunities that might escape investors at this time. With
so many different influences at hand it pays to keep the radar screen on and
one eye on the markets at all times at the moment. Things are moving and
developing quickly. Disaster is opportunity in disguise if you can
work out how to play the situation.
Take Greece as an
example, one that scared a great many people and caused massive disruption
and pain for many. If you live in Europe and had your Euros converted to
gold, or USD you just converted a massive opportunity into profit. I warned Spain
was going to 'happen' next a few weeks ago and that gold was going to go
through the roof. It is up US$50 since then on the back of further break down
in the Euro and fears about Hungry.
The Australian
dollar has fallen sharply and gold in has risen in USD causing a double
whammy effect pushing the local gold price to $1530 as I wake up today. This
is the price that most ASX listed producers are selling at making them wildly
profitable. The XGD Australian gold index is sitting above its 200 day moving
average and has held well on the back of strength of the larger producers.
Now look at the
Australian Governments unfortunate RSPT as another disaster and FANTASTIC
OPPORTUNITY to be exploited for profits. The proposed super tax has created a
major opportunity and effect on mining around the world. This is a PR
disaster for a government that apparently misunderstands or simply
disrespects the long time frames required for investing in, defining and
developing new mines. Let me be very clear there are two key points a lot of
the worlds media is missing here;
- Many of our
ASX listed miners have offshore operations and are not effected
- The tax is
not likely to be implemented, either in it's current form or at all
Why won't it be
implemented either in this form or at all you ask? Good question the answer
simply put is that it does not work. It does not achieve what it is intended
to achieve and has created a war with the super powerful mining industry, and
all investors, that this government cannot win. I am not politically
motivated I am instead looking at how we can all make money from this
situation.
The latest
political polls here indicate the current government and the proposed super
tax would have been soundly defeated this past week if the looming election
had been held. Mr Richardson, who is one of Australia's highly regarded
economic forecasters and chief of Access Economics, said "the tax would
slow the development of new projects and while minerals might not be mobile,
investment in them certainly was".
Even worse for
the government he has rejected the basic modelling behind the RSPT confirming
the observations and obvious conclusions of investors and the mining industry
around the world. According to Mr Richardson it would take 50 to 100 years to
raise mining output in Australia and even then only "once Australia had
returned to its initial relative position on the global cost curve".
I am increasingly
confident that this tax will never see the light of day and that any negative
effect done on the existing projects within the mining sector here will be
clawed back.
The opportunity
- Established
mines in Australia that are profitable will benefit greatly when this
tax is scrapped, watered down, or in the event the government fails to
get re-elected
- The economic
outlook has just taken a serious hit here in Australia and this creates
lower activity, a temporary moderation of interest rates and a lower
currency exchange rate. This means the AUD price of gold has been
soaring for the local producers who, in contrast are currently suffering
from depressed share price
- This
presents an opportunity for distressed assets to be snapped up by astute
offshore investors and funds, all at an advantageous exchange rate in
the very near future
- Offshore
miners listed here on the ASX are not affected anyway and will attract
more attention now so we have listed them separately in our data base -
they will receive the investment lost to Australia as "wealth is
transferred to Africa" according to RIO Director Rod Eddington
- Mining in
Canada, Brazil, Asia, Africa and everywhere else has just received a
boost because the damage to new projects here is already done -
but not the current ones
Investors that
shun Australia now are going to miss out because this disaster has created
superb opportunities here for a range of stocks as I have outlined above.
Global negativity and de-leveraging have intensified the opportunity.
More disaster and opportunity
The debt disaster
is unfolding in Europe and around the world at present and this fire will
flare up in different economies at different stages for years to come. Hungry
for instance, assuring us they will fix their "situation" I wish
for their sake it was even remotely possible. Sentiment will ebb and flow on
all countries in serious trouble with unmanageable levels of debt.
They will string
out the inevitable which is why a debt collapse is so slow and painful. It
happens on a sovereign level, for banks, at the corporate level, SME's and
for individuals. They all try to hang on; nobody wants to take the bitter
pill. This is the major trend that will hit everybody with any debt via
higher interest rates. This represents a group of disasters to follow for the
foreseeable future. This is also an investment opportunity that takes a
number of forms;
- Gold and
silver investment
- Gold and
silver stock investment
- Currency
volatility and associated trading opportunities
- Short
selling and reverse ETF's
- Rising
interest rates - cash, falling markets and extreme lows - cash again
- Distressed
asset purchasing
This disaster can
be measured by economic scientists as 'out of control' money supply growth
and 'debt to GDP' amongst other metrics. These are worthwhile benchmarks to
follow. This last ratio is at extreme historic levels at present in most of
the mature economies in the developed world. This tells you we are
experiencing critically high debt exposure.
At the banking
level this manifests as difficulty to acquire funds for resale such as in
Europe where the best offer for one bank recently was 8.5%. This was not
commercial for them so effectively they could not get funding. This type of
repercussion of higher risk factoring and sovereign debt drama causes major
balance sheet problems in the banking system. The same thing is happening in
the US in a 'zero debt' environment at the Fed level. You have cash cows
being forced to pay 2% over the LIBOR rate and other corporations in worse
shape paying up to 8% already. Cost of capital is going through the roof as I
have continued to say.
Without expanding
in depth on the repercussions for the banks here the outcome is the
desperation for deposits as we are seeing in Australia and eventually the
offloading of non-performing loans - asset repossession and sale. This last
factor is the slowest part of the equation and this is the key to why GFC2
will evolve slower than GFC1 - much slower.
Quite simply this
will allow a more orderly decline punctuated by fat tail events that come out
of the blue and cause massive upheaval on a scale dependant on the location
and nature of the event. Understanding the nature and formation of this stage
of the financial crisis is essential. Thanks to associates who have
exceptional international banking and debt market experience here at GoldOz
we have been able to warn about Greece and then Spain before most of the
market.
I realize that
the falling market and the risk end of a transaction is scary however this is
the real business end of the buy low sell high equation. This is the end that
sorts out the contrarians from less experienced investors.
Will it (GFC) be
different this time is the question. The answer is yes, it is already
different and therefore we need to establish how it will be different to
formulate an investment plan. If you need proof take a look at the 19% price
of gold in Euros in the last 60 days. Gold is up nearly 12.27% for Canadians,
13% for the UK, 14.6% in India, 11.7% in Brazil, 5.8% in Japan, 15.5% in
Russia, 13% in Mexico and 18.5% in Australia. Before you say this is just due
to currency volatility then consider that gold is even up about 6.5% in USD
terms. (Figures 2 days old)
This is a time to
be mostly in cash if you play the longer trends. It is also a time to be in
gold stocks if you have a shorter time horizon for investing and an appetite
for risk. This is where it is essential to understand this phase of the
crisis in greater depth and from a different perspective than normal equity
analysis.
I have been
investing in this gold bull from the very beginnings and writing publicly for
a few years now so we are no strangers to this end of the opportunity. Now we
combine this with more advanced practical knowledge of debt and the
currencies we have closed the loop.
Many of my
colleagues and I have been telling you to invest in gold and silver for years
and those that have done this have benefited tremendously. From 2000 on the
US citizens benefited more than any other from precious metals because they
are a hedge against a falling currency. As this crisis hits certain points
the price of gold will rise dramatically against all currencies. This phase
may have already started and the gold stocks are going to launch next.
Good trading /
investing.
Neil Charnock
Editor,
Goldoz.com.au
REGISTERED
ADVISOR – WHO THE ADVICE COMES FROM IN THE GOLDOZ NEWSLETTER:
Colin Emery
is currently a Branch Manger and Senior Client Adviser of a Stock Broking
Company in Queensland Australia. Prior to his work in Share broking he spent
nearly 20 years in Senior Management and Trading positions in Treasuries for
major International Banks such as Bank Of America, Banque Indosuez, Barclays
Bank, Bank Of Tokyo and Deutsche Bank AG. He spent a number of years as a
Senior trader in New York, London, Singapore, Tokyo and Hong Kong with these
institutions. He also was Global Head of emerging energy, emission and
commodity products for the leading Energy and Commodities brokerage firm of
Prebon Yamane Ltd – Prebon Energy for four years before moving to
Cairns in 2003 to focus on the Stock market and Private consulting work. The
private consulting and advisory work currently undertaken is with companies
involved in Resources, Energy and Renewable Energy and Forestry.
Neil
Charnock is not a registered investment advisor. He is a private investor
who, in addition to his essay publication offerings, has now assembled a
highly experienced panel to assist in the presentation of various research
information services. The opinions and statements made in the above
publication are the result of extensive research and are believed to be
accurate and from reliable sources. The contents are my current opinion only,
further more conditions may cause my opinions to change without notice. The
insights herein published are made solely for international and educational
purposes. The contents in this publication are not to be construed as
solicitation or recommendation to be used for formulation of investment
decisions in any type of market whatsoever. WARNING share market investment
or speculation is a high risk activity. Investors enter such activity at
their own risk and must conduct their own due diligence to research and
verify all aspects of any investment decision, if necessary seeking competent
professional assistance.
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