الزمالك وفيتا كلوب بث مباشر اون لاين دورى ابطال اوروبا 15-3-213
بث مباشر مباراه الزمالك وفيتا كلوب في دور ال 32 دورى ابطال افريقيا بتاريخ 15-3-2013
الزمالك وفيتا كلوب اون لاين بث مباشر
شاهد المباراه اون لاين بث مباشر عن طريق اللنك التالى
الزمالك وفيتا كلوب بث مباشر اون لاين دورى ابطال اوروبا 15-3-213
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Debt, Crises and Gold Mining Stocks
DEBT is what concerns Jason Hamlin, publisher of the Gold Stock Bull newsletter. If Jason's prediction of Euro breakup comes to pass, he reckons it will bolster the case for Gold Mining equities. He shares his preference for royalty streamers and prospect generators in the gold space and explains his attraction to graphite in this interview with The Gold Report.
TGR: Jason, you recently told your Gold Stock Bull readers that you had sold some equities. What were your reasons for selling?
Jason Hamlin: At the time, we were nearly fully allocated and decided to move to a position of roughly 20% cash. Even though this is a high seasonal period for precious metals, we sold a couple of underperformers to take advantage of any potential year-end selloff driven by concerns about the fiscal cliff and its impact on economic growth. There are also year-end opportunities for tax-loss selling and we want to have some dry powder for bargains that may materialize over the next few months in quality resource stocks.
TGR: Do you believe investors should reduce risk and take a more conservative approach until we know what are the repercussions of the fiscal cliff?
Jason Hamlin: I do not. It is sensible to always have some cash available for a selloff, but I do not view the fiscal cliff as some Armageddon-type event like other analysts. I think the politicians will come to a resolution before things become too explosive, but we should never discount their ineptitude.
For me, the true issue here is debt, not the fiscal cliff. Debt is the root cause of nearly all of our economic and social issues.
As it is a mathematic impossibility to ever pay off all of the outstanding debt, neither tax increases nor austerity will solve the debt crisis. As all money is created out of debt and the interest owed back does not exist in the system, the only workable solution is liquidating or forgiving the debt. As controversial as that might sound, one only needs to look up the term "debt jubilee" to see how often it has been used throughout history to clear the slate and allow for a fresh start. So, without getting too detailed, the fiscal cliff in the US, debt crisis in Europe, student loan crisis, home mortgage crisis and every other monetary crisis can be tied back to the fact that our monetary system at its root is unsustainable.
TGR: Do you have a calculation that illustrates how difficult that would be?
Jason Hamlin: One way to view that is to look at the percentage of the US budget now being put toward interest on the debt and how it has grown over time. As long as that percentage keeps increasing, it means less and less money is available to spend on legitimate needs and to direct toward growing and driving the economy. This expanding debt burden stifles any type of economic growth that might otherwise be possible. Until our leaders are honest about our debt predicament, balance the budget to stop the bleeding and face the necessity of massive debt forgiveness, my forecast is for continued slow economic growth with the potential for contraction in the near future.
TGR: What are the threats to the average retail investor, especially in the precious metals space?
Jason Hamlin: I believe that another banking crisis could be on the horizon, driven by the large amounts of toxic derivatives and potential revaluation of assets that could render many big banks insolvent. The same kind of threat we saw in the 2008/2009 crisis is still hiding under the surface, as it was only papered over to buy time, rather than addressing the core issues. This could lead to a sell-off in all assets including gold and another rush to the perceived safety of Dollars. However, I predict that the deteriorating faith in fiat currencies will translate into a very short dumping of true safe-haven assets such as gold and even quicker rebound that we witnessed following the last financial crisis. Given this outlook, I think it is wise to hold through such corrections and keep cash available to take advantage of the panic selling that will occur if such a crisis materializes.
TGR: While we are talking about the future, do you have any other predictions for 2013?
Jason Hamlin: On a positive note, I think the world will survive the end of the Mayan calendar.
Seriously, I think the Euro will fall apart when one or more countries leave. The strong countries will only support the weaker, over-indebted countries for so long before realizing that their sovereignty is more important than the Euro. I think dissolution is absolutely the right course to take, as the concept of the Euro was flawed from the start.
TGR: But the European Central Bank (ECB) has vowed to do everything in its power to stabilize and keep the Euro together. Can or should the ECB stave off disintegration at least until the end of 2013?
Jason Hamlin: I think the ECB will try its best, as centralized banking has much to gain from the Euro staying together. This attempt will surely involve more bailouts, stimulus and money printing, which will be bullish for precious metals. Ultimately, I think the attempts will fail and we could see a split of the Euro as early as next year.
The ECB has constraints that the US Federal Reserve, operating in just one country and with the world reserve currency, does not have. The ECB cannot employ the same bag of tricks as Ben Bernanke and the Fed, so I think it has fewer ways to kick the can down the road. This is why we are seeing the crisis escalate first in Europe, but it will eventually come to the shores of America as we witness a loss of faith in the US Dollar as world reserve currency.
TGR: That makes a nice transition into gold. Precious metal investor Paul van Eeden recently said that gold is overvalued. Do you agree?
Jason Hamlin: Mr. van Eeden correctly pointed out that the problem in the US is not inflation, but debt. And I agree with him that the predictions for imminent hyperinflation are overblown. But that is where our agreement ends.
I think his methodology for calculating money supply and gold's true value is flawed in that he incorporates worldwide gold supply, but compares it only to the US Dollar. Demand is strong worldwide and gold has been making new highs in several currencies, not just the Dollar.
I also disagree with his notion that the Fed will be able to easily sell assets back into the market to control the inflation that is likely to occur. I'm not sure there would be many buyers of such low yielding bonds in an inflationary environment. The Fed is already forced to buy over 50% of bonds the government auctions during the current environment of relatively low inflation.
Mr. van Eeden has been calling gold overvalued for years now. I think he is a bright analyst and I enjoyed his commentary on gold earlier in this bull market, but he has now joined the ranks of a few other gold bears who have been consistently wrong about the gold price. They will eventually be correct about gold being overvalued, but I suspect it will be a number of years and a few thousand Dollars higher before that happens.
That being said, I could see some sell-off in gold occurring as a knee-jerk reaction by leveraged investors, but interest rates would have to rise substantially above the true rate of inflation for any serious or lasting impact. Such a move would sink the stock market, which is not something the politicians or central planners would allow. They would prefer to print more money, debase the currency and present the illusion of continued prosperity rather than take their medicine. I do not see interest rates rising any time soon.
The only way to deal with a banking system that is so overleveraged and a government so burdened with debt is to allow the free market to reprice the debt—to reprice housing and equities to their true free market value. However, that would cause the banking system—and possibly the entire world economy—to collapse.
The alternative is to fire up the printing presses, inflate away the debt and hope that the bad loans will once again become solvent. If you study history, you are likely to forecast that the government will choose this option over a deflationary collapse, which will continue to push gold higher in Dollar terms.
More broadly speaking, if you take two forms of money valued relative to each other (demand being somewhat constant), the one that increases in quantity faster will lose value against the other. Growth in the gold supply is relatively flat, about 1.5% annual growth. The growth of the supply of almost all fiat currencies ranges from 8–10% on average. To me, that says that gold priced in Dollars or any other currency being debased will go up in value relative to that currency.
The other factor to consider is velocity of money, which has been low and has held inflation in check thus far. But in light of quantitative easing (QE) to infinity, which is essentially what QE3 is, recent improvements in housing and the stock market, and some proposed legislative changes to get banks lending, we might see this change in 2013. If velocity picks up, we could see inflationary forces start to take hold. If just a small amount of all of the new money created over the past five years were to begin flowing through the economy, the impact could be significant.
TGR: You rely on technical charts for your advice to your readers. What do your technical charts tell you gold will do in 2013?
Jason Hamlin: I just ran this exercise for my subscribers, and came up with a chart showing the minimum target price of gold at $2,200 an ounce (oz) and over $3,000/oz on the high end by the end of 2013. These prices represent gains in the 35–75% range from the current price. It is a much more aggressive annual return than I would usually forecast—much higher than the average annual rate over the past 10 years.
However, precious metals have been consolidating for well over a year. The chart has an incredible amount of pent-up upside potential for 2013. Plus, the gold price is now bouncing around the bottom line of its trend channel. A failure to push higher and break $2,200/oz by the end of 2013 would mean that gold has fallen out of its long-term trend channel and signal the end of the bull market. I put the likelihood of that outcome at less than 5%. Thus, I think the official, inflation-adjusted high of $2,400/oz will be taken out within the next 12 months.
TGR: Given that prediction, should investors be buying gold, gold equities or both?
Jason Hamlin: I recently published an article on this topic and the answer is: It depends. From 2001 to 2005, gold was up roughly 92% and gold stocks up 648%. In this period you would have seen seven times greater returns investing in gold stocks.
From 2006 to today, the NYSE Arca Gold BUGS Index (HUI) of gold stocks advanced by about 39% while gold itself is up 232%. That equals about a six times greater return for physical gold than mining shares.
However, if you combine both periods and look at the entirety of the current bull market, gold stocks have been the better investment. From 2001 through Nov. 12, 2012, physical gold has appreciated by 537%. However, gold stocks have gone up nearly twice the rate of gold for a gain of 936%. This is the leverage that seasoned investors remember and it drives our decision to allocate a significant portion of our portfolio to mining stocks. That said, I believe it is best to own both bullion and mining shares, because they serve different purposes.
Just from the start of August through mid-November, the gold price advanced 8%. Gold stocks were up 18%. That is leverage of roughly 2.4 times. It is hard to say if that will continue, but it is a positive sign for investors in mining stocks.
TGR: When you look at technical charts for precious metals equities, what do you look for, other than an upward trend?
Jason Hamlin: I view technical analysis as just another data point for reference, not as a panacea for forecasting price movements. In markets that are as manipulated as ours, where large firms tilt the level playing field via high-frequency trading and collocation, and banks use their leverage to push prices, I take technical analysis with a large grain of salt.
That being said, I look for the usual trend channels, support and resistance indicators, volume levels, momentum indicators, (Fibonacci) retracements, whether the stock is making lower lows or higher highs. I couple these insights with the timing of fundamental developments for miners: drill results, resource updates, upcoming preliminary economic assessments (PEAs) or feasibility studies to try to time our entry and exit points on trading positions. Our model portfolio also contains long-term holds or core positions that we do not trade.
TGR: What is your investment thesis for precious metals equities?
Jason Hamlin: The equities are undervalued right now relative to bullion. A lot of that has to do with distrust of the stock market and of Wall Street in general, after all of the fraud and failures in the past years. But if the market holds up for a while longer and current trends continue, I think we will see mining stocks continue to outperform gold.
TGR: Which precious metals equities are you telling your readers about?
Jason Hamlin: I have been an early advocate of the streaming royalty model in the mining sector. Streaming companies make an advance payment to a company with a pre-production stage mineral deposit in exchange for a negotiated percentage of the metal produced for the life of mine.
This model gives companies diversification and risk mitigation because it has agreements with several different miners. There is unlimited upside potential in that the deal is usually for a percentage of the production mine life and limited downside risk if a miner sees its profit margins squeezed as the agreed purchase price is fixed.
Streamers also enjoy an advantageous tax situation, with rates that are usually much lower than tax rates for mining companies.
TGR: What other models do you like?
Jason Hamlin: Another business model with great merit is the prospect generator model. It has some similarities to the royalty-streaming model that has treated us so well.
TGR: You also follow the graphite space. What is the latest news there?
Jason Hamlin: Overall, graphite is attractive due to strong supply/demand fundamentals. Prices have come back down from lofty levels last year, but have stabilized recently and remain elevated. This means that a number of graphite projects that might not have been economic in the past are economic today.
Given that graphite is a key ingredient in so many established industries, from aviation to automotive, steel and plastic, I see prices holding up well. However, future demand growth is likely to come from the high-purity, large-flake graphite that is used in lithium-ion batteries for electric cars and such.
People talk about the big run-up in lithium a while ago, but 10 times more graphite is used inside a lithium-ion battery than lithium. There will be significant demand as we move toward electric vehicles and electric-based power.
The other exciting driver in investment demand for graphite is the potential of graphene, which is reportedly the thinnest and strongest material ever developed. Graphene is 200 times stronger than steel, several times tougher than a diamond and it conducts electricity and heat better than copper. It could even replace silicone in semiconductors. Also, graphene is nearly impossible to break. You could throw a graphene mobile phone display on the ground and it will not shatter like the glass on current phones. Researchers claim graphene is the most important substance to be created since plastic.
There is a lot of potential for graphene in the expanding cell phone and green energy markets. The military has an interest as well.
TGR: Jason, thank you for your time and your insights.
The "Befuddling" Performance of Gold Mining Stocks
ALTHOUGH the fundamentals of many junior Gold Mining companies have improved, their stock prices continue to languish, says market guru Peter Grandich in this interview with The Gold Report. Below, Grandich gives his thoughts on when this may end and where gold is headed in 2013.
The Gold Report: Peter, when we talked in the spring, you were essentially all in on a number of junior resource equities that were trading at what you believed were at or near their lows. Have you changed your course of action or are you still all in?
Peter Grandich: I am still on course. While 2012 may not have been the worst junior resource market by percentage losses, given the prices of metals now versus other markets and other market conditions compared to last year, it was the worst bear market since I entered Wall Street in 1984.
I've been in this market since the late 1980s, when it felt that if gold could just get over $400/ounce (oz), all would be well in the junior market. Now gold is at an average price of $1,600-something for the year, yet most companies did not do well. It is befuddling.
TGR: We are not far from exiting 2012. What is your perspective on the junior precious metals sector heading into 2013?
Peter Grandich: I have believed since midsummer, as much as I would like the market to have a V- or U-shaped recovery, the recovery will look more like an L, at least into the early part of 2013. There are still some excesses in the junior market that have to be worked through.
I suspect we will see by early 2013 announcements of restructuring, rollbacks, etc., and repricing of options. Then we will have all the classic signs that the worst bear market in some time is behind us. It will take a number of months before the junior market can not only go up, but also stay up.
TGR: Are you more bullish on the higher-beta, high-volatility silver or gold?
Peter Grandich: I still favor gold over silver. Silver is really a base metal, but because it's part of the precious metals family, it gets the tagalong and does not get separated.
Retail investors tend to like silver over gold because they tend to like quantity over quality. But at the end of the day, gold is money and will eventually be money again. One of the reasons gold has done what it has in recent years is because some investors want real money and not paper currencies.
TGR: You're a quality over quantity guy?
Peter Grandich: Yes, in terms of the metals themselves. When it came to shares this past year, quality was also better. The further you went up the food chain toward emerging producers, producers and significant producers, the damage was less expensive than it was when you went down the food chain to pure explorers or early-stage explorers where that market was creamed.
TGR: That's owing to the risk-off sentiment on a large scale.
Peter Grandich: I am not the first to say that juniors are burning matches, producers aren't. Producers have the luxury of not only borrowing a substantial amount of money, but also doing secondary offerings and getting cash flow out of assets. Juniors continually have to raise money.
TGR: Nonetheless, you are still heavily invested in the junior space.
Peter Grandich: It is where my expertise lies. Many juniors have just gone too far on the downside. Many of their total market capitalizations don't come close to their perceived value now. If they are not already off their bottom, they are starting to build substantial bases. That may not thrill people, but share prices have been trading within a fairly tight range now for several months. That is base building. It may not be ready to take off, but it's far too late to be a seller now.
TGR: How would you characterize your approach? You seem to have great faith in these stocks.
Peter Grandich: Since I got involved in the junior resource market, there have been probably 10 or 11 bear markets where there has been a decline of 20% or more. At least half of them were 40%, 50% or more. Each time the market rebounds. Each time many investors think that maybe this time it will be different and it won't rebound. But eventually markets go from one extreme to the other.
This past year was as extreme as you can get on the negative side. Even the most optimistic bulls were beaten up and have retreated to the safety of hedging their views, if not outright turning bearish. That is just a contrarian investor's dream come true.
My faith is based on everything in life is like "ferry" investing. People will say the boat is going to sail without you. My response is that there is no such thing as a boat. There are just ferries. When one goes out, eventually another one comes in. It is just a matter of being diligent to stay long enough and be diversified enough. That way even if some stocks don't rebound, the rest of them should more than make up for it.
It won't be straight back up, but as bad as this bear market has been, we'll eventually have a bull market again. It will probably be in the middle part of next year when we really see it take hold.
TGR: That is certainly good news. Are you willing to predict a breakout for either silver or gold?
Peter Grandich: For gold, it is only a question of when, not if, it gets to a magical number. That will dramatically ramp up interest in metals as well as in the juniors and producers. The magical number is the $2,000/oz gold price.
A $2,000/oz gold price will be the same as when the Dow Jones Industrial Average first crossed 10,000 and what that led to—the average person getting deeply involved in the market at that point. It allowed a speculative fever to take hold.
We will see something like that when gold crosses $2,000/oz. That will bring enough players back into the market that we can finally have a speculative run. That is something we have not seen in several years in the junior market.
It is still amazing that something can go up the percentage that gold has over the last decade and still 99% of North American investors have little or no exposure to it. Every time I hear the gold permabears talk about the end of the bull market, I ask how it could be an end when 99% of people are still not in it.
TGR: Do you think there could be a breakout among juniors in H2/13?
Peter Grandich: Juniors can rebound and stay up but, again, it will not be a V-shaped or a U-shaped recovery. There will continue to be base building into the early part of 2013. The substantial up-move and ability to hold the gains will coincide with gold getting above $2,000/oz.
TGR: Did you read Paul Van Eeden's comments where he said that gold is overvalued right now and that he doesn't see the dire inflation that so many goldbugs are predicting?
Peter Grandich: I have respect for Paul Van Eeden that I don't have for other gold permabears. He's just expressing his honest opinion. Unfortunately, he has had that opinion for as long as I can recall, from maybe $500–600/oz gold. So he has not been on the right side of the market, to my knowledge, for over $1,000 of the gold price increase.
TGR: Beyond gold and silver, in what subsectors of the junior mining space do you see some value or some opportunity?
Peter Grandich: One of the things that always happens in bear markets is the classic saying, "The baby gets thrown out with the bath water." The iron ore market is one segment that clearly got overdone to the upside, but now is way overdone to the downside.
While we won't see a rally back to its all-time highs of $180/metric ton (Mt), those who have stated that it won't be able to ever keep itself above $100/Mt again are likely to be sadly mistaken. I already see the early signs of a rebound. Iron ore should stabilize, and many of the shares that have been very hard hit, especially the emerging market group ones, can rebound.
TGR: Do you have to believe in a global economic recovery to make money in the junior iron ore space?
Peter Grandich: You have to believe in at least a price of $100/Mt or more for iron ore. I believe we can count on that because of what continues to come out of China.
What I also like about the situation is that most people have discounted any real economic strength anywhere else. People have already built into their minds and their models that economic malaise will still grip most of the world. But if we get a little blip up, if the European economy ends up not being as bad as forecast, then it's only good news for the iron ore plays. The bad news has been priced into them, but not much potential good news has been priced in and, therefore, they have a lot of upside future potential.
TGR: What are some equities based in South Africa?
Peter Grandich: At the moment, I would look for a fund, an exchange-traded fund or a company that has several plays under its belt in South Africa. That's what I hope to do in the next month. This is certainly not something that needs to be rushed into overnight. But everything I know about it and people whom I've trusted for almost 30 years have, in the last few weeks, started to feel that South Africa has gotten to the point where it needs to be back on the map when we look for gold plays. I am certainly going to target that in the early days of 2013.
TGR: Since year-end is approaching, how should retail investors handle tax loss selling season?
Peter Grandich: My No. 1 advice on juniors is to realize failure is the norm in the junior resource business. Not realizing that leads to a whole host of difficulties. If we understand that, we won't get as mentally and financially distressed as we do when we overindulge.
One of the things that I see corporations battle so much is this need on the part of speculators to have constant news, almost on a daily basis, from these companies. Even IBM and Microsoft cannot put out news every day, and people expect far too much and far too soon developments from juniors. They set themselves up for disappointment that should never be there in the first place. So failure is the norm in this business, and it takes a lot longer for the ones that work out to get to where they have to get to. Patience is clearly a virtue. Have a plan for when things don't work out because a lot of them, even some that I've spoken to you about today, may not reach all the goals that we originally thought they could.
TGR: That sounds great, Peter.
Gold Bullion, Inflation and Why Nothing is Fixed
WITH NARY a glimmer of hope that economic sense will supplant political expedience, Stansberry & Associates founder Porter Stansberry expects rampant inflation to roar in once the cost of capital rises.
Stansberry tells The Gold Report he continues to buy and hold gold in preparation, and discusses another investment vehicle he has been pursuing.
The Gold Report: Not a day goes by that we don't hear or read something about the fiscal cliff. To what extent are you worried about the fiscal cliff? Or do you foresee a resolution?
Porter Stansberry: You can be sure of a couple of things from Washington. One is spending will not slow down. The increase to spending in 2013, 2014, 2015 will be the same kind of increases we have seen in previous years. We will continue to spend 24% of GDP at the federal level.
TGR: And what else can we be sure about?
Porter Stansberry: Some actions will be taken to increase the tax rates on some taxpayers, but they will produce no material change in revenue. The government will continue to take in far less than 20% of GDP in taxes, probably only 16% or 17% of GDP. Further, those changes also will narrow the tax base, which is to say that fewer people will be asked to pay more in taxes.
Those two things—more spending and higher tax rates for some taxpayers—will happen because they're the only politically expedient things that can happen. That's been driving politics and the budget since 30, 40 years ago, and will continue to do so because voters demand more from the government and voters demand that they not pay. That will continue until the system completely collapses.
TGR: The fiscal cliff was set up a couple of years ago in theory to force Congress to do something. There's a lot of fear about it, but at what point will there be enough fear that voters say we can't proceed in this fashion anymore?
Porter Stansberry: People should fear not going over the cliff. If we go over the cliff, the tax base will greatly expand. The payroll tax cuts will be done away with and the broad middle class—the people who have benefited from the tax cuts—actually will have to pay taxes again in America. There's no other way to generate the amount of revenue that is required. You cannot finance the federal government on the backs of the top 5% of wage earners because even if you charge them 100%, it wouldn't come close to being enough money.
Right now the US takes in something on the order of $1.5 trillion (T) a year in income taxes, but we have an annual deficit of $1.6T. Even doubling the amount of income tax collected would leave a deficit.
Taxing the rich cannot solve this problem. It can be solved only by freezing spending and broadening the tax base. That will never happen because it's unacceptable politically.
TGR: Eventually something will happen.
Porter Stansberry: Yes, it will. Our trading partners and the people who finance our debt finally will say, "We're not doing this anymore." But look at the Treasury bond market. It's not happening yet.
TGR: It's amazing that the US hasn't been downgraded just on the basis of all the political bickering.
Porter Stansberry: That's partly because the Federal Reserve keeps buying up all the excess Treasuries. People have no idea how dangerous this is, but they will find out when inflation goes crazy. Another big reason is that there's not a really viable alternative. What would the Russian Central Bank or the Chinese Central Bank do with their trade surplus? Buy British paper money? Or European paper money? Where's the hard Dollar alternative? There isn't one. No government-backed money is any more secure than the Dollar. Even the Swiss have turned on the printing presses to equalize exchange rates with the Europeans. There's nowhere to go. That's why these central banks are buying all the gold they can get. And that's why gold prices are going to absolutely go higher.
TGR: China particularly has been buying a lot more natural resources such as copper or iron ore.
Porter Stansberry: I have been following the strategic buying of the Chinese and you're right, it has been buying up lots of resources, especially in Canada. That will continue for sure, but it is also buying lots and lots of gold. I think Russia and China have been neck and neck in gold purchases since the 2008 crisis, spending almost half of their current account surpluses on gold every year.
Some folks have been critical of my prediction that the US will lose its world reserve currency status, but I think it has already happened. When two of the world's largest economies would rather buy gold than Treasury bonds, you've got a big problem.
TGR: When do you suppose the gold price will start climbing again?
Porter Stansberry: I don't have any timetable. I can just tell you that I haven't sold any of my gold and I won't until there is a gold-backed, well-financed national currency that offers me a reasonable yield for the risk I take to finance the government. There's nothing like that in the world and I don't see any prospects like that.
TGR: The last time we chatted, you discussed the pros and cons of returning to the gold standard. One of your observations was that the US Dollar has lost something like 20% of its value since 2008 and you projected it losing another 20% in 12 months. Do you still see the Dollar value decreasing at that rate?
Porter Stansberry: I actually think it is but it's not reflected yet in consumer prices. Manipulating the bond market is so greatly reducing the cost of capital that so far companies have been able to maintain profit margins without raising prices. As a result, we've been exchanging capital cost for commodity costs but you can only do that for so long.
Imagine what your purchasing power would be if you're going to go buy a new home today. If you have $10,000 for a down payment, you could buy a $100,000 home with an FHA mortgage, and you'd only pay something like 3% for the mortgage. But could you afford that if mortgage rates were actually market set? If you had to pay 7.5%? No. Your purchasing power, your standard of living, would be completely destroyed without reasonably priced financing, and that's absolutely what will happen.
Look at other markets. Imagine what electricity companies would charge for turbines, light bulbs and appliances if it had to pay a market rate of 9% on their debt. The price of capital is so low that it is retarding the impact of ongoing inflation, but sooner or later all this debt will have to be financed at real prices. When that happens, the impact to the economy will be both a weaker Dollar and higher prices for everything.
TGR: But you are making it sound as if the actual financing costs now are artificially low. When interest rates increase, wouldn't it be more like 4% than 9%?
Porter Stansberry: Look historically what high-yield debt has traded for—9% isn't even aggressive. Over the last 20 years, I think average yield on a high-yield bond has been 14%.
TGR: So many large companies have a tremendous amount of cash on the balance sheets. They could double their interest payments.
Porter Stansberry: The game can't go on forever, and the minute the game ends it's going to end badly. The shock to the consumer will be amazing. It's not just inflation devaluing the purchasing power of wages, which is going on continuously. It's going to be that suddenly consumers will have this huge price impact. It could reduce the purchasing power of the average consumer by 20% or 30%.
TGR: The way you're explaining it, it sounds as if it could happen almost overnight.
Porter Stansberry: It will be extremely quick. Nothing particular changed in Greece, Italy or Spain between 2006 and 2009. No significant catalyst caused people to all of a sudden wake up and realize these sovereigns were bankrupt. They've been bankrupt for decades. All that changed was the realization that others were unlikely to continue to finance them. One investor buys the bonds because he's convinced the next investor will do so, but that's all based on faith. There's no real critical thinking going on. All of a sudden, if some investor loses faith, it can happen very quickly.
TGR: Isn't playing the markets all about faith and what you think the general population is going to do? Markets aren't always based on fundamental economics. They're based on fear and greed.
Porter Stansberry: Of course they are, but with the Fed skewing the bond market the way it has, people have become convinced that the yields will always go lower because the Fed will not let them increase. So far that's been a great trade, but you cannot print your way to prosperity. Sooner or later these policies will destroy the credit of the United States and send interest rates soaring in our domestic economy. That will absolutely happen, no doubt about it.
TGR: Aren't the Europeans—even the Chinese—in the same game of artificially low interest rates?
Porter Stansberry: China's not in the same game, nor is Europe to the extent that the US is. Germany has been very reluctant to monetize the European debt. It has certainly increased that greatly this year so maybe there will be runaway printing, but paper money has always been this way. Show me the paper currency that lasted for more than 100 years and was worth anything at the end. Paper money gives human beings the illusion that they can get something for nothing. They believe in it until it falls apart.
TGR: Until we get to a gold standard, we as investors need to be doing something to retain our wealth. You can put a certain amount in gold, which some people are doing, but we also have other types of investments, which for people in the US is based in US Dollars. Until it unravels, isn't the US Dollar the best bet?
Porter Stansberry: Yes. I think that's fair. But it doesn't mean anything to me because it's similar to going on death row and asking who is the best guy.
TGR: But we're looking at an unfortunate situation where individuals need to put their money at risk in equities or the bond market at this point.
Porter Stansberry: I disagree. I don't believe people have to put their money into bond markets or stock markets. For the last 24 months I've been buying real estate almost exclusively. I might have bought a couple of small gold stocks along the way but miniscule positions compared to my net worth.
I've been buying real estate because it's an asset I can control, that I could finance extremely cheaply if I chose to. I do not choose to; I buy my real estate in cash. I'm not interested in making money on it. I just want to keep my money safe. I'm happy to make returns of 4% to 6% a year on my real estate portfolio. If inflation comes along I'll be able to increase rent and have capital appreciation roughly in line with inflation. For me that's all there is.
I do believe we're still in a global finance crisis. Things are not right with the world. In a situation like this, I think your goal as an investor should be to keep what you've got. It's going to be very difficult to survive this with your wealth intact because so many forces are aligned against you. I just button up and I'm super-conservative.
By buying off the bottom in the real estate markets, I'm doing the best I can to protect myself from any future calamity. Time will tell whether it will work. And if there's just ongoing inflation instead of a calamity, I'm going to make a lot of money with my real estate.
TGR: Absolutely. Any other insights you'd like to give to our readers of The Gold Report?
Porter Stansberry: I'll continue to buy gold on a regular basis and I've never sold a single ounce. So if you're buying gold I think you're going to do very well. And I will continue to be cautious. I don't believe it is a time to be aggressive, especially in the bond markets around the world.
TGR: Thank you very much, Porter. Have a happy—and I hope prosperous—New Year.
Gold Mining in Latin America
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LATIN AMERICAN Gold Mining firms are facing both growth and challenges. Heiko Ihle, senior research analyst with Euro Pacific Capital, examines the factors behind these trends. In this interview with The Gold Report, Ihle urges investors to evaluate mining companies based on three important features rather than on the performance of others in the region.
The Gold Report: Heiko, you cover many companies in Latin America. One silver miner in Mexico is challenging an eviction notice from its property in Chihuahua, Mexico, which is causing a stir in the mining industry. Does that give you cause to reevaluate Mexico as a mining jurisdiction or is this an isolated incident?
Heiko Ihle: Mexico is a more challenging mining jurisdiction than the United States or Canada, but it's also a much easier place than Bolivia, for example. There are some common challenges with mining there. One of the companies I cover has some issues with the community in Oaxaca. This sort of thing happens all the time, and it's mostly business as usual.
TGR: What sort of gold and silver prices are you using in your models to evaluate these companies?
Heiko Ihle: I'm a stock analyst, as opposed to a macroanalyst, so I use conservative numbers: $1,600/ounce (oz) long-term gold prices and $34/oz long-term silver prices. In the long term, those numbers are likely to be a little too low, but they produce a margin of safety to our net asset value (NAV) and cash-flow models.
TGR: The silver companies you cover in Latin America are for the most part outperforming your gold companies. Does this make you more bullish on silver than gold, or are you evaluating specific cases and what those specific equities offer?
Heiko Ihle: I look at specific cases because the best gold company can't prosper if it can't get gold out of the ground at a decent cash cost. Similarly, the best silver company won't flourish if a community demonstration shuts down its plant. Again, I am an individual equity analyst; I look at the microeconomic company-specific factors and make my decisions accordingly.
TGR: What are three must-haves for the companies you cover?
Heiko Ihle: The number one thing is good management. Bad management can run the best company into the ground. I've seen it in stocks that I covered and in stocks that I owned.
TGR: How do you quantify good management?
Heiko Ihle: If I speak with a management team and I get the sense that it doesn't understand what's going on, then that would put it into the bad management category. If it continuously disappoints, if it continuously over-promises and under-delivers, that would put it into the bad management category. I worry, too, if there is no coherent team—even if the CEO, CFO and chief geologist are great people, there is a chance that they do not work well together. It sounds simplistic, but I always pay close attention.
TGR: What are the other must-haves?
Heiko Ihle: A company must have a good asset. Even if it has great management, if a company doesn't have a good asset, nothing's going to be pulled out of the ground. It needs to have a decent land package with room for expansion. The grades need to be right. The type of ore needs to be right. It needs to be permitted or have decent progress toward permitting. The third must-have is a functional mill with potential for expansion. The chain is only as strong as its weakest link, and if one of these factors is broken, the whole system is going to crumble.
I do a lot of site visits to evaluate the mills. I look for spare capacity, and I go through all the geological reports for permitting.
TGR: What segment of the precious metals market is going to provide retail investors with the best bang for their buck in 2013?
Heiko Ihle: I suggest people figure out what area they want to invest in, then narrow it down to a couple of companies. Go back to those three must-haves that I mentioned. Look into management, look into the assets and look into the permitting and the operational phase of the firm.
I would also say people should diversify. And if they just go across base metals, gold and silver, they will be doing themselves a favor.
TGR: So your advice is to evaluate individual companies and divide the portfolio up by commodity.
Heiko Ihle: Yes, and commodities shouldn't be your full portfolio.
TGR: Thank you so much, Heiko.
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