Britannia Radio

The Daily Reckoning U.S. Edition

Home . Archives . Unsubscribe

The Daily Reckoning | Tuesday, April 27, 2010 What this gold stocks index is telling us right now, Fellow reckoners fill us in on their own precious coin collections, Plus, Bill Bonner with some thoughts on locusts, earthquakes, tornadoes and life and death in Argentina... ------------------------------------------------------- Enroll today and immediately start collecting "pension paychecks" every 15 days, for the rest of your life... Retirement, Plan B: Without doing a single moment's work, now you can legally sneak onto the "payroll" of nearly 1,000 of America's best companies... And collect a regular "Plan B Pension" check as often as every 15 days... At any age and for as long as you like, even after you've already retired... With nonstop annual incomes running as high as $120,000 or more... Grab Our Full Retirement Plan B Report Here. In the Eye of the Commodity Bull Market Two of the most popular reasons to own precious coins Joel Bowman Reporting from Taipei, Taiwan... Markets in the US "Ummed" and "Ahhed" yesterday. Shortly after 11am, the Dow had "Ummed" its way up about half a percent. By close, it had "Ahhed" back to where it finished the day before. Despite all the moans and groans, it was a rather anticlimactic day for investors. Meanwhile, gold lost a tad, oil fell a smidge. Oh, and the Macedonian MBI 10 Index inched lower by 0.23%.  Details, details, details...  As always, it is the longer-term trends that interest us here. Lacking the necessary patience and discipline to trade the daily noise, we instead try to make out tiny figures on a more distant horizon. What are they doing, we wonder. And what can they tell us about where we are heading?  Widening the scope a little we see that, although gold was down for the day yesterday, for instance, it is up for the month...considerably so. It is also more expensive than it was a year ago...and five years ago...and a decade ago. Before adjusting for inflation, the barbarous relic is higher than it has ever been. In real terms, however, it is barely half the way there. There's plenty of room on either side, in other words...but the longer-term trend is clear...clearly up, that is. Puru Saxena, founder of Puru Saxena Wealth Management and a frequent guest essayist in these pages, reckons ol' yella will double before the current bull market has had its way. Others predict it will go even higher.  "Real interest rates are negative in most countries," Puru told Kitco News from his Hong Kong office, "so gold should continue to benefit purely as an anti-currency because people lost faith in the euro and the dollar. At some point people are going to say well, 'we don't want to lose purchasing power in currencies that are dubious, we want gold as an insurance.'" Of course, it's not only dubious currencies keeping investors awake at night. Those dubious governments standing behind said currencies are enough to strike fear (and loathing) into the hearts of many a brave man and woman. With a gaggle of nitwit inflationistas manning the world's central banks, it's hardly surprising that many of our fellow reckoners are turning to gold as an anti-printing press store of wealth. How do we know this? Well, we asked you. We began our coin survey last week. Here's what you've told us so far... Of those respondents who currently own precious coins, a whopping 76% of you said you do so as a hedge against future inflation. Roughly two- thirds hold them as a way to realize double or triple digit returns. As for what's in our readers' collections, the split between gold and silver was more or less even (44% of owners hold gold coins; 43% hold silver coins).  More specifically, some four fifths of owners are packing US Eagles, two fifths hold Canadian Maple Leafs and roughly one third (31%) are stocking up on China Pandas.  But...there are still many questions... "I'd like to know the options of storage, and the tax consequences of cashing in on coins," queried one reader. "Question: How to sell? Coins are EASY to buy... BUT..." chimed another. There were plenty of other questions, too...most of which are answered in our Beginners Guide to Coin Collecting report. You can grab a free copy just by taking the survey yourself. It takes about three minutes and helps us formulate questions for the upcoming web-interview we're holding with Nick Bruyer, CEO of First Federal Coins, and the heads of the two major grading agencies, PCGS and NGC.  That'll be online soon but, in the meantime, give the survey a quick once through and grab the Beginners Guide report for yourself.  And now, speaking of gold, here's today's column... With over 40,000 copies now in print, read your free online review copy of the brand new breakthrough financial report from Gold, Silver, and Energy expert Byron King... The Curse of the Incas Gold's Untold Story and the Shocking New Role It Could Play in Your Financial Survival A 476-year old mistake could soon cost you your retirement. How so? To understand, you have to let me share a little-told story. It starts like this...(Cont. Here) The Daily Reckoning Presents Gold Stocks: Math Today, Magic Tomorrow Jeff Clark Here at Casey Research, we eagerly awaited the release of quarterly reports from the companies in our favorite sector. Why? The gold price was substantially higher last quarter than during the comparable meltdown quarter of 2008, so we were anxious to find out if it would lead to a spike in profits. Gold and silver producers posted substantially higher net profits, and yes, much of it due to higher metals prices. But amazing to many, higher profits did not lead to higher - or at least not significantly higher - stock prices. While most saw their stocks rise the day of their respective announcements, some actually fell if gold or the broader markets were down on the day. And they certainly didn't jump like you might expect when "soaring profits" splashed the headlines of their press releases.  What gives?  We have some answers straight ahead, including a big fat clue as to when gold stocks will take off and give us those "magical" price levels we think are coming.  Gold Stocks Are Still Going to Take Off, Right? We think that at some point the public is destined to participate in precious metals stocks, and when they do, we'll see volumes jump and share prices take off.  But for now, gold stocks are playing follow the leader...  ..rising and declining in tandem with the S&P since last April. So, until gold stocks separate from the overall market, we should anticipate they'll tag along if the markets slide. And we think the path of least resistance for the stock market is down, not up, so caution is warranted about going overweight our stocks.  But just as we showed with gold last month, gold stocks will similarly propel higher when the general public crowds in, regardless of what the markets are doing. Here's what gold stocks did in the last great bull market, compared to the S&P. As measured by the Barron's Gold Mining Index (a good substitute for the HUI that didn't exist), gold stocks rose 652% during the 1970s (through January 1980), while the S&P returned a wimpy 22%. The action in the '70s was definitely in gold and gold stocks, despite two recessions that decade, and we think a repeat is in the cards.  When the masses finally wake up, it's highly probable our returns will match the chart above or the late '90s surge in Internet stocks.  Is Now a Good Time to Buy? As investors, our goal is to get positioned in the best stocks at the best price. And buying low assures us of more profit when we eventually sell. So, are gold stocks "low" right now? We have a couple clues to help answer that, with gold itself offering the most important hint. Let's compare how gold stocks are performing in relation to gold to see if they're overvalued or undervalued or somewhere in between. The chart shows that gold stocks, as measured by the HUI Gold Bugs Index, outperformed gold until 2008. Since then, gold stocks have underperformed gold by a fairly wide margin.  This gold-stock-to-gold ratio tells us that in our bull market, gold stocks are currently undervalued relative to the gold price. This doesn't mean they can't get cheaper, of course, but it does signal they represent good value and that compared to their underlying asset, there's lots of room to the upside. So, if you have a long-term perspective and the patience to wait until gold stocks begin outperforming gold again, today's prices are good prices.  So, do we buy? The answer depends on your current exposure to gold stocks, how much gold and cash you have, and your outlook. If you own equities exceeding one-third of your total investable assets, we wouldn't rush to buy. If you have limited (or no) exposure and a patient mindset to see you through until the big payday, even enduring temporarily lower prices along the way, then buying some now is probably a good move. If you have very little in the way of savings and gold, we'd put money there first before committing a big chunk to gold stocks.  Basically, the larger your stable of gold stocks, the more stubborn you should be about price. And we wouldn't go "all in" just yet. Your risk in loading up now is if markets were to take another nosedive. But if you're light on stocks, adding some of the best of the best at this time should work out well, as long as you don't panic into selling on general market weakness.  Just Tell Me When! The #1 indicator that will tell us when gold stocks will take off has nothing to do with charts and is something you can monitor yourself: it will be when your neighbors and co-workers begin to express curiosity. You obviously want to be invested before them, but that's when things will start to get exciting.  So when might "gold fever" strike your neighbor? History holds the best clue:  In the 1970's bull market, gold stocks began their big ascent when the gold price hit about $450/ounce. Adjusted for inflation, that would equal roughly $1,340 today. So, when we see gold rise decisively above $1,300 and stay there, that just might be the trigger that spurs the interest of the masses in gold stocks. That's not a prediction, but it does give us an idea of what to look for.  Casey Research chief economist Bud Conrad was right when he called for gold breaking through the $1,150 barrier in 2009 - and now he's calling for gold to break over $1,450 by year's end. Weighing in as well, Doug Casey himself sees precious metals as the only asset class worth buying now, and gold stocks as being the best way to add speculative leverage to those investments.  Exciting? You bet. We're convinced that, sooner or later, higher prices are ahead for the best gold- and silver-producing companies, along with the "magical" levels that can happen in a mania. So, while we encourage caution, we also encourage selective participation so you don't get left behind. Waiting for the "perfect" time to buy is an exercise in self-deception; nobody can time the market. Let's be honest: no one can guarantee when or if a gold mania will happen. But all of our research points to higher prices for gold (and silver), so we remain confident we're in the right sector. And we can make money before the mania gets here.  To learn where to buy physical gold and where to store it... and which major gold stocks, mutual funds, and ETFs are the safest while giving you handsome upside... read Casey's Gold & Resource Report. At $39 per year, it's a steal for the value you get out of it. Click here for more. Jeff Clark for The Daily Reckoning Mayer's Special Situations Research Reveals... "The Biggest Resource Breakthrough Since the 'Beaumont Miracle' of 1901" 64 publicly traded companies are already deeply invested... insiders are already raking in as much as $205,421 per day on the shares... But only one of these cutting-edge companies offers you the "secret wealth advantage" I reveal right here... Bill Bonner Economic Correction: Too Much Danger on the Downside Bill Bonner Reckoning from Baltimore, Maryland... Oh my...oh my...  Locusts...earthquakes...tornadoes... What next? Fire and Brimstone! There's a plague of locusts eating crops in Australia... Earthquakes are becoming more common...after devastating quakes hit Haiti and then Chili. "We could definitely feel it in Buenos Aires," said our friends. "It was very unsettling. The heavy blinds we have up outside began smacking against the house as if there were a wind storm. But there wasn't any wind." Then, a volcanic eruption in Iceland grounded air travelers between Europe and the US... And now deadly tornadoes have ripped into the Southern US...and a "giant fireball" was spotted in the Midwest. Is it the "end of time"?  Probably not. At least, you're probably better off betting against it. That is, 9 times out of 10, time continues. Every time people think that something totally new has come along, it turns out that it's not so new after all. Like all those goofballs who thought a "new paradigm" meant eternally rising stock market prices in '99...or real estate prices that went up forever in 2006.  You'd think these people would have learned their lesson when the crash/Great Recession of '07-'09 wiped out $30 trillion worth of nominal wealth. But they'd been exercising their optimism for so long that it's in pretty good shape. Now, comes the rebound and they're ready to flex their good-time muscles again. The Los Angeles Times reports, for example, that people are "flipping houses in South LA again." Emerging markets have soared - almost recovering all that was lost. And consumers, who had retreated from spending money once they realized they didn't have any, are once again on steroids - pumping up sales to give the impression of a healthy recovery. And there's a report that the small fry are finally getting back into the stock market. After staying on the sidelines for the last two years, they're now getting up the confidence to tempt the fates. Good luck to them... Of course, it's perfectly normal for people to believe the de- leveraging is over. Who wants to cut back? Who wants to accept a lower standard of living? Who wants to admit that he's been a fool? Instead, he'll tell himself: "It'll all blow over..." "Things are back to normal..." "The feds have the situation under control..." "Now it's safe to get back into stocks..." Meanwhile, the key indicators are still weak or undecided. New jobless claims went up unexpectedly last week. The Baltic Dry index is still telling us that there is no genuine pick-up in world trade. The feds' new homeowner tax credit will expire soon - with property auctions and bank repossessions at record levels...and foreclosures taking their biggest jump in five years.  Robert Shiller warns that we should expect another dip in the housing market.  And the Fed itself tells us that it will keep its "extended period" of emergency low rates a while longer. What is all this telling us? That the Great Correction continues...and that there is far more danger on the downside than there is reward on the upside. Barron's Big Money Poll tells us that bonds are the most detested asset class. Frankly, we don't like them either. But the Great Correction will eventually take a whack at stock prices...and real estate prices...and commodity prices... ..bonds could be the only major asset to escape!  The big money could be dead wrong...just as the small money is almost always wrong. Bonds might go up as the de-leveraging continues. We'll wait to see what happens... And more thoughts... Santa Maria, Madre de Dios, Ruege Para Nosotros Sunday morning, the Padre gave a mass at the little chapel next to the school. Then, he came over and blessed the new backhoe: "Lord, we ask that this machine may help make the farm more productive and may make it a better place to live and work for all who live here." "Amen," we said. Local priests are in short supply. Ours is an intelligent man with thinning hair, who came from Spain to minister to the poor of the Andes. He and another priest take care of 22 different churches, covering a region bigger than the state of Rhode Island. Once he left on Sunday, he could not come back to bury Jorge's father. So, blessing of the clergy was performed in Salta, before the journey to our ranch began.  Javier caught on quickly. After a few minutes of training, he could operate the backhoe better than your editor. There are some things economists can do well. At least, in theory. In practice, we've never found anything. Backhoes were not designed for intellectuals. By the time we have calculated the angle of attack, a good operator has already dug two holes. Maybe most things in life are like that - better done by instinct than by calculation.  Javier turned off the motor and came down from the cab. We were giving him instructions in maintenance - 'graselo cada dia, sin excepcion' - then we heard the deep, full-throated noise. It was an old Chevy truck coming up the hill.  "That must be Jorge, with his father's body," we said to Javier. "Mi abuelo [my grandfather]," said Javier. The cowboy's face was as hard and immobile as the stone mountains behind him. It was not an unfriendly face. But it was not a face you'd like to see in a bar fight, either, at least not unless he was on your side. The old truck usually ran on bottled gas. But it could only get gasoline at the station in Molinos...so it switched back to gasoline, which caused it to run poorly, occasionally coughing and sputtering.  Still, it made the trip from Molinos in an hour and a half, across the desert to our ranch, with the coffin of Jorge's father in the back. Along with it came four other dusty pickups - each one carrying more of Jorge's family. Brothers and sisters, nieces and nephews...all came back to the cradle of the family itself, where Agostin, father of Jorge, Evo, Rosa, Candelaria, Josephina and Fermina, was born. The body already lay in the chapel, in front of the altar, when we got there. Candles were lit on all sides. A few people kneeled, praying in their pews. Others milled around outside. We shook hands with the men standing outside our church. The women inclined their cheeks upward for a kiss. All were shy. Many of them had never had met a real economist; probably, they never will. Then, we went inside, took off our hat, stood before the closed casket and made the sign of the cross on our chest and went back outside to await events. Soon after, Jorge's wife took charge.  "In the name of the Father, the Son, and the Holy Ghost," she began. "We are gathered here to say goodbye to Agostin... He has taken a road we all must take. Santa Maria, Mother of God, Pray for Us." "Santa Maria, Madre de Dios, Ruege Para Nosotros.... "Santa Maria, Madre de Dios, Ruege Para Nosotros... "Santa Maria, Madre de Dios, Ruege Para Nosotros..." Once the litany began, it seemed like it would never stop. Maria called upon the saints, by name...and asked for the help of the angels and Heaven itself...counting out the beads of her rosary...reaching out to the Kingdom of God and imploring its denizens to welcome her father-in- law, to take him up into their celestial hotel and make him feel like he belonged there. As for those left still alive, she asked for help for them too. Would God give them a little help...a raincheck...she asked...a reservation for the future, for the time when we too must join Agostin...and all the saints...in our eternal home. When the litany ended, the choir assembled. Gustavo led it in a death chant...a simple tune sung over and over, with old women keening in the background. The effect was unlike any church music we had ever heard. There were no musical instruments in the chapel, but the keening filled the air, like an organ or bagpipes. It was soothing and melodic...but deeply sad... "It's the music the Indians sang when they came down from the mountains," Maria explained. "It's called a baguala." Each person in the church then stood in line to take communion...and touched the casket on his way back to his seat, some merely placing their hands on it for a moment, others making the sign of the cross.  When the last of the Eucharist celebrants had sat down, Jorge's wife blew out the candles, while Jorge, his brothers and nephews moved up to the front of the church. They picked up the coffin, and put it back onto the pick-up truck. The rest of us got in our trucks too, in order to follow the procession out to the graveyard. Across an arroyo from the chapel is an old adobe house. It was the house where Agostin lived as a child and where Javier lives now. The procession drove to the house; the casket was taken out of the back of the pickup and carried around the house. Then, it went back in the truck for the trip to its final resting place. About a half mile from the house, out on the range by itself, is the graveyard. It is a giant square, surrounded by stone walls, about 6 feet high, so remote that life above ground is almost as peaceful as it is below it. Here, in the high plains of Boot Hill, some 50 or so bodies lie unmolested by the living. Here, the dead are on their own...save when someone comes to join them. They enjoy their sleep without interruption - no lawnmowers and no Internet signal.  Some graves are marked by piles of rocks. Others by concrete tombstones. Still others only have a wooden cross to mark the spot. Some of the dead appear to have been forgotten completely. Other gravesites are garnished with a few faded, plastic flowers.  Off to the right, as we entered, was a pile of pick axes and a little farther was a hole, much deeper than we expected. It must have been hard work digging it.  "I guess the next one will be dug with the backhoe," we said to Calvert. "I don't know. They might rather dig those graves by hand." Jorge's wife spread a blanket on the bottom of the grave while Jorge and his kin attached ropes to the coffin. They then set the coffin on the top of the hole supported by a couple metal bars across the opening.  Again, mourners began their lament, while one by one the rest of the group, beginning with the closest family, approached the casket. Each one dipped a sprig of green leaves into holy water and made the sign of the cross on top of the casket.  Now that the body was closer to the grave, the keening grew louder and eyes grew redder. Some cried. Some merely looked blank and sorrowful.  When everyone had paid his last respects, a bent grey felt hat, the kind an old ranch hand might wear, was put on top of the coffin. Jorge and his brother pulled out the metal bars while other relatives held the ropes. Then, the body was lowered into the hole. When it came to rest on the bottom, they pulled up the ropes. The wailing and keening continued. The relatives each took a hand of dirt and threw it on the coffin. Then, one of Jorge's sisters threw on some of his clothes. Another tossed a pack of cigarettes into the grave.  When the symbolic burial was over, three of the ranch hands, Natalio, Omar, and Juan, picked up shovels and began seriously filling the hole with dirt. A cloud of dust formed around them. Juan smoked a cigarette as he worked.  Soon, the grieving friends and family were beginning to drift away. Bottles of coca cola and orange soda came out. Anna, Juan's son, came over and offered us a cup of coke. Out of the corner of our eye, we noticed Javier, the toughest hombre in the Calchaqui Valley, wiping away a tear. Santa Maria, Madre de Dios, Ruege Para Nosostros.  Regards, Bill Bonner,  for The Daily Reckoning ------------------------------------------------------- Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com The Devil in Goldman Sachs Poor Ol’ Goldman... Just trying to do ‘God’s work’... And everybody treats it like the devil. The Washington Post yesterday carried a front-page headline, portraying the firm as though it was Satan himself... Forgetting Fear in Light of the Great Correction Investing in Argentina and Conquering Your Fear of Risk A Penny Stock Fortunes Special Report Wall Street’s Most Profitable Stock Strings Revealed AT LAST... Inside: Exclusive details about four stocks set to rise as much as eight times over in the next year. Don’t Believe Me? Then Check These Gains Out. The Strong Hand of Silver Toby Connor has an essay posted at goldseek.com with a title that I find very intriguing, namely “The Strong Hand Theory” because it sounds like it could be all sorts of terrific things, ranging from a new Sherlock Holmes mystery to “How to destroy brick buildings with a karate chop with your bare hand and impress girls!” Market Manipulation and Delusions of Prosperity The Upshot of the Shoot Up in Gold Demand URGENT ‘SWINDLE’ ALERT: Today’s ‘economic recovery’ is not just a big lie, it’s a cover-up strategy for an endless series of government-sanctioned ‘wealth withdrawals’ – direct from your personal savings and retirement accounts! The only good news? You can easily protect yourself – and I can show you how, free of charge. Read on here for details. Why it Would Take 9 Years to Clear the Current Housing Backlog At this point there are so many bank-owned foreclosed homes that it would take almost nine years to clear out the housing inventory. That time frame doesn’t even begin to take into consideration the additional homes that are likely to also enter the backlog while the current inventory of foreclosed homes gets cleared out. SEC Worker may Need new Glasses From too Much Computer Time Record High Number of Americans Now Fear Losing Their Jobs The Daily Reckoning Now in its 11th year,The Daily Reckoning is the flagship e-letter of Baltimore-based financial research firm and publishing group Agora Financial, a subsidiary of Agora Inc.The Daily Reckoningprovides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Published daily in six countries and three languages, each issue delivers a feature-length article by a senior member of our team and a guest essay from one of many leading thinkers and nationally acclaimed columnists. Cast of Characters Bill Bonner Founder Addison Wiggin Publisher Eric Fry Editorial Director Joel Bowman Managing Editor The Mogambo Guru  Editor Rocky Vega Editor Guest Authors For additional articles and commentary follow The Daily Reckoning on Twitter and Facebook. To end your Daily Reckoning e-mail subscription and associated external offers sent from Daily Reckoning,cancel your free subscription. If you are you having trouble receiving your Daily Reckoning subscription, you can ensure its arrival in your mailbox by whitelisting the Daily Reckoning. © 2010-2011 Agora Financial, LLC. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This newsletter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the World Wide Web), in whole or in part, is strictly prohibited without the express written permission of Agora Financial, LLC. 808 Saint Paul Street, Baltimore MD 21202. Nothing in this e-mail should be considered personalized investment advice. A lthough our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice.We expressly forbid our writers from having a financial int erest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of a printed-only publication prior to following an initial recommendation.Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.