Saturday, January 19, 2013

Three newsbits

Beyond Brics - GE on China growth. GE does business in China, see, so their viewpoint might have a bit of value.

Calculated Risk - the future's so bright. It starts with "It looks like economic growth will pickup over the next few years", and gets better. And Bill McBride bases it on data, not the blathering of a bunch of Republican racists and gun nuts.

BI - Deutsche Bank says the deleveraging is almost complete. Again, bullish.

For the concertposters fellow

Open response to the concertposters fellow:

First, I apologize for never having passed your comments til now - I had thought, with the username that you have, that it was just spamming for some website. People who write blogs do get a lot of spam. Thankfully my blog's not even remotely popular so I get much less than others.

I don't want my response to you to be buried in the comments section. Because I have a thesis here about future gold price, and (I'm sorry for being a dick but) I'm now forever done with hearing comments about the price of gold that don't address my thesis. My thesis might be wrong, but if so I would be happy to have it explained to me why.

I'm willing to hear responses from others too. That's why I want to throw this open.

So here we go. You said:

I would love to see GDP growth (and more importantly, unemployment rates) improve.

If that does indeed happen and the resulting follow-on increase in interest rates comes to pass, then whatever support the ZIRP-NIRP pillar had in the PM Bull story, will melt away. Real interest rate returns = sell gold.

So, whoever wants to, tell me why my supply-demand argument is wrong.

But read the ground rules at the end before you post a comment. Also, for the big-mouthed self-important blatherers out there, read this fucking post in its entirety before you even think about posting a comment. Cos the only comments that will be passed are the ones that respond helpfully.

1. Demand

As I've been saying, if the US economy gets a boost, thus also improving economic performance throughout the world, that means more wealth creation in India, China and southeast Asia. That's my theory.

I'm saying that wealth creation in Asia means more Asian gold demand. It's a fact that Indians buy lots of gold; more wealth creation in India means more gold buying ceteris paribus. I admit I know a lot less about China, but since their gold consumption now equals India's, I'm assuming that Chinese people are also buying more gold as wealth increases. (Though god knows, maybe it's just the Chinese government that's buying all that gold?)

India and China buy 50% of all gold. Fact. Everyone in the entire world can simply fuck off forever until they can present a gold price model that takes that into account!

(I'm assuming gold buying happens more readily in underdeveloped countries with no history of a stable banking system. In such a land, gold is a portable, vaguely price-stable store of wealth, and better than the alternatives. Frankly if I was Chinese or Indian, I wouldn't trust the banks they have over there, and I'd store some wealth in gold too! Same if I lived anywhere that didn't have Europe's 600-year history of banking and present political stability.)

2. Supply

And if the US economy improves, thus improving world wealth creation, that also means more increasing cash costs in the developing world where most of the gold (and copper and silver) is being mined. (First world growth is driving third world inflation.) ~50% of mining costs are labour, and I'm not hearing stories of any country where their qualified mining workforce has a lot of slack in it (except South Africa, but that's a basket case - and those basket cases are multiplying, cf Argentina).

You are not seeing a boost in gold production or gold reserves that is commensurate with the increase in gold price.

Gold has only been exhibiting a premium of ~30-40% over the all-in cash costs; increasing the cash costs can't mean a decrease in gold price. Not without some major demand destruction to wipe out that premium, forcing the shut down of the most marginal producers.

Fact, gold production and reserves are decreasing, says Brent Cook - and he says major analysts' predictions of future production are overly rosy cos they aren't taking the reality into account. Ore grades are trending downward long-term. Capex and opex costs are exploding, so a lot of supposed future mines are failing the go/no-go evaluation now. You simply can't start up some new gold mines when you base your FS and go/no-go on a $1200 long-term price, which is where the headspace of the capital markets is at. And fact, Brent Cook also notes the amount of money that the industry spends on exploration is increasing drastically, but isn't having a useful effect on proven reserves.

(Frankly, Cook's data scare me. He's got the ultimate bull case for gold, moreso than any goldbug nut.)

Scrap gold does increase as the price goes up, but not enough to damage the price - that only happened in 2008 when a lot of wealth was destroyed and some people needed to liquidate gold. Outside of a crash, gold price will increase to attract more scrap, and scrap will only come in enough to stop the gold price increase. That's what the WGC and Thompson GFMS data seemed to suggest.


If you think my thesis is wrong, please explain why.

But note the following:

A) I don't have any interest in bullshit goldbug blather about an imminent global collapse. Those are not even arguments because they're not based on reality, and they're also not even arguments because they're not based on economics. I am happy to simply delete anything that rides in on that clown car.

I'm still happy to keep my mind open about certain specific goldbug theories - e.g., German Fed gold has been rehypothecated or outright sold and replaced with a promissory note, ZOMGZ to da moon Alice. Or, e.g. central banks are going to find they've cornered the market in tungsten. After all, when you've got a financial system that has institutionalized corruption and fraud outright, with explicit government approval, all sorts of funny things can turn out to be true. I'm not babe in the woods, I know the world power structure is crooked and built on lies.

But I'm not accepting that such a speculation is true until I see evidence. And I'm sure we can agree that Germany would never come out and tell us that they own very expensive tungsten. (Russia maybe.)

I am also open-minded about the idea (that Jojo holds to, among others) that a major fuckup might occur when all the world's governments try to roll over their debt. Long-term, that debt will be reduced relative to GDP as we enter the next secular bull, but between now and then I accept it might be touch-and-go. However I'm not investing based on that, cos Bernanke says he's 100% sure he can contain inflation, and he's been more right than his critics - who after all only criticize for political reasons.

B) I also don't accept the interest rates argument. Maybe partially cos I don't fully understand it. But also partially because I really do think it's being applied incorrectly.

Firstly, the United States doesn't buy gold. They mine it, but they don't buy it. China, India, Thailand, Turkey, the Islamic world, and the odd central bank here and there buy gold. So if you want to apply the US interest rates argument, you have to explain to me what the transmission mechanism is that supposedly allows a change in US Treasury yields to affect the price of gold. Other than morons in Chicago selling on signals.

Secondly, I'm asserting that the interest rates argument is being applied incorrectly. It's a model based on correlation, but the underlying assumptions are being ignored.

I accept that rising US rates can affect gold price by reducing demand: in a time when the US is growing at 4-5% with inflation beginning to scare the Fed, they'll jack up interest rates Volcker-style (we hope) to rein the economy in. In that specific situation, I can see how such rate action would result in a profoundly negative effect on Asian EM growth rates (eg a China "hard landing" scenario like people have written about), which would cause demand destruction and a pop in scrap. And in the EM markets that mine gold, it could maybe cause a reduction in cash costs, I dunno. In that situation, then, a US interest rate rise would cause gold price to go down by simple supply-demand.

But that interest rate situation is not this one we have now. US rates do have to go up in the next year or two, sure.  Maybe by H2 2013. But the reason they go up will be because the Fed can safely abandon the "exceptional measures" that it's been using to keep the US from falling into a depression. Rates going up in this case will mean US GDP growth improving and becoming healthy and self-sustaining, which will mean improving GDP prospects for EMs, which will mean increased wealth creation in the EMs, which will result in increasing gold demand. And probably increasing cash costs in EMs, which will mean an increased marginal cost.

Now, caveat for me: I do accept that the investment world (the people holding all the paper gold) does believe the interest rates thesis and will sell based on it (til they see that I'm right and they're wrong). But the most they can do is decrease the speculative premium for a while. Even if all of Wall Street were to sell gold down to $1200 (which I think is about the lowest it can go even in a 2008-style panic), gold miners will fucking collapse as their margins die off; but then people are going to wonder why all the buying has increased in India and China. Meanwhile $1200 isn't really a sustainable gold price: that price will generate essentially zero new mines and everyone knows it.

Also, yes, FT Alphaville has indeed pointed out that the moribund gold price of the past 18 months has happened at the same time as short-term rates hit the zero bound. That's nice. Correlation is not causation. Cos you know what else has happened the last 18 months? A global slowdown, EU falling into recession, and consequently Chinese and Indian growth slowing.

So, now, before you respond to anything, here are the ground rules:

1) No goldbug bullshit will be tolerated, as I pointed out above. No fucking childish snark about Bernanke, Obama, the Fed and so on, either. They are richer, more successful, and more competent than you. They've proven this cos they have no time to post on blogs, they're busy running the world's greatest superpower. Once you successfully navigate your nation's way out of a major debt-deleveraging, then you can start being catty.

2) To be fair, no "bu-bu-but interest rate rises correlate with gold prices going down!!1!" either. Correlation is not causation, and I've already said I think the model doesn't apply in this case. Explain how it's wrong or let it go.

3) In case your school system never taught you about debate, let me point something out: debate means addressing the other person's points. A legitimate counter to my position will (for a C) present fact and data that refutes a point of mine, and then (for a B) will show how refutation of that point collapses my argument, and (for an A) present the counter-position that takes into account your data. If you didn't learn this in highschool debate club or during a liberal arts BA in university, I just taught you now.

4) If you're going to use a very obtuse and complicated Econ Ph.D argument like something Izzy Kaminska would write, please explain it so a dumbass like me can understand it, m'kay?

Now, if anyone is left, go ahead and comment.

I will interpret silence as proof that I'm right and the rest of the world is wrong.

Fun with blog stats #31: Buffy Buffington is now a meme

It has become a meme!

Hope this new stage of your career works out well for you, Buffy.

Friday, January 18, 2013

Hey! Neat bio on John Kaiser

Stumbled across a bio of John Kaiser.

Neat. He got a BA in Philosophy and German. I got one in Philosophy and Russian.

(Of course with a name like "Kaiser", you can bet he took German for a bird course - I bet his parents still say "och! Yonnie! Komm und hab some koch-käse mit kimmel*!" - while I had absolutely no Russian heritage and had to start from scratch.)

And funny enough, with that BA he got a job at a Vancouver brokerage. Because, like I always said, the brokerages want people who can do research and present ideas - not people who can fudge books and spout bizlingo. The liberal arts degree really does prepare you for a real world job; you just have to not be a snitty little pot-smoking commie rockstar wannabe like I was when I graduated.

Even more interesting, in 1989 he went to work at - wait for it - Pacific International!

Ooh! Scary!

Anyway, here's his appearance on BNN.

* - Cooked cheese with caraway seeds. I dunno, apparently it was a thing people ate.

More news for the weekend

Apparently Monday is some sort of holiday in the US, so I guess things will be light til Tuesday.

Here's a bunch of newsbits:

Beyond Brics - China banks wary of steel traders. Good, better late than never.

Ritholtz - admits all his screwups for 2012. Some great examples: "my goal in executing tactical moves should not involve avoiding 5-10-15% retracements, but should aim to steer clear of 25% plus moves to the downside." If only the entire rest of the stock market had did the same thing, we wouldn't have seen all the big stupid gap-downs on e.g. childishly meaningless Eurozone news.

Beyond Brics - Russia joins the currency war. Great! More bodies is more fun.

FT Alphaville - Austerity's purpose was a lie. There have been no productivity gains in the periphery. Therefore austerity's purpose was a lie. - China's massive fixed investment in mining. I certainly hope they don't have huge imminently-exploitable gold reserves, or they could fuck it all up for everyone like they did for coal.

Oh, and CXB closed at 22 cents. Hurray, someone feels like owning it! 42 cents here we come!*

* - Jojo says my earlier TA on CXB was wrong. To wit: "people think they can just draw lines anywhere and it can be a triangle". Well, sir, I reject your reality and substitute my own! Good luck with that PLG position - oh wait, you never pulled the trigger....

Biiwii caught it

Sorry to keep bugging you, but this is important.

Biiwii caught it.

Here's the chart:

R2K ETF is at an all time high.

All. Time. High.

BTW Gary - don't you want to use $RUT instead of IWM?

Allied Nevada welcomes Buffy Buffington as new Exec VP and COO

Here's a newsbit for you:

Allied Nevada Announces Appointment of Buffy Buffington as Executive Vice President and Chief Operating Officer

His real name is Randy, not Buffy.

But nicknaming him Buffy makes it (slightly) more hilarious so I'll call him that from now on.

Actually, I don't think I've ever posted anything about Allied Nevada. But someone from their building in Toronto reads this blog, so maybe I can start a meme about this guy.

By the way, ANV reader - see if you can get Buffy to do something about this:


The S&P is nearing 1560 - an all-time high.

If the S&P breaks 1560, will that drive the last few remaining goldbugs out of their meticulously-constructed fantasy world and into the harsh light of reality?

Will they all have to admit that a negro in the White House isn't a portend of the Rapture?

Will they finally see that the US budget deficit shrinks as GDP growth improves?

Will they finally give up waiting for the hyper-inflationary worldwide financial collapse and dystopian Mad Max future with the homosexual subtext?

Even worse...

If the S&P breaks 1560, will the goldbugs finally give up waiting, and sell all their shitty gold stocks?

Quick post on the few remaining newsbits

FT Alphaville - BHP is intervening in the iron ore price. Sort of like how the goldbugs always wanted their heroes to do with gold. Frankly, Chinese iron ore buying is so crooked (the recent iron crash was so severe partly because Chinese buyers all reneged on their contracts the minute the iron showed up in port, forcing suppliers to sell at a discount) that I'm happy to see an iron supplier starting to play hardball in return. Now all we need is for BHP to start up a cartel: that'll teach the Chinese bastards a lesson.

Bonddad - China. Positive. And btw, don't pay attention to the China doomers - consumers also buy steel.

(Side story: my dad said when he came back from WWII, he had a big pile of money in back pay - I guess the RAF held back some pay in case you died, so your widow would get something. Probably prudent, a lot of bomber crews died. Anyway, his dad told him when he came back to invest all his money in Algoma Steel. My dad said "at that time, 1945, we thought we were going right back into the depression, and Algoma had only stayed in business during the war by supplying steel for the war effort. I thought they would go bankrupt with the war over, so I didn't invest anything. Turns out, Algoma made a fortune for a long time, making steel for cars, and ovens, and fridges, and washing machines....") - Macquarie says the resource cycle is over. Because apparently consumers don't buy steel?

Whatever. Download the referenced report and read it. But note, iron is not copper is not silver is not gold: silver is used in electronics, which the developing world has a hard-on for, while gold is a dependable store of wealth in countries with little in the way of respectable banking or successful government economic planning.

Also, note that while you can see huge build-out in iron or copper supply, we haven't seen the same new supply build-out in gold. And in case you're worried about gold scrap, note that in the Thompson GFMS report I referenced yesterday or so, scrap only spikes in economic crises.

(Developing nations seem to sometimes leap-frog certain historical industrialization sectors. So for example, in Africa, there is no landline infrastructure: Africans are all going cellular with their first phone. Similarly, what seems really neat, Africans seem to be leapfrogging banking, going instead for smartphone money transfers. And by the way, I wonder what that would mean for gold?)

Zinc and lead

By the way, if you go over to the right of the webpage, there, you'll see various Kitco Metals charts.

Check out Zn and Pb. Zinc is $0.92, not great but healthy. Lead is $1.05, very nice. Suggests a healthy world economy with expectations of decent growth ahead.

I'm under the impression that while iron and copper can lie and be fudged, the zinc and lead markets can't lie.

A certain newsletter writer living in a cave in Peru might want to revisit zinc in preparation for a positive 2013, maybe?

On "contrary indicators" and the bullishness of the $SPX

Everybody's all about how the S&P 500 just hit a new post-crash high, and we're within 100 points of the decade-long peak, and oh it's a triple-top.

Don't you think that is what you should be going contrary to?

Read this:

Ritholtz - The Sell-side indicator. Here, let me steal the chart for you:

Don't you think that is what you should be going contrary to?

Bespoke - bullish sentiment declines. Here, let me steal their chart for you:

In fact, they point out "In the last two years, there have only been three weeks where bullish sentiment exceeded 50%". I'll add that during that period, the S&P has gone up over 10%.

Don't you think that is what you should be going contrary to?

Oh, but the $VIX is low, you say:

Yabut, the $VIX is low because downside puts have disappeared. In a proper fear-free bull phase, the $VIX will normally drop below 15.

From this point forward, when reading bearish commentary, you should take a good look at the author and figure out if his bias is what's making him bearish the S&P 500.

Because, fact is, there's a lot of people out there who want to blame the uppity negro in the White House for the destruction of America. They've made it part of their narrative. But that fantasy requires that America does get destroyed by an uppity negro. So therefore the S&P must go down. The S&P not going down, but instead going to an all-time high, would invalidate their hatred of Obama.

So before you decide what to think of the S&P's looming brush with decade-long resistance, remember that a lot of people out there are talking their own psychological book. Whatever you do, don't wager your money based on some other ignorant fool's stupid political/racist bias.

Vancouver Venture blog

Jojo just sent me a link to the Vancouver Venture blog.

It seems to be a $CDNX-oriented blog, but saner and more reality-based than much of what you'll find.

Check it out, see what you think.

Silver popped over $32

This AM, silver's back over $32.

Wharrgarbl Bilderberger fiat Weimar Casey New World Order Ron Paul!

Friday videos - Efterklang

Here's Efterklang, a Danish band whose first album was actually really good and full of meaty IDM clickiness. Dunno if this track is from that album or not. Anyway, great song and video.

Thursday, January 17, 2013

Hitler learns German gold is tungsten

It's on Youtube already, here you go.

This is how much explorecos suck

Ha! Found an interesting chart I can do on

It's the new highs minus new lows for the Venture.

Here it is in all its inutterable horror:

And yes, that's right. It hasn't been above 0 since May 2011.

Here's the $CDNX chart:

How pathetic is that, eh?

Al Korelin interviews Brent Cook - 2 months ago, sorry

Just came across Korelin interviewing Brent Cook back in November. I don't think I posted this before, so here it is now. You can just skip over Korelin, since he quite obviously has no clue what he's talking about.

Cookie says "I'm willing to bet you that within a year, the US economy and stock market look better than today." He doesn't have as much confidence in the resource sector, though.

Cookie wagered him a bottle of wine. So there's his "whiskey-drinkin' cowboy" image shot all to hell!

One of the reasons I like Cookie is that he's smart.

Older documentary on Yanacocha and mining

Was stumbling around YouTube looking for something else, and found an older documentary (from 2002 maybe?) on a mercury spill near the Yanacocha mine or something.

Have only watched a few minutes so far, but I guess it'd be nice to watch just for background, if you're one of those IKN followers who likes to learn about mining and community relations.

So here it is:

John Kaiser, Destroyer of the Venture Exchange, Exterminator of Explorecos, will be on BNN Friday 11:40

Just got an email from the Kaiser subscription service, noting that Kaiser will be on a BNN mailbag session, on Friday at 11:40 AM.

He's going to be at that Cambridge thing in Vancouver too, with a Sunday 1PM talk on how he wants to see the Venture juniors all die, and then a workshop on Monday about which explorecos might no longer suck.

He's a good listen, so if you're in Van this weekend, go see him.

News, including lots of neat stuff

FT Alphaville - Rio Tinto sucks™. Specifically, they had to take a >$10B writedown of the Alcan buyout. In case you thought teh stoopid was limited to the gold miners. And that's not all! -

Beyond Brics - Rio Tinto's coal project in Mozambique also sucks™. They have to take a $3B writedown here because it turns out they won't be allowed to ship coal on barges on the Zambesi. Now, colour me impressed; I'd think that if you were thinking of buying a coal (or any) project for four billion fucking dollars, you'd first want to make damn sure that there was approval and signoff for some way to get the crap out from the mine to the rest of the world. Again, in case you thought teh stoopid was limited to the gold miners.

I often hear the argument that the reason rich people should rule the world is that they're smarter, more diligent, wiser, and harder-working than us working-class proles. But then a story like Rio Tinto comes along, and I realize that CEOs really are just born with a silver spoon, blessed by luck to be in the right place at the right time to suck the right cock to get an invite to climb the ladder to success. Because really, you wouldn't see this level of incompetence from the Ubermensch.

Clive Johnson from BTO, however, is an Ubermensch.

But he never made CEO of Rio Tinto, did he?

Bloomberg - European dividends are collapsing. This is (a) just in case you were going to buy a European dividend stock (though funny enough PT is still going up), and (b) to point out now the European corporations will be hoarding cash.

Beyond Brics - China power surge predicted in 2013. Ahem. "Power consumption is expected to grow more than 9 per cent this year". Ahem. Now, what's that about power consumption and GDP, Otto? (No, I don't believe estimates from the Chinese authorities either. But guess what, if they're making estimates like this, then it might mean they know they're being watched.)

Noahpinion - Buy gold, hurr durr. He vigorously skewers goldbugs. He laughs at the goldbug arguments. He spits in your face, goldbugs!

Then ,ironically but synchronically, this next article comes out the same day:

Buttonwood - Morgan Stanley are the ultimate doomers. Seriously, check this out:

MORGAN STANLEY has an interesting (but, alas, privately distributed) research note on the debt crisis arguing that most developed governments are effectively insolvent. It draws up a stylised balance sheet for a government: its assets are the ability to tax (the discounted value of future tax revenues), plus real assets (buildings, equipment), equity stakes and cash. On the liabilities side, there are the market debts (bonds and bills) and the net present value of future "primary" expenditure (items such as pensions and health care). Now, one could surely push tax revenues up a bit in some countries (where they are lower than average) and bring down spending on the health and pensions items. But Morgan Stanley reckons the shortfalls are so large (between 800% and 1,000% of GDP in the US and UK) that the situation is hopeless.

Which, if you've been paying attention, is one of the prevalent goldbug arguments you'll come across at ZeroHedge.

I would very much like to read that Morgan Stanley paper, because I would hope that a top financial house's research would include in such a simulation the fact that increase in economic growth causes the asset side to grow and the liability side to drop (ceteris paribus). Because, I mean, any fucktard who's been paying attention this past year knows that debt is not as important as debt-to-GDP ratio, and the DTGDPR goes down (ceteris paribus) as growth improves. Meaning a country can grow its liabilities down. Hopefully Morgan Stanley took this into account.

(the "ceteris paribus" is my own caveat to take into account the fact that "conservatives" like to increase deficits during periods of economic growth.) - visualize all the world's gold at once. Link to a really really cool infographic with lots of pictures of gold. And facts too - didja know that all the gold ever mined is 166,500 tonnes? And 8000t of that is the US reserves, while 80,000t (just over 50%) is in jewelry. - the GFMS survey. With a link to the .pdf of the presentation, which (if you want some education about gold, not just blather from ZeroHedge) you can download. And read.

So for example, 2012 mine production is about 2800 tonnes, or ~0.2% of world supply. Fab demand (including jewelry) for 2012 is 2600 tonnes, 60% of total demand and 90% of production demand - meaning all investment demand (that which is not fabrication) is essentially mopping up scrap gold. Also meaning that total world gold jewelry stock is only going up by ~1.5% per year.

And annual Indian jewelry demand (not bars & coin, just jewelry) is ~500 tonnes. Chinese is about the same.

Total "gold" in all ETFs is about 2700 tonnes right now. Or one year's mining supply, and ~1.5% of all gold. Though as you know, they don't hold gold, they hold "gold".

And as you can see, I've added several of the feeds to my RSS. Lots of neat stuff there, but not a flood of info day-to-day.

Suitpossum - what are the Top 100 financial blogs? If you're desperate to find a way to waste time on bullshit, go ahead and subscribe to some of these blogs. I won't, because I have no interest in a list that includes Automatic Earth, Max Keiser, Shedlock, or Roubini. Popularity is inversely proportional to utility, I think. And in case you were wondering: IKN, Biiwii and this hellhole right here do not appear on the list. So we're safe.

Wednesday, January 16, 2013

Gold, silver, copper, all highly correlated

So check this out.

No surprise that silver and gold are so highly correlated... but copper? Why should copper be positively correlated to "monetary metals"?

And by the way, silver and gold are both negatively correlated with the $VIX most of the time.

So gold and silver aren't monetary metals. They're economic growth metals.

If you want to read a good writeup by an exploreco

So Nevada Exploration came out with a NR on a hole today, nothing immediately actionable as far as the market seems to say.

But check this out.

I go to their website, and they have a "technical presentation" on the subject of the NR.

You can read the PDF here: Fletcher Junction Project Summary 01-16-2013.pdf

Now tell me this. Have you ever seen anything written by any exploreco anywhere in the history of anytime that was so informative, explanatory, educational yet readable, and just plain good?

I'm used to idiots who refuse to even provide a drill map. Meanwhile NGE are acting like they're leading a full-credit undergrad field project in exploration geology.

Top points to NGE for showing the world how to act like a serious exploreco. No wonder Kaiser likes them.

And yeah, sure it was laid out in Word and not Powerpoint. Personally I prefer a Word-style layout. Makes it look like you're actually trying to say something of value.


FT Mining - Amplats says South Africa sucks.

FT Beyond Brics - Amplats again. Let's see what a 7% cut in worldwide platinum production does to the price, eh? Then we'll apply what we learn to the ever-dwindling output in gold mining.

FT Beyond Brics - yabut if you think South Africa's bad, take a look at Hungary. Seriously, when you combine Putinism with Nazism, the result is a very avoidable country.

BI - the global currency regime change. The recent currency inter-relationship has broken down, and a new one is forming. This sounds like a phase change: what happens when energy flows in a complex system change direction. In this case, it'd mean say goodbye deflationary deleveraging, hello positive growth.

Caijing - China heading into an inflationary 2013-2014. Gary T's "i2k12 i2k13" might finally be upon us. Or at least, people are talking about it now: it might be that the real play will be disappointment at the failure of i2k12 i2k13.

FT Beyond Brics - Sensex tickles 20k. Now, what do Indians do when they have lots of money, again? Buy something? Something kinda goldy-coloured and made of metal? You think? Hm?

Bonddad - Are we in for another year of drought and spiking crop prices? What's that? Commodity inflation you say? I was skeptical of the theory, but was converted by a look at the long-term grains charts. Here's two of them:

FT Beyond Brics - the changing tastes of Chinese graft. Although most statements about the corrupt keleptocrat class in China are funny, just because Chinese are a very silly little people when you give them a taste of power and wealth, this especially stuck out:

[A]ccording to a story in the Ningbo Xiandai Jinbao, a local paper in the eastern port city of Ningbo, government officials are cancelling Chinese New Year celebrations. Ten high end hotels and restaurants said pressure to rein in use of public funds to pay for fancy banquets has hit bookings hard. “The impact is more than a small one. We have seen all our orders canceled,” a manager with Citic Ningbo International Hotel told the paper, while another city hotel which normally rented out all of its luxury private dining rooms for New Year said this year’s bookings had fallen 30 to 40 per cent.

Things Ritholtz doesn't care about, and you should too!

Ritholtz must have cleaned out his bloodstream for new years, cos he's making sense again.

Must remember to classify him as a wagon-hopper for future reference.

Anyway, good post of his yeasterday: Things I don't care about

Here's the meat:
1) Focus on the data (not the commentary);
2) Keep refining your process;
3) Eliminate bad or biased sources with extreme prejudice

Here's the commentary:

Point 1 is basic scientific method. You start with an explanatory narrative: but importantly, then you check the damn data to see if it agrees with the narrative. If it doesn't, then throw out that narrative and start looking for a new one that fits the data.

Apply that rule to stocks. Example: AQM is worth so much money! It'll be a mine for sure! Then why is is falling from 90 cents all the way down to 7 cents? Whoops! Wrong narrative, let's go look for a new one that explains the data.

Apply that rule to broad market moves. Example: gold's going to $2500 by January 2013 because of all the money printing? Really? Then why didn't it go up with all the money printing? Throw out that narrative, it's wrong, and try to find a new one. Like the one I've fucking handed to you on a silver platter that says gold goes up because of EM demand, which was weak in 2012 because of the EU recession and US near-recession, and the money-printing is only intended as a running-in-place to compensate for massive debt-deleveraging.

An underpinning of all this is that fancy stories don't make you money. The data (i.e. price) makes you money.

Point 2 seems like a Socratic principle. Admit you really truly know nothing, and you have to keep looking for flaws in your narrative. In a way it's also part of the scientific method.

Point 3 relates to Ritholtz's argument that you only have a certain amount of time to spend on the market, and so you shouldn't waste your time on unproductive bullshit. So if some blog you follow is always wrong or almost always wrong, delete it from your reading list and never come back. The last thing you need is to pollute your mind with wrong ideas.

Just a short reminder message about the blog

Because I havve to keep reminding people about what this blog is for, here's a short reminder message:

This blog is here for me. Me only. It's here so that I can write down my own narrative explaining the behaviour of the markets - thus, "My Own Market Narrative".

I do this because, as I learned in University, I remember things a lot better when I write them down. I actually only rarely go back and read old messages; it's not as important as getting thoughts down the first time.

Like I said, the blog is here for me only. It's my own internal dialogue. There are a few people who quite obviously enjoy how my brain works, so they're always doing crazy shit like promoting me (Otto Rock); that's fine. Just like coming to my house, if you can pop over here, keep me company, keep me from going stir-crazy, and not make a mess, then you're welcome to be here.

There's a few other bloggers who read my blog somewhat regularly: Biiwii, Jojo, and Brodrick, apparently. Quite seriously, I suspect there are a few more popular and important bloggers reading this too. I don't know what they're getting out of it, but obviously they think it's worth their precious time. Fine, let them read my stuff, as long as I don't have too much of an effect on their own narratives - last thing I want is to see my own thoughts become too popular, because then I'll be starting to affect the market, and I really don't want to deal with my own Observer Effect, not the least because I find it difficult to think recursively.

There are also apparently a few financial industry employees who read my blog - BMO, RBC, Verdmont, JP Morgan (can you help me join the Illuminati guys?), Allied Nevada, and a few others that I can't remember. For all I know, the readers are just low-level functionaries, and I'm kind of like their version of reading Dilbert; fine, no big deal, knock yourselves out. If it gives you a laugh while you're being paid to do something else, then it's time well spent I'd say.

What all these people have in common is that they don't complain about my swearing. Not just fuck shit piss cock fag queer swearing, but the more inventive stuff that I come up with. They don't mind the abusive language, insults, or flaming expressions of disgust.

Or maybe they do, but they have the common sense to keep it to themselves. Because I have no fucking interest in modifying my blog's language for my readership. What you're reading is the internal contents of my brain, and this is a brain that grew up around the sons of factory workers in (thankfully) the more working-middle-class part of a pretty tough factory town. The richest and poshest kid in my school was a British-born kid whose dad was a tool and dye guy.

Basically, my brain is a dirty and messy place, and rather than complaining about my language, you should be fucking happy that at least I'm not posting about neuroses, childhood abuse, the bar scene, my opinions on music, or the other crap that passes for blog content nowadays.

In summation: this blog is the inside of my brain. If you don't like it, and can't keep it to yourself, get the fuck out. Just like you'd probably accept that you have to right to tell me how to discipline my kids or style my hair or structure my portfolio, you have no right to tell these neurons that several decades of experience have wired them up wrong and they should change.

Either you love me warts and all, or you put up with the bits of me you like and keep your trap shut on the rest, or you walk out that door and try supporting yourself from now on.

Tuesday, January 15, 2013

Silverbugs and Sprottlings: 'splain to me 'bout silver

Saw some loon on Stockhouse nattering on today about how silver's definitely going to $100, guaranteed. I guess he must have recently come down with the Sprottvirus.

OK, explain something, all you silverbugs and Sprottlings.

The marginal gold producer mines gold at something like $1200/oz all-in costs. Thus gold is trading for $1200 plus a decent-sized speculative premium to take into account developing-markets investment demand.

The marginal silver producer mines silver at something like $24/oz all-in costs. The majority of demand is industrial production.

So how, then, will silver manage to go up to $100/oz, $200/oz, or even higher?

If silver goes to $100/oz, won't that cause demand destruction in the industrial market?

If silver goes to $100/oz, won't that bring a lot of new production onstream?

When does a speculative premium ever get to 3x the cost of production?

Is "supply and demand" just another piece of communist/Joo/socialist/Lizard People/statist/New World Order propaganda, no more valid than climate modelling or evolution?

I'll be patient. 'Splain away.

ZeroHedge is still fondling its dick about the German gold repatriation

ZeroHedge is still fondling its dick about the German gold repatriation.

As Germany Prepares To Repatriate Its Gold, We Hope They Have Learned From The "Monetary Sins Of The Past"

We only have time for this brief excerpt:

As initially reported here yesterday, in what is the biggest news of the week, and possibly the year, the Bundesbank has broken away from its "all is well" posturing exhibited as recently as three months ago, and in a dramatic reversal of its diplomatic position, has demanded repatriation of some of its NY Fed and all of its Paris-domiciled gold. We applaud Herr Wiedmann for this move, although we hope that the German people are allowed to witness, and verify, the arrival of the actual gold as opposed to simply empty crates. Of course, at the end of the day the actual delivery is irrelevant: what matters is this first shot across the bow of the current monetary system - one which juxtaposes sound money versus infinitely dilutable electronic fiat more than ever before - by a major conservative central bank, one in possession of the second largest official gold reserve, second only to the Fed itself. That said, we can only hope that the German request for gold repatriation is not met with the same enthusiastic response that France encountered when it too attempted to repatriate its gold held by London back in the 1930s, just before a whole lot of things in the global economy went horribly wrong...

And then it goes on about how it would have been such a great idea for France to repatriate their gold in 1931. Because, well, gold.

Anyway, what's more important in the article is the pretty stock photo of Doug Casey's basement:

Bespoke is trying to muscle in on my monopoly of snark

Bespoke - AAPL now 32% below price target.

Perhaps it's a more subtle and professional kind of snark when you can do it all in chart form:

What this chart might suggest is that anal ysts are fucking idiots, and their price targets are a fucking joke.

After all, Apple's dropped almost $200, and yet these clowns haven't cut their targets?

Then again, the open knowledge about Apple is that it's not retail-held; the only people who bought it up were the hedge funds. It was brought up almost a year ago (by someone, I forget who) that it would end disastrously, since the funds would have absolutely nobody to sell to when the stampede out began.

So maybe the anal ysts haven't cut their targets because they still hold out a dim hope that if they keep them high enough, they'll eventually inspire some retail hayseeds to give it some bid support? You know, about $400 billion worth of bid supp... um... yeah, wait a sec....

Hey, we see it all the time up here with the shitty junior miners, right? This is just 1000 times larger.

ZeroHedge explains why you heard a big kaboom this morning.

ZeroHedge - It Begins: Bundesbank To Commence Repatriating Gold From New York Fed.

Here's a quote, incomprehensible run-on sentence and all:

So we wonder: what changed in the three months between November and now, that has caused such a dramatic about face at the Bundesbank, and that in light of all of the above, will make is explicitly very unambigous that the act of gold repatriation, assuming of course that Handelsblatt did not mischaracterize what is happening and misreport the facts, means the "excellent relationship" between the Fed and Buba, not to mention Banque de France which will shortly hold precisely zero German gold, has just collapsed.

Also, if the Bundesbank is first, who is next?

Finally, once the scramble to satisfy physical gold deliverable claims manifests itself in the market, we can't help but wonder what will happen to the price of gold: both paper and physical?

That huge exploding noise you head this morning, therefore, was a million little goldbugs spooging themselves.

FT Alphaville on commodity volatility

FT Alphaville - Commodity volatility, where art thou? Interesting article, but I suspect it might be indicative of something else.

My assumption is that across the commodities, the futures/paper market is far larger than the physical (producing and delivering) market. It's definitely the case in silver and gold. If that's the case, then maybe the low price volatility is a result of the paper speculators having vacated the market and/or the paper price being more in line with the economic fundamental price. I.e., less speculative premium now exists.

After all, when speculators dumped their silver positions, you'd see the price fall far more than it should based on any change in economic data. We've seen that in the past couple years. But more recently, the silver and gold pukes that have accompanied Bernanke's beard getting within 2 inches of a microphone have been smaller, haven't resolved in week-long waterfalls, and have generally turned around quicker.

I'd think that the more the size of the paper market drives the price away from the fundamental price, the more volatility you'd get, since participants leaving would cause the price to drop much faster towards the fundamental price. A larger speculative premium would have to fall off.

So, if you had a paper silver market that was 50x the physical market, and silver started puking from $50 and dropping to $30, it's probably because the fundamental price was significantly lower than what we were seeing in the paper market.

That's one idea that I just came up with. Speculative premia are low right now.

Now, upon writing all the above, I have to add that I don't know what FT's chart's "1-mo realized S&P GCSI volatility" is. I'm assuming that it's a real measured volatility based on price data, and not a $VIX-style "put-call" function. If instead it is a put-call style "volatility", then maybe the $VIX situation applies instead - there's a sudden disinterest in downside puts. That would indicate a real bullishness for commods, no? But I'm guessing that that's not what we're looking at.

Just some uninformed speculation for you, is all.

For those who hate TA, a yellow line

The yellow line above is drawn exactly to conform to closing price, the way it's supposed to be.

Seems we're popping above that yellow line.

Dunno if that's important at all but I thought it was interesting when I drew it so why not inflict it on the readership?

Two small silver miners looking strong this morning

Fortuna Silver has popped quite strongly. I guess the bottom must be in for silver, eh?

Primero Mining has popped too, though you can't really see it cos of the chart scale.

Yeah, I don't own either of them right now either.

Which is probably a great contrary indicator.

Some newsbits

FT Alphaville - again with Chinese government stats and Benford's Law. As noted, China has been fudging their numbers, but only slightly. Really I'm only bringing it up cos Benford's Law is interesting.

Bonddad - US manufacturing looks awesome. Again, posted to try to drive it home that the US economy isn't suffering. And when the US economy is growing, what gold-purchasing third-world countries benefit from the knock-on effects on their own economies? Hm?

Beyond Brics - a string of bad news imminent from South African miners. And when South African mining collapses, what is the name of the yellow metal whose price should go up?

FT Alphaville - don't get too worked up about iron ore. And that means, in either direction. Because Chinese don't make rebar out of gold and silver.

Beyond Brics - Tata & Infosys suggest strong Indian growth. And when Indians get more money, what is the name of the yellow metal that they buy? Hm? Answer me! What is the name of the yellow metal that Indians buy when they get lots of money! Say it, bitch!

Monday, January 14, 2013

Guyana Goldfields ramps up on good news. Before the good news, actually.

Guyana Goldfields came out with some news this morning. They've cut the capex cost, I guess through staging the construction.

Here's their chart.

Note I said they came out with this news today. "Today" being Monday, January 14th.

But obviously the good news contained in GUY's updated feasibility study was available to someone on Friday, January 4th. I.e., significantly earlier than today.

Again, either you accept that this game is rigged and walk away, or you accept that this game is rigged and play tells like the massive volume, white candle and channel break on Jan 4.

The rules will never change to punish the kleptocrats, because the kleptocrats are the ones who were put in charge of making the rules.

There has never been a more wretched hive of scum and villainy than the TSX.

Morning market comment

Haven't bothered to post any market comments recently, mostly cos I'm just in a few unmoving exploreco positions and the market seemed to not want to commit to anything.

But I may as well throw up a few charts today.

I actually drew a line here, because for some dumb reason the line makes me feel hopeful. Despite indicators like Hulbert Gold being incredibly sentiment-negative, as Biiwii points out, GDXJ is not only bottomed, it seems like it's trying to sneak up on the SMA(50).

Which may mean nothing, I mean it all could reverse this week, but at least it seems we're getting closer to a possible "shit or get off the pot" time.

What would scare you right now with silver? SLV<$29 would scare me. What would excite me? SLV>$31 would be nice, but it's had a hard enough time these past few weeks staying above $30.

Emerging Markets (China, India, southeast Asia, and the Islamic world) buy a crapload of gold, and you know how I feel about physical demand (and dwindling supply) being the true driver of the gold price. So I'd be hopeful right now... except this chart doesn't look really hopeful at this point, does it? At the very least it looks like it's fixin' for a good long consolidation.

I dunno what would make EMs fall back right now, except perhaps some very negative US economic data. Are we going to be getting some of that this week? Or will we just see the entire world consolidate til it sees the result of the stupid debt "negotiation" crap?

And finally, the one stock I really care about:

PI Financial quit ramping up CXB in end Oct, then supported it on the way down through November & December as most of retail was selling. Now they're hiding in the depths of the L2, selling odd lots at the nearest ask then buying them back at the nearest bid.

But most of the tax-loss selling has now died off, and like every other pennycrapper CXB is just sitting there not really going anywhere. I guess now everyone's just going to wait for that exploration update that Clive Johnson from BTO promised out before the end of 2012? PI's got their >2 million shares, I guess they don't need more and can't get any more with a now-thinned-out L2. (The highschool co-op student who ramped them up in October probably isn't allowed to hit the asks anymore.)

Anyway, I'm sure CXB will come out with their results by Feb, since they (supposedly) are done drilling and have begun interpreting, and they do need something worth talking about for their PDAC presentation on Nicaragua.

Other than CXB, I've got a bit of Kaiser's NGE, two of Otto's worse-performing and most-illiquid producer picks, and... probably still some AQM that I haven't wanted to sell off yet.

Looking at the above, it does look like a very stupid portfolio, no? Then again, I haven't been convinced that the average producer will do more than tread water yet, so why not stay with explorecos with larger potential upsides? Kaiser convinced me with his argument that revaluation plays are done and we should all be looking for glory holes.

GDXJ does look nice, but what with the situation of EEM above I'm worried it'll fail down instead of burst up. So no reason for me to chase anything just yet. Let's see if silver can break $31.

Basically, I guess I have no clear opinion on anything, and don't care cos barring a market meltdown nothing should really affect my positions except drill results and development news.

It seems the rest of the market feels the same way, when you look at the L2s and see such little participation, or even buying or selling interest.

It does feel strange to not care about the market anymore, after having gone through the soap opera that was 2012.

But it's better for my health, I guess.

Sunday, January 13, 2013

Speaking of which, here's all of season 1 of Monty Python's Flying Circus

The episodes will probably get pulled down pretty fast, so if you've come to this post and all the boxes below are blank, that's why.

But anyway, here are all the episodes of Season 1 of Monty Python's Flying Circus, in case you have nothing to do all night.

S1E1 - Whither Canada:

(more after the pagebreak)

A primer on "drilling"

When a junior miner tells you they're doing "drilling", it's not supposed to end up like this:

My god... tungsten has its own website

I'm poking around the internet and I find out that there's a website all about tungsten.

Seriously. Tungsten. It is called Tungsten Investing News.



Anyway, here's an interview from the website with the CEO of some penny stock that I wouldn't invest in, but at least he introduces you to some of the problems with the tungsten junior market.

Now I await the discovery of "Praseodymium weekly".

Three news items for a Sunday

Three things of some importance:

The Gold Report - Erica Rannestad from CPM Group on platinum for 2013. Cash costs are skyrocketing, and some mines were actually shut down.

One thing that jumped out at me is that while Erica says the platinum price was weak due to perceived collapse in demand (that whole 2012 worldwide recession omgweallgonnadie thing), it never went below $1400, which is still 50% above the 2012 C1 cash costs.

This jumped out at me because it seems sensible to suggest the same low-end price limit for gold. It also jumps out at me because the platinum price is partly influenced by Chinese PM demand, which also has something to do with gold.

And speaking of gold, here's John Kaiser with a short comment on his outlook for gold:

Now Kaiser is famously anti-goldbug (he recently compared them to gun nuts), and very much a data-hound, so his prediction of $1500-$2000 gold and his deprecation of the $1200 long-term price is something that comes from a sensible mind. So I'll pay attention to that.

Dragonfly Capital - sentiment says stocks should soar, not sink. If you're at all a contrarian, then it seems prudent to note what Harmon says:

The rest of the day I heard no less than 25 other interviewees express some variation of that same pitch. Stocks can be bought after they fall. There is such a firm belief that the market is in for a correction that it is no wonder it is churning. Add in that many technical traders see things like the Volatility Index at tiny levels and the market Indexes like the S&P 500 below at multiyear highs or near triple tops and it gets even easier to sit and watch. 

But shouldn’t all of this negativity be a contra-indicator? If everyone is negative then noone else can become negative, so the top in negativity must be in. Ralph Acampora, the Godfather of technical analysis, stated recently that in his over 40 years in the market he has never seen a more negative collective view. This gets him, and me by the way, very bullish.[...]

Now, I'm sure we all know one of the pitfalls of contrarianism is that a bearish market can always get more bearish; hearing the "ringing of the bell" is an entirely gut thing that just doesn't seem to be quantifiable, and it always stuns me when some market commentator manages to buy the bottom tick. But the broad US market has accomplished nothing more than being bearish while going sideways. And guess what? The bearishness comes at least partly from everyone expecting a huge collapse caused by debt ceiling bullshit. That does indeed look like a good setup for catching the rest of the market participants flat-footed, no?

Peter Brandt - Australian dollar setting up for a huge surge. Some interesting things to note here:

1. I thought China was going through a major collapse, and so Australia had seen their economy destroyed? That's what the LameStream media was telling us all year! But the AUD chart looks too sedate for this to have been true.

I guess we were all being lied to, eh? The data says something different, eh?

2. Here's a simple fucking formula for you: Strong AUD means strong China and strong base metals.

3. With that in mind, I'll assume he's not predicting the AUD to pop, he's only saying that if it does it'll be a good place to make a quick buck. I'm pretty sure Brandt's not an idiot and all he's saying is he sees a trade setup with high risk-reward and an obvious stop point to limit losses.

But still. If AUD does pop, then maybe we get happy times in the junior miners again?