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JakilaTheHun (99.93)

The Hun's New Invasion - Brazil, Gold, Nuclear Power, and Bill Gates' Energy Vision

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March 29, 2010 – Comments (17) | RELATED TICKERS: RSH , GLD , UPS

Here are the items that have intrigued me the past couple of days:

 

Small Modular Reactors:  A Nuclear Game Changer

Link - Seeking Alpha

This is an excellent article on the development of small modular reactors and how this could be one of the most important innovations of the next few decades.  

 

Bill Gates on Climate Change, Energy Costs, and Nuclear Power

Link -TED Forum (You Tube)

Bill Gates lays out the dangers of climate change and the best possible energy solutions for the problem.  Leaving my summary at that, however, would short-change this presentation.  Gates gives a lot of useful data about energy costs and carbon creation over the past century and lays out one of the most important economic truths --- growth and prosperity are inversely related to energy prices. 

Bill Gates is absolutely right on energy policy and lays out his case in the most elegant of fashions. He has concluded that innovations in nuclear power generation make it the best solution to our climate and pollution troubles.  If only we could have more innovative leaders like Gates in government --- but alas, that's why I'd prefer to balance our budget, lower taxes in the long-run, and put more money in the hands of private entrepreneurs who can really make a difference.  


For Brazil, It's Finally Tomorrow

Link - Wall Street Journal

A great article analyzing Brazil's economic ascendancy and the hurdles it still must overcome to become a world power.  All we hear in the Wall Street media is China, China, China, but I actually think that Brazil might be better positioned for sustainable economic growth in the next 30 years. 

 

Government Deficit Reduction:  The Ireland Model

Link - Seeking Alpha

Another article highlighting the problems that will be associated with excessive governmental debt across the world.  It's examined through the lens of Ireland's deficit reduction measures and their impact. 

 

Gold Stocks vs. Gold ETFs: A Free Cash Flow Horror Story

Link - Seeking Alpha

The author posts the Free Cash Flow figures and the Price/FCF ratio for several gold miners, suggesting that the numbers don't look good.  The suggestion is that gold ETFs have performed better with time, in spite of the fact that gold bugs tend to have an irrational hatred of them.  I've been saying for quite awhile that gold mining is one of the most overvalued sectors on the market.  I'm less skeptical of physical gold, but the gold miners are priced as if gold prices will soon be $2000/oz and costs won't increase.  

 

PR Firms Find Fertile Ground in World of Online Reviews

Link -Washington Post

Somewhat disturbing article about PR firms and online reviews.  Some of this is to be expected (and indeed, I think most of it have suspected it a lot of places).  This article particularly casts a negative light on Yelp, which seems to allow companies to chose which reviews get highlighted based on their contributions to Yelp.  

 

US Postal Services Consider Job and Service Cuts

Link - Washington Post

To me, this is one of the most unfortunate news stories that has not attracted much attention whatsoever.  Washington politicians have been throwing money around like drunken rich kids and meanwhile, we're talking about cutting 40,000 postal jobs and cutting Saturday delivery service?  How on Earth does it make sense to bail out the highway fund eight gazillion times (the same highway fund that politicians have refused to raise gas taxes for so that it will be funded solely by usage fees rather than general taxes) --- but cut Saturday postal delivery service? 

Look, the US govt is pretty inefficient on most things, but if there's any valuable US govt service out there, it's mail delivery.  Small business owners have overwhelmingly voiced their displeasure at potential cuts in Saturday service.   And private companies simply won't service more remote/rural regions of the U.S.  I'm in favor of any infrastructure that creates huge value for American business owners and the USPS is one thing we've done right.  So why screw up a good thing?

The only good argument against it is that it should be subject to market forces and those forces say the USPS is losing money.  But ... so what?  I'm about as fiscally conservative as one can get, but the loss that the taxpayers would absorb is extremely minor --- especially when you start comparing it to our entitlement program nightmare, with Social Security leading the charge to futility. If we want to save money --- start cutting excessive military spending and phase out Social Security (before it goes bankrupt).  Paying for USPS Saturday service is just a few pennies from the bank in comparison. 

 

CEO Could Reap $93 Million in Event Radio Shack is Sold

Link - NY Post

An article on the fortune Radio Shack CEO Julian Day would obtain if Radio Shack were outright sold off.  There seems to be a view that Day wants to completely cash out and is trying to arrange a sale in order to do so.  Is this big news?  I don't know, but it does remind me of one of the most hilarious Onion articles I've ever read:

Even CEO Can't Figure Out How Radio Shack Still in Business


That's all for now. 

17 Comments – Post Your Own

#1) On March 29, 2010 at 1:37 PM, JakilaTheHun (99.93) wrote:

Ha!  TMF needs to allow an edit button for 15-30 minutes after posting.  I know I frequently make a bunch of little minor mistakes hastily putting these things together, but leaving "news" singular is smack-in-the-head worthy. 

Oh well ... guess we'll have a shiny "new" invasion, rather than a "news invasion".  

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#2) On March 29, 2010 at 1:42 PM, vriguy (71.49) wrote:

Sorry, even the singular form is news.

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#3) On March 29, 2010 at 1:46 PM, Tastylunch (29.28) wrote:

Jakila

I've been thinking about Brazil. This year is going to be a very importnat year for them I think, it's the end of Lula's run for one. He was a transformative politician. A rare breed.

But the other is that China is a such large customer of theirs I can't help but wonder if Brazil itself in a way is also a China play. If China slows down I suppose we will get our answer.

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#4) On March 29, 2010 at 2:06 PM, JakilaTheHun (99.93) wrote:

Tasty,

Good point on China's Brazil buying.  The Brazilian markets could be at a short-term peak right now; it's tough to say.  Long-term, however, they seem to have much better ingredients to mix the stew:

(1) Abundance of resources

(2) Lower population relative to places like China and India

(3) With the exception of Antartica and Africa, South America is probably the most undeveloped continent. 

(4) Brazil potentially fulfills a giant void in South America as regional economic/political power.  The US has traditionally had more power in South America than any single S.A. country, but that grasp has always been a bit tenuous at best.  Brazil has the potential to become the U.S. of South America.  

(5) Governmental direction is key.  Brazil has a whole host of problems, too, but the biggest ones relate to rampant corruption.  However, these problems can be fixed by powerful leaders.

(6) Brazil's underground economy is an issue, but it can also be fixed rather easily by intelligent economic reforms.  Whether the Brazilian government can ever enact such reforms or has the will to do so is a question, of course.

(7) Change of culture in Brazil.  Brazil was known for being reckless with finance (like most of South America) and having a terrible environmental practices.  In the past few decades, Brazil has arguably made much more progress on environmental matters than much of the developed world and they seem to have a culture of fiscal responsibility now.  

So all in all, I'm not suggesting that people go out and buy up Brazilian stocks.  Simply that from a long-term geo-political/economic perspective, I believe that Brazil has a reasonable shot at pushing itself closer to the developed world over the next five decades or so. 

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#5) On March 29, 2010 at 2:35 PM, XMFSinchiruna (27.49) wrote:

"The suggestion is that gold ETFs have performed better with time, in spite of the fact that gold bugs tend to have an irrational hatred of them."

"I've been saying for quite awhile that gold mining is one of the most overvalued sectors on the market."

"I'm less skeptical of physical gold, but the gold miners are priced as if gold prices will soon be $2000/oz and costs won't increase."

 

I can't wait to see your evidence of gold miners being priced for $2,000 gold. We're all waiting with baited breath for you to substantiate your claim that avoidance of several popular bullion proxies is somehow irrational. Do you have any knowledge whatsoever of the paper market for gold and how it operates? Do share with us your methodology for determining fair value for mining stocks. None of us can resume our investing activities until you divulge these priceless secrets.

Sorry for the heavy-handed response, but Fools wishing to promote rational discourse have got to bring evidence to the table when they make such outlandish claims.

You want cash flow? Here's your cash flow:

http://www.fool.com/investing/general/2009/11/09/cash-flow-4-gold.aspx

http://www.fool.com/investing/general/2010/02/26/newmont-strikes-golden-cash-flow.aspx

http://www.fool.com/investing/general/2010/03/08/beyond-the-sterling-standard-in-silver.aspx

 

 

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#6) On March 29, 2010 at 3:07 PM, JakilaTheHun (99.93) wrote:

Sinch,

I like a lot of your analysis and there's a reason why I read your articles.  But I also can't help but to feel you've become too emotionally attached to the sectors you cover.  

I'm not saying that I couldn't be wrong on gold miners.  I always hlod out the possibility of being wrong, which is why I position my portfolio in a way to benefit regardless.  

My issue with your analysis is that there's absolutely no skepticism at all.  You are completely gung-ho all the time on everything gold.  And any time you are challenged, you get overly emotional and start lashing out at other people.  

I've enjoyed a lot of your columns and feel like you do pretty good work on a lot of commodity-related stuff, but I can't simply blindly follow an all-gold-all-the-time paradigm.  It's a great way to lose to the market long-term. 

 

I'm not going to read all three of your articles, but on your first article, you point to Goldcorp's operating cash flows and ignore capital expenditures.  This can be a useful metric, especially in industries which typically see price appreciation of capital assets over time (like REITs), but I'm not so sure that I would take it as quite as important for gold mining. 

GG's free cash flows for FY '09 were negative.  Once you take out currency translations and working capital changes, operating cash flows were about $830 million or roughly $1.14 per year.  Net tangible assets are worth about $20.  I'd say based on that, it's fairly pried around $37.  And I'm actually much more positive on GG than most gold miners, because they're actually producing some cash flows. GG is not one of the miners I'm all that bearish on; but the sector in the aggregate is overvalued in my view.  

Still, I can't see that as an incredible value and it's mostly been trading sideways since September.  If you invested in GG in September, you would've made a slightly negative return, whereas if you invested in quality REITs and commercial banks, you could've made a fairly hefty return. 

Simply put, gold is a crowded trade right now.  REITs and small commercial banks have not been "crowded" over the past 6-12 months. 

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#7) On March 29, 2010 at 3:11 PM, JakilaTheHun (99.93) wrote:

And actually, now that I re-read my last post, I realize that my method of valuing GG might've been rather aggressive in and of itself, since I totally ignored CapEx. 

I can't see much of a reason to buy in.  The upside seems rather limited to me and the downside could be in the $25 - $30.  If you want a high-return investment, I think there are better places to invest.  If you want a safety investment, I think there are better places to invest.  If you really want to invest in gold, I think physical gold is a better "safety" investment than gold miners. 

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#8) On March 29, 2010 at 3:49 PM, XMFSinchiruna (27.49) wrote:

JakilaTheHun

Your criticism is entirely unwarranted. I only get fired up when people bring unsubstantiated claims to the table. I remain entirely objective in my analysis of the macroeconomic environment and its relationship to the gold and silver markets... when those economic fundamentals change, I will be ready begin reversing my bullish stance. The point is, my analysis continues to be based upon voluminous and meticulously gathered evidence ... something that was lacking in your comments about gold above.

The only thing I get emotional about is when my fellow Fools are fed careless or unsubstantiated claims about such an important topic. If you had the facts in your corner, I would be happy to agree with you.

It is false to claim that there is no skepticism in my articles. If you've read them all, then you'd know I hold no punches when pointing out the underperformers of the bunch. It just so happens that, in fact, we remain well inside of this 9-year bull market trend for pms... so in this environment the majority of quality equities present compelling opportunities. Meanwhile, Fools that were paying attention could have avoided the recent correction as I divulged that I was reducing my precious metals exposure on the eve of gold's retreat from $1,220. I think the archival record of my picks speaks for itself. My bullish stance on many gold miners is not due to a lack of skepticism, but due to the fact that I happen to be covering this sector of the equity market with one of the strongest pillars of fundamental soundness beneath it.

No one asked you to "blindly follow" anything. You chart your own course. I'm just here to keep the facts straight.

I have no comment on your GG stuff... I am a long-term buy and hold investor... so any discussion of performance over such a short time frame as September to now is meaningless to me. It sounds to me, however, like you're completely discounting the strategic growth initiatives of 2009 in your assessment of GG. You will find I have written much on GG lately and why I feel it is the singular best name among the majors.  

This is my response to those who mistakenly claim that GG is fully valued. It commands a relative premium, but with good reason:

http://www.fool.com/investing/general/2010/03/15/grab-a-slice-of-goldcorps-growing-fortune.aspx

 

I never expected you to agree with me... I just chimed in to point out that your statements about sector-wide valuation, price assumptions, and bullion proxies lacked any evidence in the presentation. If you can counter my positions with evidence rather than spurious accusations about me somehow lacking the proper distance from my topic, then I think all would be better served. I see it time and time again... all I ever ask is that we discuss topics on the merits, and not resort to irrational presumptions about a debate opponent's state of mind or emotion. Such personal attacks are usually the first sign that one lacks the evidentiary basis to substantiate one's position.

 

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#9) On March 29, 2010 at 6:21 PM, TigerPack1 (96.12) wrote:

In a stock smack-down argument between Jakila and Sinch, I will put my money down on Jakila EVERY TIME!!!  LOL

I like Sinch also, but one is playing checkers - the other is playing chess.

-Tiger's Two Cents  (That's all I have left after shorting gold and silver the last 9 months, at the end of a boom!!!)

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#10) On March 29, 2010 at 6:25 PM, TigerPack1 (96.12) wrote:

By the way, if the price of oil (energy for mining) keeps rising and the selling price of metals fall 20%-30% the rest of the year, the entire precious metals industry will be operating at a LOSS on average.

Just thought I would through that tidbit into the argument.

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#11) On March 29, 2010 at 6:59 PM, XMFSinchiruna (27.49) wrote:

TigerPack

Everyone is entitled to their opinion. :P

Your comment #10 is somewhat nonsensical. Of course they would lose money if gold were to drop 30% and oil were to rise aggressively. That's about as obvious as saying taco bell will lose money if the price of lard doubles while taco prices are cut by a third. I'm afraid that adds nothing to the conversation. Besides, I seem to recall you were a proponent of $2,000 gold. N'est-ce-pas?

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#12) On March 29, 2010 at 9:25 PM, TigerPack1 (96.12) wrote:

$2000US gold in 5 years, Yes.

Notice on the charts that the best relative and absolute performance for gold stocks as measured by the XAU and GDX the last several years, occurred between November 2008 and May 2009.  During that span the price of gold rose 30%, while the energy cost mining input of oil/gas declined 20% concurrently. 

Since May 2009, the gold stock indexes and price of gold have underperformed the S&P 500 and Russell 2000 by a wide margin, as the price of oil keeps climbing.

The problems for gold and gold stocks in 2010 are many, from rising oil prices, the beginnings of much tighter money policy in most every emerging market and soon western, industrialized nations, on top of clear mining stock overvalutions and over-enthusiasm by investors versus the last 20 years of gold and silver market history.

After we get a sizable drop in gold from "liquidity" concerns and a bear sell-off in the stock market again in 2010, combined with a new crisis in the Middle East (ie dealing with Iran), surely increasing pressure on mining profits will translate into continued underperformance versus regular stocks and many other asset classes.

I will be buying gold again around $800US an ounce later this year for the next ride higher, as hyperinflation concerns and yet more money creation take place in 2011 to combat new economic difficulties later this year.

Keep your eye on all the moving pieces in the chess game, to figure out where we will be sitting in 5 or 6 moves from today.

-Tiger Talk

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#13) On March 30, 2010 at 7:47 AM, XMFSinchiruna (27.49) wrote:

TigerPack

Since no living human being can consistently predict the short-term gyrations in equity markets, oil prices, monetary policy, liquidity contractions, market sell-off events, and crises in the Middle East as you appear to claim the capacity to do, I maintain that my long-term buy-and-hold approach to the precious metals market remains the more rational approach to investing in the sector within the context of a long-term bull market cycle.

If your $800 gold never comes, you will be left out in the cold. Not only would you then not be winning in a game of chess, but you wouldn't even be sitting at the table. If your crap shoot pays off, then I congratulate you ... it would either mean you're incredibly lucky or the smartest guy in the room.

I sold 10% of my gold and silver exposure in December at $1,220, and repurchased most of that after early February near $1,080. That's as much gambling as I am willing to do with a trading mentality within this extremely volatile (and rigged) market. I have my finger on the pulse of this market, and I possess a comprehensive grasp of the macroeconomic cogs in the machine.

It remains to be seen the extent to which another indiscriminate equity liquidation event would drag gold and silver lower. I believe that perceptions about safe haven assets have shifted dramatically since the last go-around. I predict a far more muted and short-lived impact on gold and silver next time... followed by a dramatic surge as the metals rise in prominance as the safe haven of choice ... the safe haven of last resort.

I believe that $1,000 is the new floor beneath gold. While it is not inconveivable, it would take an extraordinary turn of events to break that floor. Of course, you already know that  ... you've seen it in your crystal ball. :)

We agree on the destination, but disagree on the investment strategy. Time will tell reveal which approach is best conceived. By remaining long, I am at least guaranteed a seat at the table. I wish you, and all Fools, the best of luck with your particular investment strategy. 

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#14) On March 30, 2010 at 8:30 AM, TigerPack1 (96.12) wrote:

I believe you just PROVED my point, thank you.

There are between 5000 and 10000 other stocks out there, besides gold and silver... My choices are not limited to red or black checkers, with either gold or cash investments as my only possible choices.

During the past year, Jakila and myself have been owners and proponents of REITs as much better investment ideas to gain during the coming inflation environment, than most other "stocks" including precious metals miners.

Over the past 12 months, REITs have risen ON AVERAGE 100%-150% in price, versus the XAU or GDX gold miner rise of less than 50%.  On top of the price gain, many were paying in excess of 7% in annual dividends a year ago, with many still above 5% today.  Gold miners do not pay current dividends to owners and are not leveraged the same way to rising rates of inflation that DIRECTLY affect the value of the underlying assets.

As Jakila mentioned above, the REITs were particulary underowned the past year by the average investor, versus the over-ownership of gold assets during the same period.

It makes more sense to search for investments in beaten up sectors if you want to "earn" a high mulit-year return on your money, as the hot sectors are usually over-valued and over-researched by millions of participants.

Limiting yourself to one sector of the market is rarely a successful strategy, especially if a one or two-year underperformance span is playing out.

-Checkmate

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#15) On March 30, 2010 at 4:39 PM, XMFSinchiruna (27.49) wrote:

If gold never breaks below $1,000 and instead surges beyond $1,500 over the coming year while the remaining equity sectors grapple with renewed liquidation and the mother of all double dips, then it's checkmate on you.

Like I said, time will tell whether staying invested in gold and silver right now or remaining on the sidelines awaiting a fantastical low of $800 proves the superior strategy.

I sure hope you watched the testimony at last week's CFTC hearings...

Anyway, this conversation is going nowhere... peace out. :)

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#16) On March 30, 2010 at 6:01 PM, TigerPack1 (96.12) wrote:

Here is a chart comparing REITs, Gold Miners, the Gold price, the Oil price and the S&P500 performance the past 12 months, on Yahoo! Finance...  http://finance.yahoo.com/q/bc?t=1y&s=GDX&l=on&z=m&q=l&c=usl%2Cvnq%2Cgld&c=%5EGSPC

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#17) On August 09, 2010 at 9:26 PM, XMFSinchiruna (27.49) wrote:

Silver Wheaton is my largest equity holding by far.

From March 30, 2009 at $7.88 to $15.41 on March 30, 2010 = a 96% gain. From March 30, 2009 to the present day (at $19.83), the stock has increased 152%.

I don't like to flaunt equity gains, but if you're going to swing swords I will swing back. :)

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