I don't think the February 21 & 22 Resource Show in Phoenix generated the kind of web noise it should have, so I thought I'd review my notes - which I tend to take a lot of - and see if I can promote some more thinking about what happened there. In the following paragraphs, parentheses are normal parenthetical comments, while brackets [ & ] are my own contributions here.
I've been to about 10 of these gold, hard assets or resource shows, beginning in San Francisco in 2002, including New York and the famous New Orleans conference. I've gotten to know speakers and mining company personnel, along with newsletter writers. I have listened to both good and bad speeches and plowed through mega tonnage of company annual reports and newsletter evaluations. At the September 2008 Hard Asset Show in Las Vegas, I was a speaker, talking positively about the ongoing bull market in gold shares, and trying to generate publicity for my book at www.financialfoghorn.com. While I would no doubt be considered a novice as a gold miner, I do have some experience at sifting through detritus at mining shows.
First off, Phoenix seemed more obviously political than the shows I've attended in the past. It could have been because it was a Cambridge House show, and they're Canadian, and tolerant of beliefs in how badly the U.S. has run itself the past few years. The speakers may have felt a little less constrained in saying what really believed.
Maybe it seemed more political because most of the small audience of 600 or so were living near one of the retirement homes of former Presidential contender, John McCain. Or, maybe because the audience seemed inordinately composed of elderly white guys, and the speakers just gave the Barry Goldwater crowd what it wanted. When speaker Greg McCoach called for the abolition of the FED, he got rousing applause. This wasn't just a pro-gold crowd, it was an anti-government bunch.
Maybe the political rebels were out of the closet because the show provided a showcase for the Gold Anti-Trust Action committee (GATA), with founders Bill Murphy and Chris Powell being given speaker slots. Other speakers, who have endorsed GATA's solid evidence of financial meddling in the gold markets over the past decade were also featured, such as Peter Grandich and Ted Butler. It was nice to finally see newsletter writer acceptance of Bill and Chris's efforts. [Full disclosure, I've been on www.gata.org's daily emails and Bill Murphy's www.lemetropolecafe.com for years. I've also been a financial contributor to GATA.]
Whatever the reason or reasons, the speakers expressed a political sentiment that gold and silver represented personal liberty as well as financial protection for the troubled days ahead. Well, ok, if gold as the protector of individual liberties for investors is now on the table, fine. It's just another reason in a long list of reasons for learning about and investing in an ongoing bull market in precious metals.
Other differences with this conference were that the lineup of speakers were mostly newsletter writers or commentators, not mining companies. Usually, if a commodity company buys a booth in the exhibition hall, they get a 10 or 15 minute speaker slot to PowerPoint their wares. There were only about 24 mining companies in the exhibition hall, and I counted about 13 actual mining company presentations from the main stage. On the other hand, there were more like 23 main stage presentations by newsletter writers and that wasn't counting multiple speaker panels. I took this as an attempt to give the audience the benefit of third party sources of mining info, rather than a lack of mining companies in attendance. It was a refreshing change from the mostly company presentation format.
My Top Five Highlights
And the speakers were terrific. Since covering them all would take as long as the conference, I'm going to focus on my top five, excluding Murphy and Powell whose work I've already endorsed and are outlined at www.gata.org.
The big treat for me was seeing and hearing Ted Butler, as far as I'm concerned the best silver analyst writing today. Cambridge is to be commended for attracting the reluctant philosopher, Mr. Butler, who spoke for the first time ever at a resource show of any kind. His bullish Past, Present and Future of Silver presentation is available here. Ted hasn't and didn't make specific stock or futures recommendations. But, he does like silver at anywhere near current teenage prices...
Peter Grandich, now posting his newsletter at http://grandich.agoracom.com was a speaker and the Emcee on Saturday. A self-described "recovering materialist", he recommended www.iousamovie.com, strong currencies like the Swiss Franc and the Canadian dollar, and the Central Fund of Canada (CEF).
Jason Hommel's presentation in a Q & A format, can now be found here. He underscored our problems with fiat currency with the statement that, "History will look back on our economy and say that people used little slips of paper with numbers on them. It was a society that ran on magic beans." Jason sells, and says he has silver bullion available for sale at his website, Silver Stock Report.
Finance guy Eric Coffin, who publishes Hard Rock Analyst with his geologist brother David, said intelligent things such as "There are no widow and orphan stocks. You must be willing to trade anything you trade." "Base metal stocks trade down to the cash costs of mining. Zinc, copper, etc. are close to that point." [But as John Templeton said, they may not go UP immediately from that point.]
As for specific stock picks, Eric liked Nevsun Resource (NSU) because the government which owns 40% of NSU now, must write a big check in 2010 when their Eritrean mine goes into production. He also liked producer Mag Silver (MVG) with their high grade mines in Mexico and a soon-to-be unsuccessful take-under bid by Fresnillo.
[I'm partial to producers and near producers these days, not knowing what to make of the timetable of this downturn for the explorers and developers. It isn't just cash that's king, but cash flow nowadays. I would suggest that cash flow devotees should include producers First Majestic (FRMSF.PK) producing 4+ million ounces a year, and Endeavor Silver (EXK) heading toward 2 million ounces of silver per year in production. Both were at the show and both presented effectively.]
And then there was Sunday, when Roger Wiegand talked. Roger was on an earlier Bailout Panel, and displayed his knowledge of the auto industry, but he really represented the sense of this show with his 30 minute presentation on Sunday Morning. Details are in order here:
In general, he echoed others' predictions on the demise of gigantically stupid derivatives world. He also added his own Cassandra-like warning of a 50% drop in the dollar over the next two years, and another "Bank Holiday" within a month. He specifically recommended the ProShares Ultra Short Bond Fund (TBT) for these events.
Then he warmed to his topic and delved into the really gloomy. He said there were five (5) negative events converging in May that would smash stock markets AND gold shares. [My emphasis added for the shares part.]
1. The second wave of mortgage foreclosures is coming to the Alt-A borrowers, and presumably the giving up of the ghost by the last subprime folks, many of whom are now unemployed and have only been delinquent yet unforeclosed at this point.
2. The dying of REITs and the commercial mortgage markets, most of which is being denied, is on the way.
3. The Credit Card crunch is coming, with over $40B in securitized credit card loans that may not be repaid, along with the realization of Americans' inability to pay off their $2 trillion in credit card debt.
[Last week, American Express (AXP), partially owned by Warren Buffett, and considered a "high end" issuer, announced that it would pay some of its non-performing credit card clientele to "pay up and go away" with a $300 parting gift. I consider that news a heady hint of card issuer problems ahead. Perhaps the aggressive types should consider shorting Visa (V), MasterCard (MA), or Discovery (DFS).]
4. Auto Loan problems. Forget the bad old news of car companies not writing auto leases anymore because they couldn't sell the returned SUVs for what the lease contract said they'd be worth at surrender time. Forget the closures of thousands of car dealerships. Forget the possible structured chapter 11s later this year of General Motors (GM) and Chrysler.
This summer's problem will be with the finance subsidiaries of GM, Ford (F) and Chrysler and perhaps even the foreign car manufacturers' finance subs. People who have lost their jobs and aren't paying on their mortgages, probably aren't going to be making payments on their vehicle loans either. You can write down all those auto-loan secured bonds floating around. [Short 'em if you got 'em.] Roger singled out GM for special praise in that GMAC (GKM) not only made car loans, but owned DiTech Funding, a big player in home loans.
[By inference, I can speculate that a whole lot of billboards with DiTech mortgage rates on them that are probably coming down. If they hadn't already been hammered, perhaps you could short the outdoor advertisers... CBS (controlling owner of CBS Outdoor) and Viacom (VIA). CC Media, the old Clear Channel outfit (CCMO.PK) at $.75 may be too cheap to short. And you can probably hold off buying the auto parts suppliers yet. It's too soon...]
5. And finally, there are Credit Default Swaps, known as CDSs for those of you without acronym exhaustion. Roger said these are the real problem. [CDSs are derivatives, whose price is derived from another security, that are intended to insure a buyer against some sort of credit "event" which the buyer is worried about - like a downgrade in a credit rating, or God forbid, a bankruptcy. These are like a private two party insurance policy, except they haven't qualified as an insurance policy in any state or jurisdiction on planet earth.] Roger pointed out that there's no margin money put up behind a CDS, no clearing house for trading, no credible posted price, no deposit insurance mechanism, and sometimes no insurable interest. Many of these are just guys betting that a company over there somewhere might have some trouble down the road.
With something over $60 trillion of over the counter CDS monsters, lurking about on financial balance sheets around the world, any kind of bad financial news from the Roger's first four problems should produce extremely exciting financial fireworks ahead. Adding CDSs to the market and credit debacle will be like dropping dynamite on a forest fire.
Ok, it should be said that professor Wiegand said these things in the context of being a newsletter writer, and he was offering a free one month trial of his newsletter at his booth. It has been known to happen that newsletter writers speculate wildly in hopes of selling solutions to the doom they predict. And the profit motive of newsletter writers is still considered legal in America...
BUT, I'm willing to give some merit to a lot of what the white haired fellow had to say. And I will certainly do some more investigating of his five points on my own.
Most of the speakers pounded upon the need to own physical gold and silver, and a lot of cash in a safe currency in times like these. Longer term, mining shares should fly.
To sum up, this was a very interesting conference for the speakers and the views expressed. For those of you with a good supply of anti-depressants or legal pain killers, I'd certainly recommend attending a gold show, even a gloomy one. Being forewarned, although sometimes depressing, is still better than getting surprised in these markets and waking up broke. Investing, like old age, isn't for sissies.
[With precious metal shares possibly getting a repeat of 2008's hammering in the very near term, you may want to consider shorting against the box - being long and short the same shares.]
Disclosure: The author is presently long, in order of appearance, CEF, MVG, and FRMSF.PK.
