RPM....CBs are not clueless. Perhaps "desparate" is a better word. The people that run the CBs are highly educated. They are not idiots. But they also know that there is no easy way out of the massive debt expansion in the world the past 40 years. They are influenced or manipulated by political forces trying to stave off the inevitable. Bernanke knows the end game of debt expansion (sovereign debt now, replacing private) will be worse than the 1930s. That is why he wants so desparately to put off, but k,nows he cannot not avoid, the end game. He might reason that he can hold it off long enough that he passes into the night himself, before the tidal wave hits.
RPM...to answer your point about timing: I am not sure when gold will catch up to the printing of fiat currency. My gold holdings are a hedge, not an investment. I want to make sure if fiat currencies collapse, including the dollar, that I have something left to take care of my family, and perhaps even buy up assets at a bargain. So, I hold gold both physical and derivative.
RPM...this is the ultimate joke. CBs are not selling, they are buying, especially the under-gilded CBs like China, Russia and Brazil. This is not the 1980s and 1990s when money was sound, MS was contracting and interest rates were falling. It is just the opposite. This is the era of weak money and printing to infinity. Gold MUST go up as fiat currencies are expanded beyond any historical precedent. American MS is approaching 25% of GDP but is historically 6%. Yen will double every year at the current rate so Gold should also double as valued in Yen. In $$ terms, strictly on math, gold should be 5X its price in 2007 when MS was $800B. It should be approaching $3000 / oz. with MS approaching $4T by year end.
There you have it....the Wall Street wannabees all do whatever GS says to do. It is amazing to me. GS is G-D on Wall Street and there are so many lemmings who do whatever they are told. GS is probably preparing a massive buy program as they talk gold lower. Reminds me of how they have talked up the stock market ever since March 2009.
For those of us who buy physical gold as a hedge against irreponsible central banks, not as an "investment", I am hoping to buy more gold a lot lower. Let the weak hands sell their paper. I will be there to buy the physical as gold is bid down.
Gold Has Held Its Value Over The Last 2,500 Years: Fact Or Fiction? [View article]
The analysis is a little flawed if one is looking to determine if gold maintains its value. Comparing gold to a number of other basic commodities only shows relative value between the two commodities at any point in time. It does nothing to demonstrate absolute value of gold versus fiat currency over time, the basis of its true value. For this we should look at gold versus the British pound, which has the longest running record of any sovereign currency. The record shows that the pound has been devalued from 1 pound per ounce of gold in the year 1200 to over 1000 pounds per ounce today. This shows that gold holds its value over time much better than the bread comparison (since the production of a commodity like wheat is impacted by technology / improved productivity as much as change in value of the currency).
Gold Has Held Its Value Over The Last 2,500 Years: Fact Or Fiction? [View article]
Bread is a poor metric for comparison because it has not held constant over 2000 years in terms of productivity. Modern technology has put a lid on wheat prices in spite of continuous devaluation of any fiat currency in which it is measured. Wheat was $5 a bushel in the early 1970s. It isn't far from that price today. But there has been 5 or 6 fold inflation since the early 1970s in other consumables. Bread itself also benefits from great improvements in baking and packaging technologies. Productivity must be factored out of the equation to get a true idea of fiat currency devaluation over time.
Prior to 1800, there was little technical innovation in production, so the change in a currency such as the British pound from the late 1200s when its value was first recorded, is more instructive. The British pound was worth about one ounce of gold in 1270. Today, it takes around 1000 pounds to buy one gold ounce. There is a true measure of the value of gold as it measures a 1000 fold decline in the value of a unit of currency such as the British pound
A Short History Of Commodity Bulls; Why This One May Be Different [View article]
Tal, not quite true, though I appreciate your sentiments. We had quite severe business cycles in the 1800s when currency was gold and silver. There was not ability to "print" during that era. All that could be done to increase money supply was mine more metal (the basis of the 49er gold rush) or steal it (as the Spanish did from the Incas or the British did from the Spanish).
In the 1800s, recessions were always deflationary because there was no ability to soften the blow by monetary expansion. It was harsh, but it worked. Price stability was the result. The only time price was destabilized was during a period, like the Civil War, when fiat currency WAS printed to pay for a war effort.
Business cycles are inevitable as a result of fear and greed. At times of greed, more capacity is created than demand can consume. Prices drop resulting in eventual deflation. At times of fear, production shrinks until demand exceeds supply and then prices recover. There is no need for stimulus. Human nature takes care of the economy on its own.
Pengrowth Energy And Penn West Petroleum: Not In-Sync With Oil & Gas Prices [View article]
ESP: I disagree that management has made no difference. Of course, it does which is why the management teams have been swept aside. But you do make a good point which is the drop in price of Nat Gas so dramatically last year. Both companies (like all the Canroys) make very good use of hedging strategies to lock in cash flow, using mostly collars. They do this because of their royalty trust history and the need to generate consistent dividends. With nat gas dropping and staying down for a period, the collars are expiring and subjecting Canroys to the present market conditions. If pricing can firm, then PWE and PGH can re-establish collars at higher prices around $4.50/mcf or at $95 / bbl.
Pengrowth Energy And Penn West Petroleum: Not In-Sync With Oil & Gas Prices [View article]
Bob, I agree with your first conclusion and disagree with your second. Yes, the managements of both have been atrocious and have gotten their due. But with better management, why can't both cover their dividends?
Pengrowth Energy And Penn West Petroleum: Not In-Sync With Oil & Gas Prices [View article]
Nick, It helps to understand the relationships between various metrics and not take them as isolated indicators. For example, you reference that the ROE for both PWE and PGH peaked in 2009. Of course they did. They hit their all time lows at that time, so "Equity", which is the total of capital as a function of stock market price, was very low. Any profit would then generate a very high ROE (return on that same very low equity valuation). High ROE then is in the context of low equity valuation. You cite that profits peaked in 2012. Yes, and that is when oil prices also peaked. No mystery there. PGH and PWE are volatile energy producer stocks that are subject to the oil and gas commodity markets. And because of their relative isolation in Alberta, they are whipped around even more by political events, like Keystone Pipeline or the forced conversion to corporate status by the Canadian PM.
Bottom line: to understand small cap stocks like PGH and PWE, one must live with them for an extended period (I have been in and out of both since 2002). Small factors like politics or management decisions are more important to this type of stock than are oil or gas prices. Now is a very good entry point in either. A better time to pan these stocks was in 2011 when PWE was at $28 and PGH was at $14. I was out of both at that time.
Penn West: A High Risk, High Reward Stock With A 9.4% Yield [View article]
Pennwest and PGH are both near the troughs of their historic range. PWE never broke $7 even in the 2009 crash. So at $11.50, it is much nearer the low end than the high end ($28) of its post 2009 crash range. The fundamentals for PWE itself have not changed all that much during that time. The big change has been development of fracking to the south in the Bakken, which has taken up pipeline capabilities. Keystone XL would change those prospects dramatically. The question for the landlocked Alberta producers is when they will find a channel to market for their products so they can realize global prices for nat gas and oil (Brent pricing). That would completely change the economics of their drilling programs where breakeven is close to $70 today and with their Alberta discount, they realize only about $85 with WTI at $95. This is the point Albert made regarding the widening of the spread between Alberta oil and WTI (better yet, Brent with a pipeline to the Gulf) being a key to the success of PGH and PWE. Both represent a reasonable bet at current stock prices, though they were both better a month ago when I started buying.
Berry Petroleum Sale Metrics Suggest Penn West Is On Sale [View article]
@Lionel....I agree with your conclusions. The problem for the Canroys has been their management's became too aggressive expanding production at the expense of free cash flow. This is also true for PGH and others. As royalty trusts, the objective was clear: generate smooth monthly returns for retirees. Forced to become corporations, the goal was not so clear, and encouraged by the spiking oil prices in 2010-11, managements went for fast growth, probably to benefit their personal income and bonuses. That was a big mistake as oil quickly leveled off at $95 USD and the landlocked Canroys got more like $80USD for what they produce. With breakeven near $70, the margin for error was small and excess development was costly. As soon as the new management at PWE backs off expansion, op cash flow will easily cover dividends and as you say, new development cost can be matched with debt that is paid off in line with the amortization of production.
A Short History Of Commodity Bulls; Why This One May Be Different [View article]
"The frequency, depth and duration of recessions from that time forward are the lowest in history."
@NetBlueSky: not at all true. Your analysis is flawed, not Tal's. Because the "governor" was removed from the throttle of the economy, it may seem that economic cyclicality has been reduced. But in fact, the stored energy of recessions cut short by central bank intervention continues to grow in the form of debt (sovereign and private) and create an ever larger threat to global stability and economic security. It is like the pressure cooker that has its lid closed tight. Instead of the lid hopping and rattling around when the water boils, letting off some steam, the steam remains contained. The water doesn't boil because the pressure restrains it. This gives the appearance of stability and calm, but the temperature and pressure continue to increase. At some point, the ability of the pot fails to contain the built-up pressure and the pot explodes.
The normal and natural business cycle relieves itself of pressure with regularity. It does so in a way that is self-correcting without any human intervention / articifial restraint and stimulus. The inherent problem with FOREX, QE and other forms of manipulated money flows is that humans make mistakes, just as the ECB made a mistake on Friday in regards to Cyprus. Bernanke is also making a mistake by not taking off QE after the disaster has passed and now uses a nitro-charged policy to seek social objectives (low unemployment). Central bankers are always biased to excessive easing. It is rare for a central banker (Paul Volcker) to apply the brakes hard to reduce money supply and contain exuberance because it is economically painful and politically unpopular. But for monetary manipulation to work safely to smooth the business cycle, a central banker must be as willing to put on the brakes as step on the gas. It will all end very badly as human fiddling with natural processes always does.
A Short History Of Commodity Bulls; Why This One May Be Different [View article]
The important "difference" was abandonment of the gold standard in 1971. That has impacted the global economy ever since, one of the rare examples where this time DID prove to be different (than the 500 years preceding). This time will be different in the future due to continued economic development of previously under-developed economies in Asia, South America and Africa. That will put new burdens on global resources. Evolution continues to make things different.
A Short History Of Commodity Bulls; Why This One May Be Different [View article]
Your analysis and rebuke to NetBlueSky (name says it all) are complete. Jeremy Grantham makes perhaps the most eloquent and thorough case for Ag commodity inflation. His case is somewhat Malthusian and not just about devaluation of fiat currencies (though that is also a very good argument). Between exploding global population to 9.1B by 2050 (according to the UN) from 7B today, along with a demand for better and more variable nutrition by the public, will put tremendous strains on limited arable land, fertilizer and water resources. Ag prices will go up in real terms based on demand vs. supply and will also increase in nominal terms due to continued currency debasement which was not a much of a factor from 1600-1971.
Gold Nosedives Below $1,500 As ETF Holdings Free Fall, Fueling Panic Selling [View article]
RPM...to answer your point about timing: I am not sure when gold will catch up to the printing of fiat currency. My gold holdings are a hedge, not an investment. I want to make sure if fiat currencies collapse, including the dollar, that I have something left to take care of my family, and perhaps even buy up assets at a bargain. So, I hold gold both physical and derivative.
Gold Nosedives Below $1,500 As ETF Holdings Free Fall, Fueling Panic Selling [View article]
Gold Nosedives Below $1,500 As ETF Holdings Free Fall, Fueling Panic Selling [View article]
Gold Nosedives Below $1,500 As ETF Holdings Free Fall, Fueling Panic Selling [View article]
Gold Has Held Its Value Over The Last 2,500 Years: Fact Or Fiction? [View article]
Gold Has Held Its Value Over The Last 2,500 Years: Fact Or Fiction? [View article]
Prior to 1800, there was little technical innovation in production, so the change in a currency such as the British pound from the late 1200s when its value was first recorded, is more instructive. The British pound was worth about one ounce of gold in 1270. Today, it takes around 1000 pounds to buy one gold ounce. There is a true measure of the value of gold as it measures a 1000 fold decline in the value of a unit of currency such as the British pound
A Short History Of Commodity Bulls; Why This One May Be Different [View article]
In the 1800s, recessions were always deflationary because there was no ability to soften the blow by monetary expansion. It was harsh, but it worked. Price stability was the result. The only time price was destabilized was during a period, like the Civil War, when fiat currency WAS printed to pay for a war effort.
Business cycles are inevitable as a result of fear and greed. At times of greed, more capacity is created than demand can consume. Prices drop resulting in eventual deflation. At times of fear, production shrinks until demand exceeds supply and then prices recover. There is no need for stimulus. Human nature takes care of the economy on its own.
Pengrowth Energy And Penn West Petroleum: Not In-Sync With Oil & Gas Prices [View article]
Pengrowth Energy And Penn West Petroleum: Not In-Sync With Oil & Gas Prices [View article]
Pengrowth Energy And Penn West Petroleum: Not In-Sync With Oil & Gas Prices [View article]
Bottom line: to understand small cap stocks like PGH and PWE, one must live with them for an extended period (I have been in and out of both since 2002). Small factors like politics or management decisions are more important to this type of stock than are oil or gas prices. Now is a very good entry point in either. A better time to pan these stocks was in 2011 when PWE was at $28 and PGH was at $14. I was out of both at that time.
Penn West: A High Risk, High Reward Stock With A 9.4% Yield [View article]
Berry Petroleum Sale Metrics Suggest Penn West Is On Sale [View article]
A Short History Of Commodity Bulls; Why This One May Be Different [View article]
@NetBlueSky: not at all true. Your analysis is flawed, not Tal's. Because the "governor" was removed from the throttle of the economy, it may seem that economic cyclicality has been reduced. But in fact, the stored energy of recessions cut short by central bank intervention continues to grow in the form of debt (sovereign and private) and create an ever larger threat to global stability and economic security. It is like the pressure cooker that has its lid closed tight. Instead of the lid hopping and rattling around when the water boils, letting off some steam, the steam remains contained. The water doesn't boil because the pressure restrains it. This gives the appearance of stability and calm, but the temperature and pressure continue to increase. At some point, the ability of the pot fails to contain the built-up pressure and the pot explodes.
The normal and natural business cycle relieves itself of pressure with regularity. It does so in a way that is self-correcting without any human intervention / articifial restraint and stimulus. The inherent problem with FOREX, QE and other forms of manipulated money flows is that humans make mistakes, just as the ECB made a mistake on Friday in regards to Cyprus. Bernanke is also making a mistake by not taking off QE after the disaster has passed and now uses a nitro-charged policy to seek social objectives (low unemployment). Central bankers are always biased to excessive easing. It is rare for a central banker (Paul Volcker) to apply the brakes hard to reduce money supply and contain exuberance because it is economically painful and politically unpopular. But for monetary manipulation to work safely to smooth the business cycle, a central banker must be as willing to put on the brakes as step on the gas. It will all end very badly as human fiddling with natural processes always does.
A Short History Of Commodity Bulls; Why This One May Be Different [View article]
A Short History Of Commodity Bulls; Why This One May Be Different [View article]