Daniel Moser

The Shedlock-Schiff Affair: A Chronicle

What is amazing to me is that so many people came out so strongly against Schiff as though they absolutely knew he was wrong. As far as I am concerned, anyone who laughs someone out of the room for their ideas that might seem outlandish at the time rather than logically and intelligently debating them has no credibility whatsoever. I guess this is just a problem inherent in human nature. Will there ever be a day that we don't assume naively that we are right and the good times will never end? Maybe if everyone (people, advisors, and politicians) would start intellectually discussing issues rather than promoting idiocy investors wouldn't have lost so much money. I don't like perma anything. I like people who take a position and duke it out with their opposition all the while respecting the oppositions view. Funny how during all of those silly debates between Schiff and others....Schiff never lost his cool (from what I saw). Yet, his opponents never stopped yelling and laughing being entirely disrespectful of Schiff's views. And the ironic part, Schiff was by far more correct with what he said than anyone who argued with him. I am confident that Schiff is secretly having the last laugh...although he has enough class to not have that laugh out in the public eye.

The Inflation Time Bomb

The second half of the equation is what causes the inflation. The fact that the banks aren't lending doesn't create inflation. It is when the banks lend from a capital base 10X bigger than it was 5 years ago that we get inflation (i.e. the growth of the money supply).

Think about it....if I am a small business selling widgets. I usually buy my raw materials on credit (a business model under great distress because of the siezure of credit markets). I am on the brink of collapse. I am desperate for funding. I will be waiting in line to get credit lines back as well as loans for new capital investments.

Sure, you can argue that the money is going to credit worth projects because of tighter lending requirements. However, that position has two flaws. One, it assumes that these new banking giants will correct there risk management shortcomings despite the overwhelming political pressures to deploy their newly acquired capital. The second shortcoming is that with this tremendously larger capital base, loans might be tighter than the were previously but they will hardly be tight. Even if theoretically every loan they make is a good loan i.e. limited risk of default, you have essentially dumped a couple trillion new dollars into the economy. This money has a tremendous mutliplier effect that only compounds the inflation problem as jobs are created. The article correctly points out the Fed's own worst enemy is the Fed. If you cannot visualize this scenario than you are failing to think strategically about the very delimma that the Fed is thinking about themselves.

This problem is only compounded when you figure out that every equity infusion into the banks, as far as I know, does not have any kind of structural expiration. Which is to say, the only way to get this lending capacity (e.g. massive equity base that can be lent off of at some ratio)out of the system once the recovery begins is for the banks to buy back the equity stakes from the government. Now, why would a bank ever reduce their own equity stake...when their equity stake is the equivalent of their right lung when it comes to earning money?

To argue that no one will want this credit is essentially an ostrich in the sand to what has happend in 2008. If no one needed the credit, what is all the talk of crisis for?

Think about all of the new debt that the government is issuing to pay for these bailouts. This may very well be backing the U.S. into a very uncomfortable corner in which we are faced with two choices: Default or inflation.

Monsanto: The Quintessential 'Growth' Stock

Monstanto might be a fine company but your evaluation of your option trade is misrepresentative.

First of all you are analyzing returns from an "initial cash outlay" which is fundamentally flawed because the reality is you have to have 18K set aside for this trade or you will find yourself bankrupt should MOS trade below 90 at expiration obligating you to spend an additional 9K on buying the stock.

Secondly, your analysis didn't show any major moves in the stock price over the course of the next year and a half. So, here goes...

What if MOS is well above 90 at expiration? Lets take an extreme case...lets say MOS is at 150 at expiration in 2011. You will gain 6,000 in profit on the stock. You will lose 4250 = ((90-150)*100+1750)on the call you sold @ 90. You will gain 1770 on the put option that was sold. This sums up to a net profit of 3520. Now this might seem like a grand return on what you call your outlay...however when you properly account for how much capital you need to have to realistically put this trade on without the fear of going bankrupt...it is 3520/18000 or 19.6% return over the course of 1.5 years - or a 13.04% annualized return. Hardly a great return relative to a 66% total move in a stock (or 44.5% annualized).

What if you simply bought 18,000 worth of MOS and saw a similar move in the stock....you would earn 12,000 or the whole trade or the entire 66% return.

What about the other direction? What if the stock falls to 50? You would lose 4000 on the stock. You gain 1750 from the call you sold. And you would lose 2230 = ((50-90)*100+1770) from the put you sold @ 90. For a net loss of 4480 or a total loss of 24.9% (or annualized -16.59%).

If you are bullish on MOS, it would be far better to simply buy 9K or 18K worth of MOS and use a stop loss. Your option strategy is oriented for someone who doesn't think there is much upside potential in MOS over the next 1.5 years.

Something Is Happening in China: How Investors Can Profit

The Chinese can afford to pay for their second stimulus plan because they have been running tremendous current account surpluses. Yes, I think you make a valid point that they will indeed have less desire to buy U.S. treasuries as they fund their own economy. Moreover, as they build out their own internal consumption, they won't have as much desire to hold U.S. Treasuries in an effort to keep their currency low to maintain their export driven economy.

In addition, I do not believe that showing percent changes m/m obscures the very point I was trying to make. I am fairly confident that I am most interested in percent changes so that one might observe any correlation between my "suspect" basket of stocks and the PMI data. Especially considering that PMI data is somewhat unusual in that absolute levels have a different sort of interpretation than typical data series (i.e. >50 is economic expansion and <50 is contraction). So, i am pretty sure overlaying the raw number would have been pointless.

I am going to take a look at the freight companies to see if there might be some insights gained from those. However, I am don't know much at all about freight companies so I am definitely open to suggestions for freight companies that are less likely to have accounting scandals than others.

With respect to those who appear to get frustrated at anyone who would dare take a glance at Chinese data, I am well aware that the precision of the numbers are highly questionable. Although I must ask, if the Chinese numbers are not to be trusted, why do they show anything bad at all? Which is to say, why would the big bad communists ever show PMI data less than 50? Or declining GDP growth? Furthermore, a grain of salt is always needed when looking at any economic or accounting data.

This is just a tiny trickle of information for those interested in forward looking investment ideas. If you don't like them, don't use them. If you do like them, find them interesting, and wish to build upon them with your own constructive ideas, awesome and I wish you luck.

Why I'm Long Uranium and Nuclear / Power Engineering

On the cost front, you might read the piece again...the upfront costs of nuclear are substantially higher, however the MARGINAL COST is remarkably lower. Which is to say once the nuclear plants are built, they are by far cheaper than everything but hydro (as far as I know).

Next, the vast majority of alternative forms of energy have extremely low scalability. I am not saying that wind, solar, etc are bad ideas in all cases. I am just suggesting that in the scheme of things, these technologies will not solve the problem without leading to a severe energy shortage in the U.S. and quite frankly the world.

In terms of generating capacity in the U.S., Wind Power makes up about 1%, Solar makes much less than 1%, Geothermal makes up well less than 1%, Hydroelectric makes up about 9%. So....lets just say for argument sake it is not exactly feasible to dam up every river accross the United States (of course I could be wrong, but nonetheless). If you quadrouple each of the other forms of renewable resources you are still under 10% of generating capacity. My point is that is that these forms of alternative energy are not a viable option to handle a major transition away from our reliance on "dirty" power without creating a major power shortfall.

Third point, on a marginal basis....natural gas is not cheaper than nuclear power. That point is 100% inaccurate. Hence, nuclear power is used as a "base load" power which means they switch those puppies on ramp 'em up to 90% (or whatever normal operating capacity is) and rarely switch them off. Nat Gas is most typically used for what is referred to as peak power...which is to say when demand suddenly gets ramped up (in the busy mornings for instance) the prices for power typically lead to Nat Gas turbines kicking on to take advantage...but when the peaking power demand subsides the Nat Gas turbines are turned off because the economics suggest to stop producing power.

Lastly, on my political views...I wouldn't consider offering up nuclear as the viable option to handle global warming while expanding power capacity in the U.S., and the rest of the world, a bias right wing rant. To be entirely honest, I have no idea if the "right wing" even supports nuclear power as an alternative. My initial thoughts would be that they probably do not given the artificial security risks with terrorists. So, I am not exactly sure which group I should attribute my political bias to.

In my opinion good policy is good policy and bad policy is bad policy whether it comes from the left or the right. I am sorry to let you in on this little secret...but corn based ethonal is not economic and on top of the poor economics it doesn't even help the environment. In fact, the only thing corn based ethonal does...is burn food. Food that could be used to feed the hungry (hardly a lunatic right wing position, wouldn't you say). I also apologize that other alternatives are not currently feasible or scalable to effectively tackle global warming at the current time (that doesn't mean they won't ever be). Clean coal technology at the present time doesn't exist. Someday maybe the technology will be there and it will be the save all solution but currently it doesn't exist.

So, while I don't personally think I am unfairly presenting a portion of the bullish case for nuclear power, I guess not respecting Bill Maher's opinion on any issue that is remotely important is a crazy right wing view. Heaven forbid being skeptical of a comedian's political view. I guess that does incorporate way to much independent thought for the likes of some.

Three Reasons to Own Oil E&P Stocks

You might be on point with who started the systematic destruction of the dollar. However, that point is moot. The fact is the USD is being systematically devalued, and I would argue the current administration has no intentions of altering its path via good policy. There are implications of this policy and as such, investors should aim to profit from trends that they predict will play out because of this policy. Hence, the weak dollar doctrine is merely one point among at least 3 as to why oil exploration and production companies represent a compelling opportunity for investors.

Economic Indicators: The Good, The Bad and the Ugly

Mr. Davewmart,

After reading your criticism of my rhetoric followed by re-reading the relevant section, perhaps I could have worded that a bit better. I wasn't try to claim that anyone who thinks this recession is likely to take a turn for the worst is a illogical. Nor was I even trying to say that the people who think fiat currencies like the Euro will collapse are "crazies". My goal was to portray the people I have encountered who quite simply seem so stuck on the negatives that they forgo any uplifting fundamental data whatsoever...thus they seem to feel the world is going to come to an end in a massive societal meltdown that can only be dreamed about by anarchists. Nonetheless, as you put it, each argument is worth considering on its on merits before being evaluated. Thanks for reading.

Why I'm Long Uranium and Nuclear / Power Engineering

First off, I can't write a book online...so each post has to be a reasonable size. Secondly nothing you have said is particularly crucial to my underlying thesis being correct: which is that nuclear will eventually become the "duh" solution to solving global warming while keeping costs relatively cheap. Right now the environmentalist lobby is not rationally allowing policy makers (particularly left wing policy makers) the ability to pursue nuclear as the viable option hence your points about nuclear capacity actually declining...however that will change as it becomes abundently clear that there is no other currently viable option to produce energy at a reasonable cost that simultaneously helps reduce global climate change. Third, the rest of the world waking up/expanding nuclear (as the other commentor points out) will still lead to an increase in demand for uranium - which in and of itself promotes uranium prices and simultaneously puts the United States at a competitive disadvantage which will ultimately have to be corrected by some decent policy (we hope so anyways).

My bottomline, my analysis works it is just a matter of timing. You incorrectly focus on the present situation in which nuclear is not seen (as it should be) as the viable option - which actually feeds my argument that in the future this will change after a serious "alternative energy bubble" that mis-allocates capital to the incorrect resources-which will end in tears for most investors playing bad solar companies and what not. Good luck and I geniunly appreciate the feedback.

Why Physical Gold Is Superior to Mining Stocks for Long-Term Investors

I know of 0 stores I have been to in the past 23 years of being alive in which they were willing to accept gold coins or bullion as a form of payment. Without a gold standard being brought back, there is limited hope for dramatic appreciation by holding physical gold. Furthermore the inflation case is really oriented around a dramatic recovery i.e. properly avoided deflation. In the case of recovery mining shares will dominate physical gold all day long because they have financial leverage as well as operational leverage.

Mining Companies - Perfect for an Inflationary Environment

I wanted to clear up something just in case there was any confusion. When I mentioned RIO, I am referring to Vale which has the stock symbol RIO. I am not referring to Rio Tinto.

Mining Companies - Perfect for an Inflationary Environment

If I could only buy one mining company, I would error on the safe side and go with the biggest player which is by far RIO. I don't necessarily think that RIO will outperform the others but the risk of some gigantic catastrophe in RIO is by far less than the others. If it was a smaller overall portion of your total portfolio I would go with FCX. I am pretty confident (but I will have to review it later on) I believe FCX has more production/production capacity than PCU. In fact FCX has one of the world's largest, if not largest, gold mining operations in Asia. Yet, FCX trades at a 3 billion dollar market cap discount to PCU. Make no mistake about it, I believe PCU is an awesome company.

Bill Ackman's Hedge Fund Losses Are Staggering

Everyone, and I mean everyone, has entirely failed to see the otherside of the story with Ackman's fund. He never claimed that this fund referred to as the Target fund is a diversified low risk hedge fund. If this is all it takes to run a hedge fund, literally everyone would be doing it. They would start a fund, go all in on one stock and see if it works. That is not what Ackman is doing. He is an activist or at the very least is an activist with Target. He is working with management almost as a constultant to do things (right or wrong) that he believes will increase shareholder value for Target and thus his investors. Quite simply, he is a real investor in the "1940's building a business" sense of the word. While he might have positioned one of his funds entirely in Target stock, he seems to have done so because he believed if the execs at Target engaged in some of his ideas, their business would improve, not simply because he thinks he picked a winner with Target.

The reason the author is not running a hedge fund similar to Ackman's, with all due respect, is that he is lacking the capabilities and desire to work with the management of companies he invests in. Ackman literally is an owner of Target, as though Target is a private company. The only difference is that he knows every single day what his share of that company is worth. Hence, he is trying to do what he can to improve Target's business.

All hedge funds do not operate the same, people need to remember that. You can't compare D.E. Shaw or SAC Capital performance to Ichan or Ackman. They employ entirely different strategies. Doing so is entirely misrepresentative of positives and negatives of each fund.

All that being said, sure maybe Ackman could have done a little more to protect his clients. But as far as I can tell, when you invest with Ackman, you are investing in him to change businesses he invests in-not a quick trader who gets in and out in the blink of an eye.

Peter Schiff Answers His Critics

I would just like to point out that Peter uses class to argue his case. I am yet to see him lose his cool and he is dealing with quite frankly very immature opponents. It never siezes to amaze me how naive people end up looking with hindsight, as they attempted to debunk contrarianism and fringe beliefs using nothing more than shouting and rude behavior. I live in the United States and I certainly hope it doesn't decline in status quite like Peter lays out, however, I am certainly not naive to the prospect that it might. After all England was once the most powerful country on Earth and now, while a great nation, it is certainly not the most powerful country on Earth. What is so inherently great about the U.S. that prevents us from declining in status as our politicians enact bad policy and our consumers live beyond their means for upwards of 20+ years? May the best man win...but show some class when stating your case. Peter Schiff represents a great case study in patience. Keep it up Pete, stick to your positions, and we shall see you in the long run to measure your results!

Microsoft vs. Apple - Which Is Worth More?

I would sure love to see someone much more tech saavy than myself do some analsyis on profit/megabite of product sold. Intuition suggests that AAPL is 10X more effecient than MSFT on that metric but I am not exactly a techy so I my intuition might just be wrong.

Three Reasons to Own Oil E&P Companies: Update

Nat gas is a different story from oil. There is a glut of natural gas supply in the United States and it is likely to get worse with LNG imports to the U.S. tentatively rising.

Even if you are bullish nat gas in the long term bullish view I don't really believe that expressing it via UNG is the best idea. I am not exactly sure how UNG works but I am familar with how USO works...and if they are similar...I wouldn't plan on making money as an investor in those ETFs. Because they are purchasing natural gas futures contracts they can be eaten alive by the commodity roll in which they have to get out of this months contracts and buy next months at a different price-and since they are passive long only investors with your money...I would argue they are not too terribly concerned.

If I was bullish natural gas in the long term (which truthfully I would just consider myself neutral at this point), I would probably look for a small basket of natural gas stocks and natural gas trusts. Dennis Gartman is a huge fan of natural gas trusts because they typically pay very competitive dividends and so long as natty gas remains above a certain minimum those dividends are covered. In addition to E&P natty gas companies and natural gas trusts, it might be worth considering a few engineering/services companies that are significantly weighted towards natural gas drilling/services.

Either way, short term outlook for nat gas is hardly positive in my mind...but i wouldn't short it either. I would leave UNG/USO alone and find other ways to profit from your views. Good luck.