Dr. Stephen Leeb

Growth at reasonable price
Dr. Stephen Leeb
Growth at reasonable price
Contributor since: 2009
Company: Leeb Investor
While I don’t know a great deal about the details of building a mine, I believe that logic and history can help mediate the debate over NG. Front and center, an investment in NG is a bet on a non-producing mine with tremendous reserves, making it basically an option on gold. Does it makes sense to have such an option? I believe so. More and more, the Euro seems doomed. Betting on the coexistence in the same union of countries like Germany and Greece is becoming increasingly difficult. With Germany looking East (latest issue of Foreign Affairs), it makes just as much sense to imagine a currency bloc of the Mark, Rubble and Yuan in a basket convertible into gold (ersatz Bretton Woods).
Equally important, China occupies an increasingly central role in the East. Its accumulation of gold seems to be based on much more than a love of gold jewelry. Probably the Chinese see gold playing a major role in a monetary system that will at least govern the East if not the world. What I mentioned above is just one of a slew of possibilities. In other words, without going into too much detail there is indeed a strong case for much higher gold prices.
Is Nova a good option on a much higher gold price? Again, I believe that history and logic suggest that it is. Virtually all mines are bedeviled with environmental concerns. Clearly the article and response give no sign that at Nova those concerns are insurmountable. The team running the mine is top drawer. The half owner of the mine has a sterling reputation of dealing with mining industry professionals. The story of the Bolivian mine San Cristobal, which was run by the co-owner of Donlin, is remarkable in how much it helped the indigenous population.
What is most annoying about the reply is the statement that “your entire ‘rebuttal’ to my valuation argument is that they have inferred resources.” Even assuming the mine were uneconomical at $2,000 per ounce, save for inferred resources, the inferred resources are purported to exist and unless you can make and sustain a claim countering their existence, your argument is fatally flawed. Moreover, if you are just betting on gold returning to the high end of its trading range, $2,000, then there are probably many better ways of getting leverage. The more important discussion is what value NG with gold at $3,000, $4,000, or even much higher prices – probably a lot more than you can make on any other investment.
The argument concerning capital expenditures also seems flawed. A critical component in the cost of developing and producing any resource is energy – and this certainly includes fracking, big time. Oil prices recently declined by over 50 percent. Without digressing, ABX could assure lower-than-budgeted cap ex costs by buying oil future contracts and for that matter copper future contracts. They would be in good company as China has recently established monthly import records for both oil and copper. Of course China, though the largest trading partner of Saudi Arabia and the biggest gun in the East, could be wrong. But we would not bet against China. Moreover, if China were wrong then you are looking at a deflationary scenario in which gold will likely dramatically outperform all items that make up today’s projected capex. Yes, you would have to smart enough to cover your oil and copper hedges.
In summary, I believe that NG is an exceptional hedge against today’s reserve currencies including the dollar. After all, how long can a country throw away money on military ventures while the bottom 90 percent of its populace has experienced more than two generations of declining real incomes.
Excellent point and illustrates how much energy it takes to get energy with fracking and why fall of fracking is creating so many headwinds when in the past any oil price decline has been an unalloyed positive.
Sorry Gary. We posted summaries too long for the spaces allotted. We have submitted shorter ones, and hope the changes will be approved and posted soon.
Thank you very much. I completely agree with you. So few realize the importance of peak conventional oil. NG is a speculation, but I think a great one.
A very provocative article and thank you for the mention.
Hi Chris, I think as with any oil producing investment oil prices are a critical macro consideration and since rightly or wrongly I believe oil is going higher along with other hydrocarbons even including coal, you should be able to find decent royalty trusts. But unfortunately that is much easier said than done especially when the trust have a finite life and have wells located in shale formations where decline rates are very high but perhaps even more important somewhat unpredictable. With a multitude of caveats I would suggest looking at Natural Resource Partners and Lightstream Resources.
b3player, First I want to say it is a pleasure to talk to someone who is not dogmatic on the issue as so many are. There is no doubt that CO2 is a greenhouse gas that has a warming effect. The doubts occur when you try to mesh those effects with a very complex climate and try to come up with projections. Almost all projections that have been made are unable to account for 15 years of no warming. And again that does not mean the earth is not warming but does suggest that the models need to be improved. A recent New Scientist article for example pointed to heat uptake by the oceans and unexplained aspects of the sun's behavior as possible explanations. Once you involve the sun you are clearing involving something capable of overwhelming virtually any other factors. You might be interested in googling sunspots - they have been at exceptionally low levels for which we have no explanation.
Again I am not saying that believers in very dangerous global warming are wrong. Instead as with all science I think we need a health dose of skepticism along with cost/benefit analysis to see the best way of addressing the situation.
I agree that thorium has a multitude of advantages over nuclear reactors. The problems rest on design challenges and the availability of U-233, which is needed to start a thorium reactor. That said America should make thorium research and development a very high priority item - there is clearly the potential to make a major dent in our energy problem
b3player, Please google Richard Lindzen, who retired last year as a chaired professor at MIT in meterology. I think his thinking, which does not deny the effects of global warming, does present a compelling case that the current hysteria is not merited.
Thanks for your comments. I certainly agree that China is far from an A student. But also keep in mind that according to Nature Magazine, this is also a country that has engineered the largest migration of citizens in the history of mankind. That is what urbanization is all about. And urbanization is continuing and will be a vital force underlying growth and providing a lot of lower cost housing, as will building an energy infrastructure. That is not to say - again - that there are not problems and that there won't be setbacks. But I do believe that with $4 trillion in reserves, an extremely high savings rate, and their unprecedented accumulation of gold, they have a lot of shock absorbers. I just have to close with something I saw this weekend: President Obama, who I do believe is a very good hearted individual told graduating students at U Cal to ignore climate skeptics. That is dangerous - flat out. Dangerous not because CO2 doesn't create warming but dangerous because it ignores cost benefit analyses and the many extremely informed scientists at MIT and other elite institutions who say that the current models are wrong and do not account for 15 years of no warming. Again I am not a denier but skepticism is needed and for our President to say no to skepticism does not meaningfully, in my opinion, separate him for the ethos followed by Chinese leadership. As far as resources go a recent white paper from the Congressional think tank noted that there are dozens of minerals which the U.S. is highly dependent on other countries - rare earths are just one example - and that China is the most important supplier of these minerals. My message is that America is a great country and can still lead in this century but has very little chance unless we shed our complacency.  P.S. Heng Seng Bank was recently named the safest bank in the world.
I absolutely agree about over priced real estate in parts of China and danger therein. But I do believe the real story in China is the trillions (say with a T) that they are investing in their energy infrastructure which little to no attention, at least on this side of the world. Between 2011 and 2015 China will put up more grid than in the entire U.S. They have recently raised their targets on virtually all non-hydrocarbons. Just one piece of evidence is the stock chart of Gigasolar, which supplies China with solar materials. The stock has more than tripled in the past 9 months. And incidentally as a sidebar you should compare test scores of Shanghai children with U.S. city children. My point is not that America is finished but we will be if we continue in our complacent ways.
I wish I knew more about the area, but my abiding feeling is that the owners of the asset will not make decisions that will harm the populace. It is still a long time from now to production. My advice is to make your feelings known.
I fully agree that Donlin is a very difficult and expensive product, but do think that a full-fledged revival of gold would suddenly make any significant incremental gold not just avidly sought but in some ways critical for a country's financial management. Against this background it is worth noting that the same people that have major positons in Donlin developed a major siver project in Bolivia by responding fully and then some to the concerns of those living near the project. New schools, houses, etc. were built. One reason I like Novagold so much - as a speculation for sure - is that I do feel the development of Donlin, knowing the people involved, would be a major plus for those living in the area.
It is tough to say that an asset which declined 80 percent (in 2008-2009) is still in the same long-running bull market. Worth noting is that oil is still trading in three figures - roughly tripling from its 2009 low - despite much slower world growth since 2009 that what prevailed during the 1998-2008 period. One reason is that conventional oil has peaked and new oil is very expensive - requires a lot of oil to produce. This trend toward non-conventional oil will likely persist. Hopes for a bear market in oil have to rest on mass substitution of alternative energies for hydrocarbons. The process of substituion will itself take a lot of energy - i.e. oil and other hydrocarbons - and it is likely the uptrend in oil will continue throught that many-year, perhaps decade process, but then there may come a point in which oil muich less in demand will enter a long-term bear market.
Of course, the other scenario for a bear market in oil would be a total collapse in economic growth as was the case in 2008-09. But then as was the case in 08-09 period Western and other large economies would likely do whatever they could to get growth back on its feet.
I agree and think creating a soup to nuts program for producing permanent magnets should be a major priority. Such a program would create a lot of jobs and have many ancillary benefits in addition to making America much more self-reliant.
Thank you, I will follow that advice next time. One problem is that managed accounts are dedicated to big cap growth, while my pubs are across the board. I virtually never talk about stocks that are not either recommendations or held by clients or both.
Many thanks Alan. I hate to confess that I did not know about either GTU and CEF. They appear to be excellent ways of playing gold and silver. I also have to admit I love the Canadian angle. Again many thanks.
A. B. I agree with you. The "greenies" are no better maybe in a way even worse. They are right about co2 warming the earth - that is something you learn in a high school science class - but their models have been proved utterly wrong. For example, they don't take into consideration how the sun effects the environment. Don't get me started as I think the "greenies" in their own way have done as much harm to the fabric of this society than anyone. As for exporting oil there is a fair amount of talk about it say from Hank Hamm and others. While some exports of LNG may happen, I do think it will be a short-term window.
Capt Mogul, I fully agree that Buffett is hardly a candidate for sainthood. Indeed, if we were one on one I could come up with other examples than those you cite. But he does get it and is investing in the right places and by doing so is probably helping more than almost anyone else. I do think his company is an excellent investment.
Mark, I agree with you. Indeed anything I might offer would be to emblish what you say not to argue. I think government has to make a distinction between wide-eyed spending and critical investments. Using the inter-state highway system and Apollo as examples is almost a cliche. My hope is that we will find some how some way the discipline it takes to re-establish this great country. In the longer term I also agree that producers of natural resources are excellent almost essential investments. Many thanks for your comments.
I agree that my comments are one sided. But also recognize that in 1982 they were also one sided as I was looking for a bull market that would carry stocks to at least 4500. My book "Getting in on the Ground Floor" reiterated that prediction. For much of 80's and 90's journalist referred to me as a perpetual bull. But unfortunately I am a creature wedded to the facts. For example in 2004 oil prices were half of what they are today and real incomes in America were higher than today. And sadly I could go on and on and indeed to some extent have in many of my books. I love America and want my children to have a good life but complacency such as yours as not a good thing. I will if you give me your e-mail send you a copy of my next book.
I agree with you. Nuclear definitely has a role to play and stocks like Silver Wheaton are very attractive.
John, I certainly understand where you are coming from. A while back I decided I could serve either myself or my clients and subscribers, and I chose the later. The stocks I mention I hold for managed clients and are recommendations in my various publications so I do have a stake through the success of my clients and subscribers in their doing well. In the past I have done extremely well on my own investments (audited results available) but always found that I was distracted from what I really cared about which was giving my best advice to others.
Thanks for your comments. I like both NOV and ESV and especially NOV, which is one of the very best.
Thanks David for your comment. BRK does have a large investment portfolio of about $100 billion or so, but the major source of their income comes from top of line railroads (Burlington), a utlilty (which is the largest producer of renewable energies) and the best capitalized insurance companies in the world (insurance is an industry in which capital defines franchise value). The company's growth of about 20 percent a year for nearly half a century is unmatched in the history of capitalism. Maybe you should take another look. I don't think it is neceassrily the be all and end all, but it is certainly not a company you should so readily dismiss.
I strongly agree with the second part of your comment. Unfortunately I do not think we have enough hydro or coal to fully power the U.S. economy, but they certainly should play a role.
Really! Ucore, a company that trades at about $.25 a share and domiclled in Canada with a market cap of $50 million. While they may have ore they clearly have no way of processing that ore - a 10 or so step procedure that requires highly technical knowledge as well as equipment whose price far exceeds anything they could afford, as their latest cash position is $300k. They value their ore presumably at $24 million, which even if all heavy rare earths would not move the needle even a fraction of a degree. You are probably joking so I am saying this for the benefit of anyone who might be tempted or see the humor.
I have spent many years in this business and most have been as someone who did not advise gold. I think it may be a bit early to buy big time but to use your world ruefully think that time is very close at hand. I do hope I am wrong.
Unfortunately that is a great anecdote for a book. Given the condition of the grid your buddy was probably worth every cent. The general point is that we have given up thinking ahead - new infrastructure would save a lot of money going forward.
You are totally right that nuclear has a very important part to play in the world's future energy needs and that China is ahead in this area as well. The major constraint on nuclear - especially for China and most other countries - is that you need a dedicated water supply to cool the plants. This means plants have to generally be sited close to rivers or the ocean. The Economist very recently had an article on floating nuclear reactors. I have not done much reading on this but it could be very interesting.
I hope you are right, but I think you are a bit complacent. China does burn a lot of coal, but is well aware as evidenced by several peer reviewed articles by Chinese scientists that coal will peak within a decade. Go back to the industrial revolutions and you will see conditions far worse than in China today, then fast forward 50 years or so and everything is much better. China is on a much faster time scale. They have been planning a slowdown in hydrocarbons for more than a generation. At the same time in contrast to China we have no path to energy independence. The amount and type of cable unfortunately is critical. You cannot easily use different sources of energy without a smart grid. Much less "smart" a good portion of our grid is 50 years old and in some cases over 100 years. I think you should also pay a bit more attention to my table on EROI and realize that despite declining demand for energy versus 2006-7 and rising domestic supply gasoline prices have doubled - a major reason median incomes continue to fall in America. I very much believe in America but like all franchises we cannot take them for granted.
I see your point. Is there a limit to how long one should wait for real payoffs. I would not say you are necessarily wrong if you said enough is enough when it comes to Amazon. But when I look at China, I see a country that is very likely to trump us with its planning that is more than a generation forward-looking. Establishing a true Internet franchise in retailing is very difficult and, while somewhat frustrated, I believe Bezos is doing what needs to be done.