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JJ Butler
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JJ Butler (pseudonym) spends his days doing research for investment and writing. As a teen he was inspired by two biographies on Warren Buffet and subscribed to the Wall Street Journal. Today Jeff reads 10-Q filings and takes notes while listening to company conference calls. Jeff resides near... More
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Independent Stock Analysis
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  • Silver Wheaton's Bad Big Deal

    Last night Silver Wheaton (NYSE:SLW) announced a blockbuster gold stream acquisition with Vale (NYSE:VALE). As a shareholder who believes Silver Wheaton is a premier precious metals play, I have been looking for resolution of the tax scare tactic as a catalyst for the stock. However, this latest deal leaves me extremely disappointed.

    First and ironically, CEO Randy Smallwood regularly and oddly jokes the about the precious metal purity of the company by noting Silver Wheaton is "tainted with gold." Yet this transaction for gold only.

    Second, Silver Wheaton paid a rich price. The transaction is a pure bet on rising gold prices. At today's gold price the purchase appears to have a negative net present value. Today's conference call should provide more detail.

    Third, in the royalty and streaming business, alpha comes from exploration success on existing properties. The Sudbury Mine portion of this deal is strictly mundane financing. Further, the Salobo Mine is located in Brazil, a country which does not have an outstanding long term track record for respecting property rights.

    As an investor in the precious metal bull market, my chief concern relates to the project financing. Silver Wheaton has taken great risk in buying long term assets and financing the transaction with short term debt. During the financial crisis only four years ago, Silver Wheaton was two quarters away from having to file bankruptcy due to this very risk. I am at a loss trying to understand taking the risk again. Business history is littered with the financially strong taking advantage of those in weak position.

    Further, this higher risk suggests Silver Wheaton shares ought not maintain a rich valuation. If this is the best deal management can find, they ought to stop doing deals and increase the dividend. I hope to sell my shares very soon, perhaps on a stock pop this morning. Investors can look to Royal Gold (NASDAQ:RGLD) or my long term favorite Franco-Nevada (NYSE:FNV) to stay in the precious metal royalty space.

    Disclosure: I am long SLW.

    Additional disclosure: I intend to sell my SLW today.

    Feb 06 9:58 AM | Link | 2 Comments
  • Gold And Central Banks: Path And Destination

    With the Fed meeting Wednesday and Thursday, discussion regarding Federal Reserve policy have become ubiquitous. Every talking head and blogger has opined whether policy action will occur and as to the effectiveness. Today's meeting is important in the short term; in the long run it's irrelivant.

    Investors can speculate on the exact path. The destination, however, is clear. In the years ahead massive currency debasement should be expected.

    Even in today's benign economic environment, loose policy is being demanded. A leading Senator exhorted the independent central bank to 'get to work.' Paul Krugman continues to encourage "the central bank to credibly promise to be irresponsible." Felix Salmon notes 57 hyperinflations -currency collapses- and is unable to connect the dots. When economic softness returns, money printing will be demand and will occur.

    Meanwhile, the fundamentals continue to balloon. Unfunded U.S. government liabilities grew by $11 trillion in 2011. Clearly these commitments will not be met in kind. Human nature does not change. History illustrates massive debasement can be expected.

    Earlier this week George Soros endorsed a 5% nominal GDP. Savers are already being robbed in a negative real interest rate environment. Soros is advocating much higher level of negative interest rates to ease 'excessive indebtedness.' While a bond (NYSEARCA:TLT) holders nightmare, this environment would be a precious metal panacea. The thought process is still a monetary frontier, but so was quantitative easing in 2008. In short, it's coming at the first hint of meaningful economic softness.

    This week's Federal Reserve meeting and the ECB bond plans are attempts to continue credit expansion. Suppressed interest rates, ballooned fiscal deficits and quantitative easing halted the 2008 financial crisis collapse. Continued money printing must occur at soon enough to prevent mass default.

    "In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. If there were, the government would have to make its holding illegal, as was done in the case of gold." ~Alan Greenspan in 1966.

    Fortunately, owning gold was made legal again in 1974. When penning these words in "Gold and Economic Freedom" no one could have known Greenspan himself would decades later help facilitate the current credit bubble.

    "There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved." ~Ludwig von Mises

    A thriving internet community of gold bugs continually weigh precious metal investments. Gold (NYSEARCA:GLD) and silver (NYSEARCA:SLV) are at the foreground, while gold stocks (NYSEARCA:GDX) receive much attention too.

    Voltaire said "Paper money eventually returns to its intrinsic value - zero." In November of 2002 Ben Bernanke presented the investment world with the central banker playbook. Join me as I monitor developments.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Sep 13 11:08 AM | Link | 5 Comments
  • Wait For Coal

    I would like to urge a patience with coal. I know the Internet is populated coal bulls who see marvelous opportunity in the small sector. Depressed valuations meet the industrialization of the third world. I am all over it. But slow down. China needs to regain momentum for the emerging market story. Met coal could be rolling over. And U.S. natural gas production needs to decline meaningfully, of which there has been no sign.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Tags: Coal
    Aug 07 8:47 AM | Link | Comment!
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