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Louis James' background in physics, economics, and technical writing prepared him well for his role as senior editor of the International Speculator and Casey Investment Alert. Like Doug Casey, Louis constantly travels the world, visiting highly prospective geological targets, grilling... More
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  • Strategies for Junior Mining Investors: The Whites of Their Eyes
    Don’t fire until you see the whites of their eyes.”


    Most Americans were taught in school that William Prescott, commander of the colonial forces on Bunker Hill, gave this order to his men on the morning of June 17, 1775, just before the British attacked them.


    Some may even remember that while the British took the hills, they did so at such great cost, it wasn’t much of a victory. The American forces repelled the British twice and were finally overwhelmed when they ran out of ammunition – an outcome that obviously concerned Prescott and provoked his order to conserve ammunition. It was vital to use each shot as effectively as possible.


    I think of this often when contemplating investing, because I sometimes feel an urge to get all of my investment cash deployed NOW. I might miss the next big uptick! And even if not, modest double-digit gains are still better than money sitting in the bank. This urge gets strong when the market gets hot, as it has been over the past months – look at all the gains I missed!


    But the best speculations, as Doug Casey likes to remind us, are when the perfect pitch comes sailing across home plate, cheap and with great upside. There are no called strikes, so it only makes sense to wait and swing only when it’d be hard to miss, hard to get hurt, and there’s clear out-of-the-ballpark potential.


      Key Point: Missing out on a winning pick may wound pride, but it doesn’t cost any cash. Placing hasty bets can cost dearly on both accounts.


    Or, as Doug also likes to say, you can’t kiss all the girls. Nor should you try; the consequences in real life of attempting to kiss every girl you meet would be… nasty, brutish, and short.


    Returning to my original metaphor, I don’t want to pull the trigger on a deal until I see the whites of their eyes – i.e., until everything is lined up for maximum effectiveness.
    Or, as I’ve put it before: “Buy Low, Sell High” is a much better strategy than “Buy High, Sell Higher.”


    Strategy vs. Tactics for Speculators


    Speaking of military metaphors, I frequently refer to strategy and tactics in my writing. Last June, I gave a talk on strategy vs. tactics at the Cambridge House conference in Vancouver, explaining in greater detail how these concepts can be useful to speculators. With gold recently reaching almost $1,400, making the blood pound heavily in so many speculators’ veins, I think it’s a good time to spell those thoughts out, lest any of us get carried away and suffer a lapse of discipline.


    First, it helps to understand that these terms are not interchangeable. The U.S. military defines strategy as being:


    The art and science of employing the armed forces of a nation to secure the objectives of national policy by the application of force or the threat of force.


    Tactics, on the other hand, are defined along these lines:


    The military science that deals with securing objectives set by strategy, especially the technique of deploying and directing troops, ships, and aircraft in effective maneuvers against an enemy.


    My way of summarizing these ideas:

    • Strategy: What you want to do. This might be “divide and conquer” or “overwhelm with vastly superior force” in a military context. For investors, it might be “preserve wealth” or “raise max cash ASAP.”

    • Tactics: How you do it. This could be something like, “build a giant wooden rabbit and use it to sneak troops inside the castle walls” in a military context. For investors, it could be something like “pick only safe, undervalued investments” or “speculate on the stocks with the highest upside potential available.”

    Why you do it, of course, is your goal. That might be conquest or freedom, for armed forces, and financial independence or “drop dead money” for investors.


      Key Point: Know Thyself. This is one of the things I’ve learned through thousands of interactions with investors over the years: your strategy and tactics – the “what” and “how” of your plan – should be based on what you are actually capable of doing.


    For example:

    • If you know that you are temperamentally unsuited to speculating on highly volatile stocks that can easily lose 50% before paying you back 500%, that’s not a tactic you should employ. If you just can’t tolerate being in the red for no good reason, admit it, face it, and plan accordingly. Otherwise, nothing is worth the heartache you’ll be stepping into.

    • If you are not a qualified investor, you can’t build a strategy on emphasizing private placements with attractive warrants.

    • If you don’t understand the technicalities of trading in options, don’t even go there.

    This may sound like an overly philosophical approach to giving investment advice, but I firmly believe that one size does not fit all. If you’re to have any hope of sticking with your strategy when the tactical realities you face are rough, you’ve got to know that you are capable of executing your plan. “Know thyself.”


    Strategies to Consider


    What’s the best strategy for you? As above, one size does not fit all, but here are some broad ideas for you to consider:

    • Preserve Wealth: If you are on a fixed income or simply know that you have a very low tolerance for risk, the rather bold tactics the International Speculator specializes in are probably not for you, so I won’t dwell on it. Casey’s BIG GOLD publication, focused on the best of the larger, more stable gold (and silver) producers should be able to offer you plenty of guidance that will work better for you.

    • Hold to the Top: If you want to earn a lot of money but don’t have the time or temperament to trade actively, buying the best of the best and holding them to the top of the market may be your best approach. Don’t worry about when any given pick might take off, or if it seems fully valued at present, or unlikely to exhibit explosive growth going forward. Only make portfolio adjustments when necessary.

    • Play Volatility: Look for stocks that exhibit frequent and large swings in share price, then buy low and sell high, over and over, as opportunity allows. Or look for stocks that have gotten ridiculously cheap (perhaps even for good reason, but have become way oversold) and then buy them to ride the rebound. Or look for stocks that have soared beyond all reason and are likely to correct, and then short them (note that this is a high-risk approach; when shorting, you need to be right about which way a stock is going and when it will move).

    • Build Carefully: This requires a lot of patience. You don’t worry about how long it takes you to deploy your cash, you simply sit and wait for opportunities that look as close to “can’t lose” as you can get. You always recover your initial investment at first opportunity and redeploy as above with extreme caution. No whims or larks allowed.

    • Doug’s Strategy: This is one way Doug likes to play the juniors: deploy your cash into as many stocks as you can, as long as they are really cheap, seem sound (8 Ps), and have a lot of upside. If you can bet with money you can afford to lose, don’t be too picky, but don’t bother if there’s no home-run potential. A single ten-bagger can make up for nine duds, so if you can do any better than that, you come out way ahead.

    Some of these ideas can be mixed and matched, some not. There are many more possibilities and variations. The important thing is to sit down with these ideas and a fresh cup of coffee one morning, or do whatever you need to do to carve out some quiet time when your mind is the most creative and energetic.


    State your goal to yourself – it’s very important to have a goal you can actually write down in words. Be specific; a financial goal should include a specific money target.


    Then decide what strategy among those you are capable of implementing best achieves your goal. Your strategy should evolve with changing market conditions, but only you can determine what the basic approach is that will work for you in achieving your goal.


    It’s very important to have a plan to follow – with a strategy you can articulate and tactics you know you can execute. Such clarity is a huge benefit to investors, especially that bold breed that’s willing to call themselves speculators. It’s the backbone that helps us stand firm as contrarians, and buy when everyone else is selling (low) and sell when everyone else is buying (high).


    And remember to hold your fire until you see the whites of their eyes!

    ----

    No one is better than Louis at devising strategies for investing in precious metals juniors – strategies that have enormously benefitted the subscribers of Casey’s International Speculator. It’s no coincidence that in 2009 every single stock he picked was a winner… for an average portfolio gain of 75.5%. And just in the first half of 2010, subscribers locked in gains of 110.4%... 128.8%... even 266.1%. You can it now risk-free for 3 full months – or your money back. Details here.



    Disclosure: No positions
    Tags: CASH
    Nov 04 6:30 PM | Link | Comment!
  • Alaska‚Äôs New Gold Rush
    Alaska is one of the most prospective and yet most underexplored areas in the world. There are good reasons for the neglect, most notably the long, cold winters and the lack of infrastructure. Whether the latter is a result of, or a cause of, there being few people in the state is an open question.


    One clear result, however, is a rather small economy: Alaska’s 2009 GDP was US$47.3 billion, comparable to that of the Dominican Republic or Bulgaria. The state is ranked 44th by GDP among its U.S. peers.


    In terms of metals, Alaska produces gold, silver, copper, lead, and zinc. Being well endowed with natural resources, Alaska’s mining history dates back to the early 1800s, when Russian explorers prospected the region, looking for placer gold. But not until after Russia sold Alaska to the United States did exploration activities start to develop rapidly, both on placer and hard rock deposits.


    Alaska has undergone not one but a series of gold rushes, the most famous being the 1890s Klondike Gold Rush, which actually centered on gold found just over the border in the Yukon Territory. That event drew many immigrants and spawned numerous settlements on the way to the Klondike, one of the principal routes having been through Alaska. Almost 13 million ounces of gold were produced by placer miners in the area. Since the end of the 19th century, mining has become an integral part of the state’s economy.


    The following chart shows Alaska increased its gold production to 800,000 oz in 2008 (most recent data available), up 10% from 2007. That’s also about a 10% share of total U.S. gold production. Alaska is the second largest gold-producing state behind Nevada. It is remarkable to see production in Alaska rise while total U.S. production has been in decline for more than a decade.
     


    Yet, most Alaskan gold comes from only a handful of mines – and that tells you something about the size of the deposits being worked. The two largest mines, Fort Knox and Pogo, account for more than 80% of 2008 total gold production, or 640,000 ounces. The Kensington project, which started producing gold just a month ago, is set to become the third largest. Perhaps. But these mines are small potatoes compared to some of the current projects being advanced toward production. Given that a million ounces of contained gold is considered a large gold mine, Alaska’s major deposits are genuine monsters: Pebble has 107.3 million ounces of gold, Donlin Creek has 42.3 million, and Livengood has 19.7 million. If these go into production, Alaska will rank as one of the world’s top gold producers.


    Alaskan Moose vs. African Elephant


    I like Alaska. I like the fact that many, if not most, Alaskans own guns – it’s one of the last remnants of American “rugged individualism” (though sometimes it seems that more Alaskans take pride in the rugged part than in the individualism part).
     

    Now this is an Alaskan cabin!


    But in my professional capacity as Doug Casey’s rock-kicker, it’s not Alaskan culture that I like the most. It’s the almost unique combination of being a huge, highly prospective mineral district in a stable, pro-mining jurisdiction. Many people argue that all the big deposits in safer jurisdictions have been found – but you don’t have to go to Africa and put up with corrupt, kleptocratic regimes to hunt big game.


    Alaska is unquestionably elephant country (well, moose country, and moose are almost as big as elephants and much more foul-tempered) with work done this cycle identifying genuine monster deposits. And there is plenty of room in that great empty place to find more.


    The Pebble Controversy


    What about Pebble – doesn’t that cast doubt on Alaska as a mining jurisdiction?


    No.


    The fight over Pebble does not stem from a groundswell of anti-mining sentiment among Alaskans, but from objections by specific interests to the potential mine’s proximity to salmon spawning grounds. Alaska’s economy has been dependent on resource extraction from the get-go, and remains so. Fish are an important resource, but mining has also long been a part of local culture and is no more horrifying to most Alaskans than guns are. In contrast to the views of the parasitical class that inhabits Washington DC, guns are simply necessary and useful things to most Alaskans. Similarly with mining.


    Culture aside, the basic fact of life in Alaska is that the economy has always been driven by natural resources, and for Alaskans, this is not just an abstract theory. The State of Alaska cuts a check to each resident every year, paying them a dividend on the royalties the state has collected from the oil industry. Most of the money in the state Permanent Fund that pays these dividends came from the North Slope oil fields – and those are in decline. The Alaska Pipeline is operating at half capacity now, and if it drops below 30% or so, they’ll have to shut it down. That opens up some interesting conjectures about the future, but the point at the moment is that individual Alaskans get a substantial check in the mail every year ($1,305 in 2009) that reminds them of the importance of the resource industry.


    I’m not worried about Alaska turning anti-mine; Pebble’s problems are specific to that project.


    Real Obstacles


    The main problems for resource industries in Alaska boil down to two things: it’s expensive, and much of the place is remote. Actually, the fact that everything costs more in Alaska also has a lot to do with how remote the whole place is from the rest of the U.S., adding substantial shipping costs for many goods. It’s also more expensive to deal with winter up there, due to various factors ranging from heavy snow removal costs to extra insulation costs, etc. For a mining project, a simple rule of thumb I’ve heard some old-timers use is that everything costs twice as much in Alaska.


    Within Alaska, the remoteness itself is a major hurdle. The place is huge, twice as large as Texas, four times as large as California or Montana. The state capital of Juno has only about 30,000 inhabitants – and you need a boat or a plane to get there. Anchorage, the only larger city, has only about a quarter of a million (Fairbanks, the next largest city, has about the same size population as Juno). There are very few roads connecting this scarce and scattered population, with small aircraft being a common and critical part of the transportation and supply web that connects them.


    NovaGold’s (T.NG) Donlin Creek project, huge as it is, faces serious logistical challenges, with neither roads nor power for literally hundreds of miles in any direction. Normally, you’d ship diesel fuel into a remote location and run generators. I haven’t done the math myself, but the amount of fuel needed is so great, I’ve heard that it’s physically impossible to barge it in. Maybe they could build an airstrip for some of those C-5 Galaxy cargo whales. What they are currently working on is a feasibility study to see if they can build a gas pipeline that would stretch over 300 miles from Anchorage – but for that to work, Anchorage needs to find a new gas supply itself.


    This may be why we seldom hear of small deposits in Alaska; it’s not that there aren’t any but that a deposit is not worth bothering with unless it is rich enough to pay for whatever infrastructure needs building.


    Real Opportunities


    On the other hand, this very issue of remoteness is also an advantage – at least for speculators in this metals cycle. Because the place is so huge and so much of it so far from … well, from everything, there are vast stretches of land that have seen little exploration. The fact that everything costs more in Alaska has also kept a lot of exploration dollars away, in spite of how prospective the ground is – basically the same geology we love in BC and the Yukon. For well-funded and well-run companies, this is a true “land of opportunity.”


    ***
    One of Louis’ favorite Alaskan companies has done a terrific job drilling off a monster gold deposit relatively close to the producing Fort Knox gold mine – and with a road onto the project. Louis thinks it has excellent chances of becoming a mine, particularly since the state of Alaska wants the project to go forward so it can collect its royalty. Sign up for a risk-free trial with 3-month money-back guarantee today. More here.



    Disclosure: No positions
    Tags: GOLD
    Sep 23 6:58 PM | Link | Comment!
  • Black Swans Need Not Apply
    I was pounding pavement instead of kicking rocks recently, on Wall Street of all places. There were Suits hanging around outside the familiar iconic buildings, despondently smoking cigarettes. In my surely biased opinion, the feel of the place was distinctly less energetic than usual.

    But what really struck me was not one, but two guys with sandwich-board placards announcing “WE BUY GOLD” – for different companies. 


    Just afterwards, while having lunch at Rockefeller Center, my sister, a conservative mainstream banker, called and asked me how to go about buying physical gold. I knew that day was coming, just as I knew the Soviet Union was destined to collapse sooner or later from the weight of its own economic stupidity, but it was still a shocker when it happened.

    And yet, if you ask your neighbors, you’ll most likely have a hard time finding any who own gold. My New York adventures are signs of an approaching gold mania, not a present one. But I believe more firmly than ever that it’s coming.

    Meanwhile, the Wizards in Washington entreat us to pay no attention to the man behind the curtain, hoping to distract the American consumer from the mounting evidence that the so-called recovery in the U.S. of Oz is faltering. Rather than let the market liquidate malinvestment and mismanagement, government intervention to prop up failed companies, bankrupt states, busted banks, and toxic business models (like condo flipping) is only dissipating vast sums of borrowed money to no useful end.

    The second dip in the U.S. economy is coming, if not upon us, and that will exacerbate the rest of the world’s problems. The evidence in favor of this is so abundant, no black swans need appear on the scene to drive the point home. The next leg of this “W” shaped recession we’ve been warning about for some time is already baked in the cake. Here’s why:

    Top Five Reasons Why the Economy Is Going Down

    1. A “jobless recovery” in the U.S. is not a recovery. You can bail out the largest and most mismanaged companies and change the rules to allow banks to forgo reporting their mistakes, making national economic statistics look better. But that doesn’t change the reality that millions of people are out of work – since the crash, over six million more in the U.S. alone – and unable to find jobs.

    2. Nor does it make it any less alarming that the rate of bank failures is well ahead of last year’s record (140), with 86 shuttered as of mid-June. Nor does it have the slightest effect on a myriad other harsh realities that politicians, as a group, are unable to face.


    3. The EU’s massive rescue package has not, and will not, avert trouble in the eurozone. To the contrary, the situation continues to deteriorate, pressuring the euro ever lower and taking it to levels not seen since early 2006. In today’s global economy, what’s bad for Europe is bad for Asia and the U.S. Ominously, the Baltic Dry Index, a barometer of international trade that staged a feeble recovery following the 2008 crash, is falling sharply again.


      With all due disrespect for the man, Alan Greenspan considered this his “must watch” leading indicator, and it has proved a good predictor of where the global economy is headed. That would be south.


    4. Just as Greece exposed the extent of Europe’s problems with the PIIGS (and they thought the “Mexican Swine Flu” was a problem!), California seems poised to upset the whole U.S. applecart if it doesn’t get bailed out. It would be hard to maintain the illusion of recovery if the most populous state in the U.S. – with a GDP greater than Russia – implodes into a black hole. Illinois, New Jersey, and at least 43 others are just behind, hat in hand.

    5. From Obama’s attempted ban on drilling for oil in the Gulf of Mexico, to the new financial regulations Congress has passed, to America’s flirtation with socialized medicine, it is clear that the U.S. has entered a new era of Big Government. Big Government, Big Debt, Big Deficits, Big Military… and surely soon: Big Taxes. One does not have to be an anarcho-libertarian to see this as a Big Problem delivering huge, negative unintended consequences.

    6. The real estate markets are still an unfolding disaster. May sales of new homes fell by 30% to a record low (seasonally adjusted 300,000 units vs. 800,000 “normal” sales) and dropped another 2.6% in June. Housing starts are down similarly, and previously more rosy stats have been revised downwards. A recent report from Florida tells us that 81% of all loans in the state are “underwater,” and that nearly 40% of all Florida borrowers owe more than 150% of the value of their homes – just another hay bale in the wind. And the commercial real estate debacle we have been warning of has yet to hit the fan.

    I could go on, but I’m sure you get the point that what’s already visibly ahead is Trouble with a capital “T” – never mind the possible black swans that may soon arrive. That said, while the global economy doesn’t need any black swans to tip it over the edge, the fact is that there are plenty of them out there, circling lower like buzzards. The BP oil spill disaster was one – a major disaster to those affected directly, but barely more than a hatchling black swan, on the global scale of things.

    Full-grown black swans could range from no-holds-barred war in the Middle East, to a spectacularly stupid new regulation in the EU or U.S., to an exceptionally long and harsh winter. Events that would be unfortunate difficulties to a robust economy can be fatal blows to one as rickety as the world’s today.

    Which will it be? I don’t know – I’m not a fortune-teller – but I don’t need to know. All I need to know is that they are out there, like sparks swirling around a powder keg – and this one has a lit fuse anyway.


    The Big Question

    Assuming our predictions of a double dip in the world economy are right, the big question we face as speculators betting on gold is: what will happen to gold in the next economic downturn?

    Or, more specifically (and perhaps painfully): will gold and junior gold stocks get hammered as they did in 2008? Or will visible failure of the governments’ rescue attempts, and the debts and deficits left in their wake, cause gold to go through the roof and head for the moon, pulling our gold stocks along behind?

    All of us here at Casey Research believe the ongoing train wreck of the global economy will send gold to the moon and our stocks to the outer planets – but that doesn’t mean it’s about to happen now. A particularly frightful black swan could set off the mania we’re expecting at almost any time, which is why we have core holdings in precious metals and related stocks. Absent that, we believe the gold market could continue its “two steps forward, one step back” progress for many months to come, with the odds presently seeming to favor a step back.

    It's easy to think that the mania is around the corner, with gold setting new record highs (not inflation-adjusted) in recent weeks – but betting that way would lead to massive losses if 2010 ends up more like 2008. Waiting for clarity, on the other hand, leaves time to redeploy cash into winning picks when it looks clear that the mania is starting.

    And, as we’ve said before, in our present near-term deflationary environment, cash is not a bad place to be.

    Cash and Core holdings – I think of it as C&C – never forgetting that gold is a form of cash. If gold takes off in the near future, we’re positioned to benefit. If it does the opposite, we’ll have the cash to scoop up the bargains.

    Heads, we win – tails, we win more. I like it.

    If we’re so sure gold and our shares are eventually headed way north, why not buy more now?

    Well, if you’re relatively new to the sector and are still building your core portfolio, cautious buying on the dips is justified. But ask yourself these questions (and be honest with the answers – it’s your own money that’s at stake):

    • If you had arrived on the scene in early to mid-2008 and started buying just before things fell off a cliff, would you have had the staying power to hold on and thus benefit from the resurgence in 2009 and new highs in 2010?

    • Would it make you sick to see great companies on sale for pennies on the dollar, but already have all your speculative cash tied up in the market, at higher prices?

    If you can honestly and without hesitation answer yes to the first and no to the second, then buying (more of) the Best of the Best now may work out well for you.

    But I have one more question: why take the chance?

    If we wait to see if the market corrects and it doesn’t, our profits will be lower – but so will our risk.

    I’ve said it before, but it’s worth repeating in these heady times: “Buy High, Sell Higher” may work sometimes, but it relies on someone coming along later, willing to take even bigger risks than us. Our favorite recipe is “Buy Low, Sell High” – especially if offered a shot at “stupid cheap” prices as in the fall of 2008. When it’s time to buy, with or without the lower entry points we expect, I will definitely say so in these pages.

    Patience remains the key virtue of the savvy speculator today.

    ----

    [Louis James, senior editor of Casey’s International Speculator, is simply the best in the business when it comes to junior mining companies – his boots-on-the-ground approach and due diligence have been making substantial gains for subscribers. It’s no coincidence that every single stock he recommended in 2009 has been a winner… and 2010 is shaping up to be even better. Read more here.]



    Disclosure: No positions
    Tags: GOLD
    Aug 20 11:11 AM | Link | Comment!
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