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Nicholas Jacobs

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  • Update On The Negative GOFO: Gold Has Finally Bottomed [View article]
    I think there is a very strong case that gold will go higher, probably much higher, in the long term: http://seekingalpha.co... .
    However, I do not agree that gold has "finally bottomed". After its huge, decade-long rise, a bigger and longer correction than we have so far seen is possible - even probable. The price action over the last month or two does not look like the resumption of an uptrend to me. Take a look at the 30-day chart on goldprice.org.
    Accumulating physical gold on a regular basis - "dollar averaging" - is my preferred strategy. It definitely is not time to "back up the truck". I think it likely that we will see even lower prices in the next year, and it would be a pity to be unable to take advantage of them.
    Oct 16 11:01 AM | Likes Like |Link to Comment
  • American Capital Agency And mREIT Dividends: The Race To The Bottom Is Already In Full Swing [View article]
    I agree that dividends will drop, but that does not necessarily mean these REITs are overpriced, because a substantial drop in dividends is already reflected in the prices.
    For example, NLY closed at $11.58 today. A long-term yield of 5% would be excellent right now, so the price of $11.58 suggests a dividend expectation of about $0.58/year, or a quarterly dividend around 14 or 15 cents. The most recent quarterly dividend was 35 cents. So a drop in the dividend of nearly 60% is already baked in to the current price.
    [Disclosure: I recently opened a long position in NLY.]
    Sep 30 05:58 PM | 4 Likes Like |Link to Comment
  • The U.S. Civilian Gun Market Has Peaked; Downside Ahead [View article]
    Steve, you are right about the attractive P/E and the financial soundness of RGR. But it's misleading to state the "yield" based on the most recent year's dividend, because that was a one-off, special dividend. Going forward, we will see much lower dividends. The company is now using its cash to expand production and has stated an intention to carry more inventory.

    If, as the numbers on background checks strongly suggest, we see a fall in demand just as several firearms companies are ramping up production, that will hit RGR hard. To challenge this article's analysis, it's not enough to point out that last quarter was a "blowout quarter". What matters to an investor is the next few quarters. And the opening of a new facility to expand production only makes sense if demand is increasing.
    Sep 13 04:51 PM | 1 Like Like |Link to Comment
  • Prepare For The Coming Retirement Crisis [View article]
    Good article, David. None of this is rocket science - the pieces are all pretty obvious - but put them together, and it's not overblown to call it a crisis. A crisis that most people are ignoring.
    May 24 10:31 AM | 5 Likes Like |Link to Comment
  • Winner Takes All: The Super-Priority Status Of Derivatives [View article]
    I agree with your description of the problem, but not all of your suggested solutions would help.
    The 1936 Commodity Exchange Act did not "make derivatives illegal", it simply required certain derivatives to be traded on organized exchanges. Derivatives have a real economic purpose - for example, agricultural futures enable a farmer to lock in a price for a crop before it is harvested, which is essential for the farmer to be able to plan ahead.
    Broadly speaking, derivatives are beneficial as long as they are used to transfer risk from people engaged in real economic activity to speculators. We need deposit-taking banks to be safe, so they must not be allowed to speculate; Glass-Steagall should never have been repealed. (By the way, Glass-Steagall had been weakened by creative legal interpretations long before it was formally repealed; what we need, to be clear, is the separation between deposit-taking commercial banks and investment banks which was the original intention of Glass-Steagall.) Deposit-taking banks still need to use derivatives, but they should use them only to eliminate risk. For example if a bank gives you a fixed-rate mortgage, it is exposed to the risk that interest rates might rise above that fixed rate. It must be allowed to transfer that risk to a speculator using a derivative, for example a swap. The counterparty (speculator) would have to put up collateral, which the deposit-taking bank would seize in the event of default.

    The "problem behind the problem" is that the existing situation is very desirable for the people who run the big banks, and they have huge influence over Congress. Gambling with depositors' money provides the profits which "justify" their multi-million-dollar bonuses, but those profits also enable the bankers to exert tremendous political power, through campaign contributions and PACs.
    Apr 10 09:19 AM | 13 Likes Like |Link to Comment
  • Winner Takes All: The Super-Priority Status Of Derivatives [View article]
    The smart money has already left, or is leaving, the banks of most Eurozone countries.
    Apr 10 08:10 AM | 1 Like Like |Link to Comment
  • Is 3D Printing A Huge Bubble? [View article]
    I think you may be missing the point, Erick. Obviously a car-repair shop wouldn't print off a transmission or an engine, and in any case, those are both assemblies of many different parts. But there are a huge number of discrete parts in an automobile. It is impossible for a repair shop to stock a complete parts inventory for (say) the last 8 years' models of even the top ten manufacturers. Now, for a recent model, parts can be ordered and shipped pretty quickly. But for an older model, a replacement part could be difficult to source. A 3D printer could be a solution. I don't know whether this is the wave of the future or not, but it is certainly not a ridiculous concept.
    Feb 19 04:20 PM | 1 Like Like |Link to Comment
  • Decide Whether LinkedIn Makes Sense For You [View article]
    Speaking for myself, I wouldn't short it as soon as Monday. This market is rallying, and in a rising market, I think it's unwise to be short anything. I'd wait for a technical signal that the rally is breaking down.
    But it depends on your risk tolerance of course.
    Feb 9 06:06 AM | Likes Like |Link to Comment
  • Decide Whether LinkedIn Makes Sense For You [View article]
    GAAP does require R&D costs to be expensed in the year in which they are incurred, but this is one of the points where IFRS (International Financial Reporting Standard) differs from GAAP. Under IFRS, R&D expenditure can often be capitalized.

    As you point out, it is often more logical to regard R&D as generating an intangible asset than being an expense. GAAP is a bit inconsistent, because if a company buys the results of R&D from another company, that's treated as a capital asset, whereas if it develops the same results internally, the cost is expensed. When analyzing a company's financial statements, it's sometimes a good idea to add R&D expenditure (or part of it) to the intangible assets before considering the value of the company. After all, the price paid in a takeover would have to include the value patents, copyrights, and general know-how the company had acquired from its R&D.
    Feb 9 12:46 AM | 1 Like Like |Link to Comment
  • Gold: Yes, It Will Drop. No, Don't Short It. [View article]
    Good point. The calendar year isn't completely arbitrary, though - it's the tax year for most US residents, for example.
    And I'd question your statement that November 15 is just as arbitrary as January 1. How did you pick November 15? Did you choose a completely random date ... or did you pick a date that would show at least one down year? If so, it isn't arbitrary at all!

    By the way, another objection which could be made to the "12 straight up years" is that it's only true of the price in US dollars. In any other major currency, there have been down years (you can find data on goldprice.org).

    What I'm really trying to express here is that for such a big move over such a long period, you'd expect a major correction at some point. Not just a drop from $794 to $747.50, and not just intra-year volatility, but a year-on-year correction in the range of 25% to 50%.

    If that happens in 2013, I'd see it as a buying opportunity.
    Jan 17 05:27 PM | 1 Like Like |Link to Comment
  • Gold: Yes, It Will Drop. No, Don't Short It. [View article]
    Historical gold prices for 2008 are available at
    http://bit.ly/WA394k .
    The London gold price for January 2, 2008 was $846.75 and the price for December 30, 2008 was $869.75. So I do not count 2008 as a down year.
    Jan 12 09:06 AM | 2 Likes Like |Link to Comment
  • Gold: Yes, It Will Drop. No, Don't Short It. [View article]
    It's difficult to know what would have happened without QE. To the extent that the first QE was seen as stabilizing the financial system, it would have reduced the attractiveness of gold as a safe harbor, thus making the uptrend less steep, as you suggest. On the other hand, subsequent QEs inject more money into financial markets, and in the long run that is one of the drivers of the uptrend.
    Jan 11 05:02 PM | 2 Likes Like |Link to Comment
  • 2 Drug Companies That Belong In Your Portfolio [View article]
    You're right - thanks for the correction. Last year's dividend was nearly 6%, and the note to the table said the numbers were based on trailing earnings. Yahoo's dividend figure seems to be a forecast of this year's dividend.
    In any case, I'll make a point of not relying solely on Yahoo Finance for dividend yields in future.
    Jan 3 01:41 AM | Likes Like |Link to Comment
  • Marc Faber Warns: Store Your Gold Overseas [View article]
    I'm surprised this article didn't mention the Perth Mint (in Australia). For many years, this has been a preferred place to own gold. I believe you can open an account there with as little as $10k.
    Sep 18 04:38 PM | 1 Like Like |Link to Comment
  • Super Speculate Me--Not: No Shine In Gold's Future [View article]
    In the short term the article is probably right. Technical factors do suggest that the gold price could collapse soon.

    But the authors do not understand the long-term picture. Gold is not a commodity. Gold is a currency, and it is the only one that cannot be printed by politicians. In the long run, therefore, it is the only store of value you can trust.
    Jun 4 02:01 PM | 3 Likes Like |Link to Comment
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35 Comments
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