<<So you are writing a book>> Writing?? The book has been out for 4 years.
<<You have a ton of wrong calls in your articles and comments.>> This is as shameless a whopper of a lie as has ever been told. I make extremely few predictions. I do so with great care so that they stand the test of time. Name one 'wrong call' I ever made -- let's have this debate!
<<your statement that gold is really worth around 500-700$ in 2010>> ... which I stand by today, plus about 3% annual inflation. So I estimate the fair value of an ounce at about $550 to $770 today. You try to trot this out to make mockery but the last laugh will be mine. You don't understand that market value can differ hugely from independent estimates of fair value. At one time, a choice tulip bulb could buy a house. To you apparently that fact would prove that the bulb was truly worth a house rather than that the tulip market was disconnected.
Shelling out $1900 for each ounce of gold in 2011 was of course very dumb, but spending currently $1500 per ounce will also prove to be one of the greatest investments you can make today if your goal is to lose a lot of money long term.
By the way, since I began calling gold a bubble in 2010 I have only predicted its price falling on the decade-long order. So I have not been wrong on the call at this point. I never made any shorter term predictions. In fact I wrote repeatedly that bubble tops are extremely hard to predict and that anything could happen to gold's price shorter term. Convenient of you to misconstrue my words.
<<go to a gold coin show to see s/d in action>> Yes the paper market vs physical market disconnect is all the buzz right now. So you get a room full of fools together buying gold and they feed off each other's energy. But the general population is what counts and they're yawning at precious metals. You'll have few new recruits at this point for the golden turd. The fools eagerly buying gold on this dip below $1500 are the same people who were unwilling to buy any more at $1700-$1900. So who's going to push the price back up there and beyond? Central bank buying? -- don't count on it as CBs do deals off the market and therefore their huge trades may have no effect on price either way.
Gold bugs think that the price of gold is a function of the quantity of excess fiat money. It's not. The price of gold is the function of a speculative market; basically a tug of war between fear and greed.
Chesapeake Granite Wash Trust Is A Strong Buy, Part II [View article]
Dr Jan,
A simple price target probably doesn't make sense: since CHKR pays an enormous dividend it's important to factor in dividends received, which should drop one's price target over time. I will just tell you about my own approach which may be very different from yours.
I invest as a full time occupation. It is not a luxury for me as I am not rich; I need to earn a living from it. That said I have long term holdings where I tend to sit tight and other 'pots of money' that I trade fairly frequently to try to maximize return.
For something like an individual stock, or trust, typically when I get interested I take a small position, and if it seems overly cheap start to research in depth as to why. If my research leads me to believe the market is wrong and it really is too cheap, I'll tend to buy more in proportion to any falling price from there. With CHKR this means I bought quite a lot from about $14.50 down to $13.22. I had already owned a small position starting much higher at $18 (less dividends received).
Anyhow, I ended up with quite a whopper of a position on the day CHKR was in the low $13's. Of course I was staring at a lot of red ink then and had a great deal at stake. It's very hard to pick bottoms, but not so hard if you understand the fundamentals to see that CHKR was too darn cheap at $13.22. However, markets can get even more irrational than that, so of course I was worried -- I had been buying at $15 thinking +that+ surely would be the bottom and I was wrong as it had kept dropping like a rock. It's pretty disconcerting and makes one wonder if he is missing something important. As it turned out the bounce off of $13 was fantastic and within days I had made 10 to 15% on the shares that I had bought the lowest.
I will grab a profit like that -- 12% in a week is like 624% annualized: Since I am looking for investments full time and capital constrained rather than idea-constrained, it makes sense for me to grab some quick large profits when they offer themselves and then redeploy the money. Or I can simply buy the same stock back if the bounce fails and it returns to a free fall. I just bought back some PER for 4% less than I sold it a week or two back. I restored my position plus took out some spending money. Sometimes I'll trade repeatedly like that in a short time for some great profits. I am both fundamentals investor and trader. (I do still hold a position in CHKR that I've owned for quite a while.)
For an exit strategy you might consider what I often do: monitoring my return/time and sell when that seems quite attractive (usually after a major run up): current price + dividends received to date divided by your cost equals return, then subtract 1 and multiply that by 365 / days held. That's return/time (annualized) and typically I am trying to earn double digits. Sometimes I get triple digits but that is usually just lucky buying near a bottom that reverses sharply.
Chesapeake Granite Wash Trust Is A Strong Buy, Part II [View article]
Jonathan,
I concur that a forecast by the Energy Administration probably carries considerably more weight than a forecast by any private interest. That said, it's still just a forecast and as such somewhat of a shot in the dark. I expect they see NG demand steadily rising combined with fracked well outputs (domestic gas) falling off quickly as the wells age. So a likely falling supply with growing demand should equal higher prices. It makes sense to me and seems high probability that the price rises over time, but nowhere near 100% probable. Who knows what other factors may play in.
Keep in mind also that the earlier the period in the trust, the bigger the well output. So really we want high oil and NG prices soon. If prices flatline until 2020 and then soar for the last 11 years of the trust, our good fortune will probably be greatly diminished along with well output probably greatly diminished in that time frame.
So I'm with you that NG prices rising over time looks more likely than flat or falling, but it's no sure thing and the question of rising *when* is a big deal for unitholders.
I suppose many Schiff followers who got in early enough are still fans. He was of course recommending gold years ago when it was cheap so anybody buying it back then for a few hundred bucks or silver for 5 bucks is still feeling the love. Then there is the famous youtube video a fan put together of his good calls in 2007 which is still cited as supposed proof of his genius. But those calls were all related to systemic debt problems -- none of them economics. When it comes to economics Schiff is woefully off the mark and virtually of all his understanding is deeply flawed, usually because he thinks only of one step or one side of the coin.
For example, he calls consumer spending bad and saving good. That's true for an individual's net worth but false for the whole economy. One's spending is always another's income, so curbing spending chokes the National Income necessarily. Because one's spending is another's income, more spending is in fact zero sum for the whole and thus not 'bad' for the whole. Less spending though is definitely contractionary to incomes (or recessionary) by definition. Yet he continues to revile "spending" while canonizing "saving" as good for the macroeconomy. It's just silly, but it does sound good if you don't actually think about it. But why in his decades of punditry has *he* not thought about it?
<<He is eating his words already.>>
He certainly should be. One day he will have no choice but to apologize for his many utterly failed predictions. They will be obviously so far off that he won't be able to weasel out of them. For now though he can morph, but time is not on Peter's side.
I am just responding to a commenter on an article. I don't have time to research their other writings and positions so I have to make some assumptions based on what is said in the thread. When you said "Gold has risen for 13 straight for a reason" that sounds to me like you are certain gold must keep rising as long as reason X exists, whatever X is.
<<In the last several years opportunities abounded to get $30 or $40 or $45 or $35 for each ounce of silver you owned. Not seizing any of those opportunities and instead continuing to own it today at $23 should be viewed as losing money, even if you actually bought it long ago for much lower.>>
You call this cherry picking a time frame to make my case? A 3 year window and widely disparate price points? Sheesh.
If I owned just GLD or SLV in my brokerage account and saw the account's value fall massively over a couple years I'd call that losing money. If you don't want to because you think gold and silver are "insurance" or "real money" or whatever I guess that's your prerogative. Just understand that in the end we will all continue to use fiat dollars to transact and that your gold and silver money will have to be converted to dollars before you use it. Therefore the dollar prices of gold and silver will be *all-important* to you, making gold and silver *no different* from your other valuable possessions that you might sell to raise cash. When people don't see this obvious truth, the only explanation I have is 'the religion of shiny metals'. And by the way I probably like the shiny metals as much as they do, but I dump them when their prices are sky high and I will buy them back many years later for a fraction, after some fool has absorbed all the losses.
I am worried that you contradict yourself: you call yourself a deflationist but want to "counteract the fall of the dollar". But a falling dollar is called inflation. Deflation is when prices fall so therefore held dollars become more valuable over time. In deflation you want to hold cash and bonds. In inflation, you want to hold anything other than cash and bonds (unless the bond yield exceeds the inflation rate).
I have been saying since 2008 that stocks are the place to be and also provide a fantastic inflation hedge. In fact they've outperformed most every other investment class since then but more importantly is that after rising so much stocks still are on the cheap side and so poised to do well in the future. You can't say that about PMs. As for the excellent inflation-hedge aspect of stocks, it is simple: if toilet paper is going to cost $50 a pack due to runaway inflation, you are hedged by owning Charmin-maker Procter & Gamble, because that $50 will be revenue to them (you).
Peter deserves much credit for being a fantastic salesman and orator. I don't mean that in a cynical way as I think he believes everything he says. However, he is a terrible economic thinker so his golden tongue actually does a lot of damage rather than good.
Somebody owning silver 2 years ago at ~$50/oz has seen its value shrink in half since then. Whether it was purchased long ago at a much lower price doesn't really matter. In the last several years opportunities abounded to get $30 or $40 or $45 or $35 for each ounce of silver you owned. Not seizing any of those opportunities and instead continuing to own it today at $23 should be viewed as losing money, even if you actually bought it long ago for much lower.
But my point is actually that gold and silver bulls a couple years ago at prices much higher than today often expressed incredulity and scorn when I suggested gold and silver would fall in a big way from those levels. They thought it impossible, reasoning, as you seem to, that faster money printing meant precious metals *must* go higher. (Thus the "you guys".)
It's bad reasoning. It's the old Friedman myth. They think bigger deficits are a slam dunk for higher inflation rates. Even if that were true, buying something like volatile metals that have already run up 400% in a decade should seem like a lousy way to hedge for higher inflation when other, better, tangible and intangible hedges abound that have not run up at all. http://bit.ly/10jrofT
As for the defense of owning precious metals being that they are a small position in one's portfolio, I think that is crazy. Imagine going to your financial advisor who picks stocks for you on your account, and you ask him why stock XYZ is 10% of your net worth. His answer is that he's not entirely sure there is good reason to own it but it doesn't matter because it's only 10 percent. That's essentially what you are saying. If you own PMs at all you should have a good case for owning them at their current prices.
Mark to market accounting in fact was a recent development enacted to deal with the modern proliferation of derivatives, not mortgages. For centuries there was virtually no mark to market accounting since carrying at cost less any amortization was both conservative and worked beautifully. This cost basis accounting still works beautifully with things like mortgages, provided that writedowns must be made for non performing loans (which is the case by regulation). The problem with M2M acctg that was not foreseen is that when markets become dysfunctional due to a mass stampede of institutional selling, as in 2008, M2M can become a self fulfilling negative spiral and even spread out to implode the whole financial system. (The public views 'market' asset values as gospel if that's what is reported.)
Consider that in fall of 2008, Merril Lynch, for example, in desperate need of raising cash liquidated some MBS for 22 cents on the dollar. These were *performing* loans, nearly all, yielding a whopping 20%, and secured by homes that in worst case scenario after foreclosure costs and falling values would be worth around 50 cents on the dollar. That's a quick 125% profit plus 20% interest for owning valuable homes that are hard assets and glued to the ground so cannot walk away. In short, in 2008 you could make a quick double to triple of your money buying MBS from Merrill with virtually no risk -- that's a dysfunctional market, so why should every institution owning those types of assets have to mark them to that dysfunctional 22 cents? You can imagine the ripple effect of the accounting charges against earnings and assets of something like that. Luckily the Fed stepped in and bought up all the MBS it could, both supporting MBS prices and converting MBS holdings into cash to shore up institutions' balance sheets.
M2M accounting is just one of those things, like vaguely "bankers", that the public wants to demonize with its broad brushstroke of misunderstanding. Once enough people say in a cynical tone of voice "mark-to-myth accounting" everybody just assumes it is some malevolent scheme dreamed up by Wall Street. Actually it was enacted to rein in liberties being taken in accounting for derivatives that had never existed in the past. But we found out that M2M also can backfire, particularly in debt instruments like mortgages rather than derivatives.
<<This pullback in price ... is in line with all others>>
So you're cool with losing 50% in silver in 24 months?
<<19 x the purchasing power of a 1965 dime.>>
I know a lot about the old silver dimes. I particularly like the Mercury series. Today they cost 17 base metal dimes each (you're a bit behind with your 19 figure as silver has lost another 10% in the last few days). Ten years ago I was buying such silver dimes for 3.3 to 3.5 base-metal dimes each. Some of those two years ago I sold for as much as 35 times. Now down to 17 times. So what? -- why is this volatile commodity religion for you guys?
**If a stable store of wealth is what you seek, precious metals are obviously much too volatile to fit the bill.** There is a high probability that your 19x purchasing power will fall in half or worse in the years to come. Instead of considering this possibility objectively you guys forever trot out the non-sequitur National Debt argument to convince yourselves that you can't lose money in silver and gold. Blinders.
If you want a stable store of wealth that is tangible for fear of paper buy something like rental real estate, which also pays you as you go. You can also buy it in REIT form if you want to avoid management headaches. In my area home prices actually stayed pretty stable during the housing bubble and therefore didn't drop much when it popped.
In the long haul home values will surely keep up with inflation, so you just don't need risky metals. Homes=everybody will always need one. Silver=no individual will never need it, while its value will be subject to the vagaries of emotional and volatile markets (not nearly the case with housing markets).
Peter does not seem to have in him the phrase "I was wrong." He is master at shape-shifting his prior failed arguments and predictions into new, tangential arguments and predictions.
In 2009 he was above all else recommending to his clients to "get out of the dollar," as he predicted USD hyperinflation. Yes, he held up Zimbabwe money to the camera comparing it to the USD and told his radio show listeners that indeed taking out a mortgage to buy real estate was a good idea because that mortgage debt might be so inflated away by Fed money printing that some years into the mortgage the postage stamp on the monthly payment would cost more than the payment!
Here we are with first class postage at a mere 46 cents (despite the plunging mail volume). So I was right in 2009 on inflation and also many other things he was so very wrong on.
With his hyperinflation prediction turning out to be light-years off the mark, he now has to invent damage control arguments such as this article to try to save face and keep gold afloat. So he morphs a failed hyperinflation argument for gold into his current case to buy gold -- that the recent panic selling will bring in the truly big buyers (central banks) to bid it back up. Well maybe the price drop will bring in some big buyers and maybe it won't, but (long term) from here gold will still go much lower.
Since Cyprus has to sell its supposedly "real money" (gold) in order to pay its bills with "worthless paper" currencies, then obviously gold is not the real money after all. That alone is indicative of how this gold story ends if you think about it.
And when Cyprus or another country's central bank decides to sell gold to "pay bills," it will just get the current market price for the gold. As that price falls over time the banks will be dis-couraged, not en-couraged with holding more gold and thus will seek more stable assets.
Ironic -- a noble metal stable in electrons but not at all stable in its much touted role of "wealth preservation."
Not money. Anything that you have to sell to raise money to pay bills is not money.
Gold bugs I've noticed have a seemingly unlimited capacity to stretch truth to support their case. They virtually unanimously cite that CPI omitting food and energy is evidence of devious underreporting of inflation by the government. The problem with that is ***CPI does not omit food and energy!*** They are confusing headline CPI with "Core CPI", a separate measure. The Core statistic is the one that excludes food and energy, but the plain vanilla CPI includes food and energy just as it always has.
The number of gold-bug authored books that have for years gotten this fact about CPI wrong is stunning, and symptomatic of what poor researchers and logicians these idealogues are. Most of their arguments are a bunch of half truths or just plain wrong. This is now coming home to roost in the form of the price of gold plunging -- something many of them said was impossible "as long as the government keeps printing money".
The End Of The Second Great Gold Rally [View article]
The author's chart that assumes (rather than argues) that the inflation-adjusted price of gold is simply a function of Fed ease or tightness is way off causally, in my view. While the correlation is correct and visually clear, the story is wrong. I think this is more like it:
From 1980-2000 the stock market roared as never before and GDP growth was good, with any recessions particularly mild and infrequent. Thus the Fed simply *had no need* to ease during that time period because Fed easing is done in attempt to revive the economy when it falters.
Secondly, stocks rising quickly was the game in town so gold (flat to falling) got less and less attention. Both stocks and gold charts thus became self fulfilling prophesies as momentum investors piled into stocks (and ignored gold). I remember the general sentiment in the 1990's when stock bull Louis Rukeyser on Wall Street Week every Friday it seemed would pronounce gold "dead" with a smile. So I think the 20 year bear market in gold had a lot to do with investor sentiment and little or nothing to do with interest rates (Fed policy) as the author claims. Most people like to buy whatever investment class has already been rising and shun whatever has been falling. Thus the gold bubble of 1980 was slowly letting out air for 20 years, and it eventually over-corrected, setting the stage for its explosive comeback.
After 2000, the stock market faltered, causing much anxiety, and a more serious recession took hold in 2001. Suddenly it felt like the party might finally be over. Smarter money had realized at least since Greenspan's 'irrational exuberance' speech of 1996 that stocks were rather frothy. Because of this shaky 2001 environment, for the first time in 20 years the Fed stepped in aggressively and eased. But the 20 years of good growth and consequently the stock bull had run their course, up to the S&P500 trading at an eye popping P/E of 35 in 2000. That kind of froth was unsustainable and easing was thus not effective ("pushing on a string").
When people's portfolios tank they feel poorer and start belt tightening. As the tide of negative sentiment began to really sink in, for a while speculation turned from stocks to real estate. The following decade stocks treaded water as many problems loomed due to the weaker economy and some bad policy decisions, such as deficits soaring (as taxes were cut to historic lows in an effort to stimulate). Past sins of credit extension in private and public sectors came home to roost, as well as derivative problems. The core detonator for an implosive global financial crisis in 2008 turned out to be a several trillion dollar racket in originating subprime mortgages in which lenders figured out that if they packaged and sold the loans, it didn't matter to them whether the borrowers would repay. These loans defaulted much worse than expected, especially after home prices nationally suffered a historically unprecedented fall, and a sharp recession caused a leap in unemployment.
So basically, the 1970's were times of great fear and economic problems, and in the wake of major nations having recently gone to completely unbacked fiat currencies, there was a speculative fever in gold and silver. From 1980 to 2000, in contrast, there was good growth and low unemployment and inflation, so the overbought 1980 gold market came back to earth. Meanwhile during this period the strong economy meant that *the Fed simply had no need to ease*. 1970's fears abated and there was a very optimistic sentiment in owning stocks so nobody wanted gold. After 2000 when stocks began falling and a recession loomed, the Fed once again eased in attempt to stimulate. But past sins were too great and negative sentiment exacerbated the contraction. In such situations you can expect the Fed to ease a lot and at the same time for fears to drive investors away from poorly performing stocks and into hard assets like gold.
So the Fed's easing does not cause gold to rise as the author claims, but rather a weak economy causes the Fed to ease. And under certain conditions related to a weak economy, fears can drive people to buy gold.
Chesapeake Granite Wash Trust Is A Strong Buy, Part II [View article]
stocknerd,
I agree that the hydrocarbon space is overanalyzed with charts and forecasts, such as PV-10, which attempts to nail down a value that cannot be nailed down. I just like this investment at this entry price because the downside is small while the upside is potentially quite large. That's a very different point of view than trying to predict hydrocarbon prices or well output.
Chesapeake Granite Wash Trust Is A Strong Buy, Part II [View article]
charmion,
I haven't owned these trusts until this year so have not yet looked much into tax aspects. Other than that a schedule K-1 is used, I can't answer your tax questions.
As for suitability for a Roth IRA, that would depend on how much risk you want in your Roth. While you'll pay no tax on gains in your Roth, you'll also get no deduction for losses there. What trouble did MLPs cause in your Roth?
Chesapeake Granite Wash Trust Is A Strong Buy, Part II [View article]
Uncle B,
Well you seem to take the pessimistic view that 3 in a row needing subordination is a trend that portends the future. I disagree. Trusts don't control hydrocarbon prices and the future of prices is unknown. As for the 3 'misses' in a row, subordination protection did in fact make up for all those and should continue to protect the minimum thresholds through mid 2016. I also would not read too much into the '3 quarters in a row' just as I would not read anything into the flipping of a coin yielding 3 tails in a row. NG prices are up.
Chesapeake Granite Wash Trust Is A Strong Buy, Part II [View article]
flakmeister,
CHKR is very limited as a pass-through legal structure specifically for the revenues generated by certain wells. It will receive the net revenues from the particular 187 wells and no more than that. So technically I guess you could say "they can drill away" but the drilling will stop when the 187 is reached.
Gold In The Crosshairs [View article]
Writing?? The book has been out for 4 years.
<<You have a ton of wrong calls in your articles and comments.>>
This is as shameless a whopper of a lie as has ever been told. I make extremely few predictions. I do so with great care so that they stand the test of time. Name one 'wrong call' I ever made -- let's have this debate!
<<your statement that gold is really worth around 500-700$ in 2010>>
... which I stand by today, plus about 3% annual inflation. So I estimate the fair value of an ounce at about $550 to $770 today. You try to trot this out to make mockery but the last laugh will be mine. You don't understand that market value can differ hugely from independent estimates of fair value. At one time, a choice tulip bulb could buy a house. To you apparently that fact would prove that the bulb was truly worth a house rather than that the tulip market was disconnected.
Shelling out $1900 for each ounce of gold in 2011 was of course very dumb, but spending currently $1500 per ounce will also prove to be one of the greatest investments you can make today if your goal is to lose a lot of money long term.
By the way, since I began calling gold a bubble in 2010 I have only predicted its price falling on the decade-long order. So I have not been wrong on the call at this point. I never made any shorter term predictions. In fact I wrote repeatedly that bubble tops are extremely hard to predict and that anything could happen to gold's price shorter term. Convenient of you to misconstrue my words.
<<go to a gold coin show to see s/d in action>>
Yes the paper market vs physical market disconnect is all the buzz right now. So you get a room full of fools together buying gold and they feed off each other's energy. But the general population is what counts and they're yawning at precious metals. You'll have few new recruits at this point for the golden turd. The fools eagerly buying gold on this dip below $1500 are the same people who were unwilling to buy any more at $1700-$1900. So who's going to push the price back up there and beyond? Central bank buying? -- don't count on it as CBs do deals off the market and therefore their huge trades may have no effect on price either way.
Gold bugs think that the price of gold is a function of the quantity of excess fiat money. It's not. The price of gold is the function of a speculative market; basically a tug of war between fear and greed.
Chesapeake Granite Wash Trust Is A Strong Buy, Part II [View article]
A simple price target probably doesn't make sense: since CHKR pays an enormous dividend it's important to factor in dividends received, which should drop one's price target over time. I will just tell you about my own approach which may be very different from yours.
I invest as a full time occupation. It is not a luxury for me as I am not rich; I need to earn a living from it. That said I have long term holdings where I tend to sit tight and other 'pots of money' that I trade fairly frequently to try to maximize return.
For something like an individual stock, or trust, typically when I get interested I take a small position, and if it seems overly cheap start to research in depth as to why. If my research leads me to believe the market is wrong and it really is too cheap, I'll tend to buy more in proportion to any falling price from there. With CHKR this means I bought quite a lot from about $14.50 down to $13.22. I had already owned a small position starting much higher at $18 (less dividends received).
Anyhow, I ended up with quite a whopper of a position on the day CHKR was in the low $13's. Of course I was staring at a lot of red ink then and had a great deal at stake. It's very hard to pick bottoms, but not so hard if you understand the fundamentals to see that CHKR was too darn cheap at $13.22. However, markets can get even more irrational than that, so of course I was worried -- I had been buying at $15 thinking +that+ surely would be the bottom and I was wrong as it had kept dropping like a rock. It's pretty disconcerting and makes one wonder if he is missing something important. As it turned out the bounce off of $13 was fantastic and within days I had made 10 to 15% on the shares that I had bought the lowest.
I will grab a profit like that -- 12% in a week is like 624% annualized: Since I am looking for investments full time and capital constrained rather than idea-constrained, it makes sense for me to grab some quick large profits when they offer themselves and then redeploy the money. Or I can simply buy the same stock back if the bounce fails and it returns to a free fall. I just bought back some PER for 4% less than I sold it a week or two back. I restored my position plus took out some spending money. Sometimes I'll trade repeatedly like that in a short time for some great profits. I am both fundamentals investor and trader. (I do still hold a position in CHKR that I've owned for quite a while.)
For an exit strategy you might consider what I often do: monitoring my return/time and sell when that seems quite attractive (usually after a major run up): current price + dividends received to date divided by your cost equals return, then subtract 1 and multiply that by 365 / days held. That's return/time (annualized) and typically I am trying to earn double digits. Sometimes I get triple digits but that is usually just lucky buying near a bottom that reverses sharply.
Chesapeake Granite Wash Trust Is A Strong Buy, Part II [View article]
I concur that a forecast by the Energy Administration probably carries considerably more weight than a forecast by any private interest. That said, it's still just a forecast and as such somewhat of a shot in the dark. I expect they see NG demand steadily rising combined with fracked well outputs (domestic gas) falling off quickly as the wells age. So a likely falling supply with growing demand should equal higher prices. It makes sense to me and seems high probability that the price rises over time, but nowhere near 100% probable. Who knows what other factors may play in.
Keep in mind also that the earlier the period in the trust, the bigger the well output. So really we want high oil and NG prices soon. If prices flatline until 2020 and then soar for the last 11 years of the trust, our good fortune will probably be greatly diminished along with well output probably greatly diminished in that time frame.
So I'm with you that NG prices rising over time looks more likely than flat or falling, but it's no sure thing and the question of rising *when* is a big deal for unitholders.
Gold In The Crosshairs [View article]
I suppose many Schiff followers who got in early enough are still fans. He was of course recommending gold years ago when it was cheap so anybody buying it back then for a few hundred bucks or silver for 5 bucks is still feeling the love. Then there is the famous youtube video a fan put together of his good calls in 2007 which is still cited as supposed proof of his genius. But those calls were all related to systemic debt problems -- none of them economics. When it comes to economics Schiff is woefully off the mark and virtually of all his understanding is deeply flawed, usually because he thinks only of one step or one side of the coin.
For example, he calls consumer spending bad and saving good. That's true for an individual's net worth but false for the whole economy. One's spending is always another's income, so curbing spending chokes the National Income necessarily. Because one's spending is another's income, more spending is in fact zero sum for the whole and thus not 'bad' for the whole. Less spending though is definitely contractionary to incomes (or recessionary) by definition. Yet he continues to revile "spending" while canonizing "saving" as good for the macroeconomy. It's just silly, but it does sound good if you don't actually think about it. But why in his decades of punditry has *he* not thought about it?
<<He is eating his words already.>>
He certainly should be. One day he will have no choice but to apologize for his many utterly failed predictions. They will be obviously so far off that he won't be able to weasel out of them. For now though he can morph, but time is not on Peter's side.
The Fed Is Not 'Printing Money' [View article]
I am just responding to a commenter on an article. I don't have time to research their other writings and positions so I have to make some assumptions based on what is said in the thread. When you said "Gold has risen for 13 straight for a reason" that sounds to me like you are certain gold must keep rising as long as reason X exists, whatever X is.
<<In the last several years opportunities abounded to get $30 or $40 or $45 or $35 for each ounce of silver you owned. Not seizing any of those opportunities and instead continuing to own it today at $23 should be viewed as losing money, even if you actually bought it long ago for much lower.>>
You call this cherry picking a time frame to make my case? A 3 year window and widely disparate price points? Sheesh.
If I owned just GLD or SLV in my brokerage account and saw the account's value fall massively over a couple years I'd call that losing money. If you don't want to because you think gold and silver are "insurance" or "real money" or whatever I guess that's your prerogative. Just understand that in the end we will all continue to use fiat dollars to transact and that your gold and silver money will have to be converted to dollars before you use it. Therefore the dollar prices of gold and silver will be *all-important* to you, making gold and silver *no different* from your other valuable possessions that you might sell to raise cash. When people don't see this obvious truth, the only explanation I have is 'the religion of shiny metals'. And by the way I probably like the shiny metals as much as they do, but I dump them when their prices are sky high and I will buy them back many years later for a fraction, after some fool has absorbed all the losses.
I am worried that you contradict yourself: you call yourself a deflationist but want to "counteract the fall of the dollar". But a falling dollar is called inflation. Deflation is when prices fall so therefore held dollars become more valuable over time. In deflation you want to hold cash and bonds. In inflation, you want to hold anything other than cash and bonds (unless the bond yield exceeds the inflation rate).
I have been saying since 2008 that stocks are the place to be and also provide a fantastic inflation hedge. In fact they've outperformed most every other investment class since then but more importantly is that after rising so much stocks still are on the cheap side and so poised to do well in the future. You can't say that about PMs. As for the excellent inflation-hedge aspect of stocks, it is simple: if toilet paper is going to cost $50 a pack due to runaway inflation, you are hedged by owning Charmin-maker Procter & Gamble, because that $50 will be revenue to them (you).
Gold In The Crosshairs [View article]
The Fed Is Not 'Printing Money' [View article]
Somebody owning silver 2 years ago at ~$50/oz has seen its value shrink in half since then. Whether it was purchased long ago at a much lower price doesn't really matter. In the last several years opportunities abounded to get $30 or $40 or $45 or $35 for each ounce of silver you owned. Not seizing any of those opportunities and instead continuing to own it today at $23 should be viewed as losing money, even if you actually bought it long ago for much lower.
But my point is actually that gold and silver bulls a couple years ago at prices much higher than today often expressed incredulity and scorn when I suggested gold and silver would fall in a big way from those levels. They thought it impossible, reasoning, as you seem to, that faster money printing meant precious metals *must* go higher. (Thus the "you guys".)
It's bad reasoning. It's the old Friedman myth. They think bigger deficits are a slam dunk for higher inflation rates. Even if that were true, buying something like volatile metals that have already run up 400% in a decade should seem like a lousy way to hedge for higher inflation when other, better, tangible and intangible hedges abound that have not run up at all. http://bit.ly/10jrofT
As for the defense of owning precious metals being that they are a small position in one's portfolio, I think that is crazy. Imagine going to your financial advisor who picks stocks for you on your account, and you ask him why stock XYZ is 10% of your net worth. His answer is that he's not entirely sure there is good reason to own it but it doesn't matter because it's only 10 percent. That's essentially what you are saying. If you own PMs at all you should have a good case for owning them at their current prices.
Mark to market accounting in fact was a recent development enacted to deal with the modern proliferation of derivatives, not mortgages. For centuries there was virtually no mark to market accounting since carrying at cost less any amortization was both conservative and worked beautifully. This cost basis accounting still works beautifully with things like mortgages, provided that writedowns must be made for non performing loans (which is the case by regulation). The problem with M2M acctg that was not foreseen is that when markets become dysfunctional due to a mass stampede of institutional selling, as in 2008, M2M can become a self fulfilling negative spiral and even spread out to implode the whole financial system. (The public views 'market' asset values as gospel if that's what is reported.)
Consider that in fall of 2008, Merril Lynch, for example, in desperate need of raising cash liquidated some MBS for 22 cents on the dollar. These were *performing* loans, nearly all, yielding a whopping 20%, and secured by homes that in worst case scenario after foreclosure costs and falling values would be worth around 50 cents on the dollar. That's a quick 125% profit plus 20% interest for owning valuable homes that are hard assets and glued to the ground so cannot walk away. In short, in 2008 you could make a quick double to triple of your money buying MBS from Merrill with virtually no risk -- that's a dysfunctional market, so why should every institution owning those types of assets have to mark them to that dysfunctional 22 cents? You can imagine the ripple effect of the accounting charges against earnings and assets of something like that. Luckily the Fed stepped in and bought up all the MBS it could, both supporting MBS prices and converting MBS holdings into cash to shore up institutions' balance sheets.
M2M accounting is just one of those things, like vaguely "bankers", that the public wants to demonize with its broad brushstroke of misunderstanding. Once enough people say in a cynical tone of voice "mark-to-myth accounting" everybody just assumes it is some malevolent scheme dreamed up by Wall Street. Actually it was enacted to rein in liberties being taken in accounting for derivatives that had never existed in the past. But we found out that M2M also can backfire, particularly in debt instruments like mortgages rather than derivatives.
The Fed Is Not 'Printing Money' [View article]
So you're cool with losing 50% in silver in 24 months?
<<19 x the purchasing power of a 1965 dime.>>
I know a lot about the old silver dimes. I particularly like the Mercury series. Today they cost 17 base metal dimes each (you're a bit behind with your 19 figure as silver has lost another 10% in the last few days). Ten years ago I was buying such silver dimes for 3.3 to 3.5 base-metal dimes each. Some of those two years ago I sold for as much as 35 times. Now down to 17 times. So what? -- why is this volatile commodity religion for you guys?
**If a stable store of wealth is what you seek, precious metals are obviously much too volatile to fit the bill.** There is a high probability that your 19x purchasing power will fall in half or worse in the years to come. Instead of considering this possibility objectively you guys forever trot out the non-sequitur National Debt argument to convince yourselves that you can't lose money in silver and gold. Blinders.
If you want a stable store of wealth that is tangible for fear of paper buy something like rental real estate, which also pays you as you go. You can also buy it in REIT form if you want to avoid management headaches. In my area home prices actually stayed pretty stable during the housing bubble and therefore didn't drop much when it popped.
In the long haul home values will surely keep up with inflation, so you just don't need risky metals. Homes=everybody will always need one. Silver=no individual will never need it, while its value will be subject to the vagaries of emotional and volatile markets (not nearly the case with housing markets).
Gold In The Crosshairs [View article]
In 2009 he was above all else recommending to his clients to "get out of the dollar," as he predicted USD hyperinflation. Yes, he held up Zimbabwe money to the camera comparing it to the USD and told his radio show listeners that indeed taking out a mortgage to buy real estate was a good idea because that mortgage debt might be so inflated away by Fed money printing that some years into the mortgage the postage stamp on the monthly payment would cost more than the payment!
Here we are with first class postage at a mere 46 cents (despite the plunging mail volume). So I was right in 2009 on inflation and also many other things he was so very wrong on.
With his hyperinflation prediction turning out to be light-years off the mark, he now has to invent damage control arguments such as this article to try to save face and keep gold afloat. So he morphs a failed hyperinflation argument for gold into his current case to buy gold -- that the recent panic selling will bring in the truly big buyers (central banks) to bid it back up. Well maybe the price drop will bring in some big buyers and maybe it won't, but (long term) from here gold will still go much lower.
Since Cyprus has to sell its supposedly "real money" (gold) in order to pay its bills with "worthless paper" currencies, then obviously gold is not the real money after all. That alone is indicative of how this gold story ends if you think about it.
And when Cyprus or another country's central bank decides to sell gold to "pay bills," it will just get the current market price for the gold. As that price falls over time the banks will be dis-couraged, not en-couraged with holding more gold and thus will seek more stable assets.
Ironic -- a noble metal stable in electrons but not at all stable in its much touted role of "wealth preservation."
Not money. Anything that you have to sell to raise money to pay bills is not money.
The Fed Is Not 'Printing Money' [View article]
The number of gold-bug authored books that have for years gotten this fact about CPI wrong is stunning, and symptomatic of what poor researchers and logicians these idealogues are. Most of their arguments are a bunch of half truths or just plain wrong. This is now coming home to roost in the form of the price of gold plunging -- something many of them said was impossible "as long as the government keeps printing money".
The End Of The Second Great Gold Rally [View article]
From 1980-2000 the stock market roared as never before and GDP growth was good, with any recessions particularly mild and infrequent. Thus the Fed simply *had no need* to ease during that time period because Fed easing is done in attempt to revive the economy when it falters.
Secondly, stocks rising quickly was the game in town so gold (flat to falling) got less and less attention. Both stocks and gold charts thus became self fulfilling prophesies as momentum investors piled into stocks (and ignored gold). I remember the general sentiment in the 1990's when stock bull Louis Rukeyser on Wall Street Week every Friday it seemed would pronounce gold "dead" with a smile. So I think the 20 year bear market in gold had a lot to do with investor sentiment and little or nothing to do with interest rates (Fed policy) as the author claims. Most people like to buy whatever investment class has already been rising and shun whatever has been falling. Thus the gold bubble of 1980 was slowly letting out air for 20 years, and it eventually over-corrected, setting the stage for its explosive comeback.
After 2000, the stock market faltered, causing much anxiety, and a more serious recession took hold in 2001. Suddenly it felt like the party might finally be over. Smarter money had realized at least since Greenspan's 'irrational exuberance' speech of 1996 that stocks were rather frothy. Because of this shaky 2001 environment, for the first time in 20 years the Fed stepped in aggressively and eased. But the 20 years of good growth and consequently the stock bull had run their course, up to the S&P500 trading at an eye popping P/E of 35 in 2000. That kind of froth was unsustainable and easing was thus not effective ("pushing on a string").
When people's portfolios tank they feel poorer and start belt tightening. As the tide of negative sentiment began to really sink in, for a while speculation turned from stocks to real estate. The following decade stocks treaded water as many problems loomed due to the weaker economy and some bad policy decisions, such as deficits soaring (as taxes were cut to historic lows in an effort to stimulate). Past sins of credit extension in private and public sectors came home to roost, as well as derivative problems. The core detonator for an implosive global financial crisis in 2008 turned out to be a several trillion dollar racket in originating subprime mortgages in which lenders figured out that if they packaged and sold the loans, it didn't matter to them whether the borrowers would repay. These loans defaulted much worse than expected, especially after home prices nationally suffered a historically unprecedented fall, and a sharp recession caused a leap in unemployment.
So basically, the 1970's were times of great fear and economic problems, and in the wake of major nations having recently gone to completely unbacked fiat currencies, there was a speculative fever in gold and silver. From 1980 to 2000, in contrast, there was good growth and low unemployment and inflation, so the overbought 1980 gold market came back to earth. Meanwhile during this period the strong economy meant that *the Fed simply had no need to ease*. 1970's fears abated and there was a very optimistic sentiment in owning stocks so nobody wanted gold. After 2000 when stocks began falling and a recession loomed, the Fed once again eased in attempt to stimulate. But past sins were too great and negative sentiment exacerbated the contraction. In such situations you can expect the Fed to ease a lot and at the same time for fears to drive investors away from poorly performing stocks and into hard assets like gold.
So the Fed's easing does not cause gold to rise as the author claims, but rather a weak economy causes the Fed to ease. And under certain conditions related to a weak economy, fears can drive people to buy gold.
Chesapeake Granite Wash Trust Is A Strong Buy, Part II [View article]
I agree that the hydrocarbon space is overanalyzed with charts and forecasts, such as PV-10, which attempts to nail down a value that cannot be nailed down. I just like this investment at this entry price because the downside is small while the upside is potentially quite large. That's a very different point of view than trying to predict hydrocarbon prices or well output.
Chesapeake Granite Wash Trust Is A Strong Buy, Part II [View article]
I haven't owned these trusts until this year so have not yet looked much into tax aspects. Other than that a schedule K-1 is used, I can't answer your tax questions.
As for suitability for a Roth IRA, that would depend on how much risk you want in your Roth. While you'll pay no tax on gains in your Roth, you'll also get no deduction for losses there. What trouble did MLPs cause in your Roth?
Chesapeake Granite Wash Trust Is A Strong Buy, Part II [View article]
Well you seem to take the pessimistic view that 3 in a row needing subordination is a trend that portends the future. I disagree. Trusts don't control hydrocarbon prices and the future of prices is unknown. As for the 3 'misses' in a row, subordination protection did in fact make up for all those and should continue to protect the minimum thresholds through mid 2016. I also would not read too much into the '3 quarters in a row' just as I would not read anything into the flipping of a coin yielding 3 tails in a row. NG prices are up.
Chesapeake Granite Wash Trust Is A Strong Buy, Part II [View article]
CHKR is very limited as a pass-through legal structure specifically for the revenues generated by certain wells. It will receive the net revenues from the particular 187 wells and no more than that. So technically I guess you could say "they can drill away" but the drilling will stop when the 187 is reached.