Stephen Yu

Investor Demand Drives Gold Scarcity and Price

Gold data is from World Gold Council. Silver data is from GFMS.


On Jun 28 06:12 PM 376602 wrote:

> Good Digging! Can you disclose the Sources?
>
> Commodities are priced at the "margins" of supply and demand. <br/>
>
> US Journalists and Politicians are famous for blaming the capital
> markets' innovators (M. Rich, M. Milliken, Enron, AIG), or the free
> market, never the Party or Political Donations that lead to the Government
> Agencies missteps..
>
> Margins have non-linear and social dynamcis, put more simply:
> 2006 / 4.2% surplus
> 2007 / 2.2% shortfall
> 2008 / 7.5% shortfall

Investor Demand Drives Gold Scarcity and Price

I apologize for the math error. The total central bank gold reserve is 35,000 ton according to World Gold Council. At 400 ton sale a year, the reserve should last about 90 years!


On Jun 28 07:52 AM Roger Knights wrote:

> Good article. I think a turnaround in central bank behavior, especially
> China's, is the black swan in the living room. However, the math
> or facts in the following are wrong:
>
> "Their gold reserves stand at 35,000 tons. If they continue their
> sale rate of 400 tons a year, that gold will last under 9 years"

3 Commodity ETFs with High Probability of Near-Term Success

In this week's Barron's Midyear Roundtable, Marc Faber thinks that natural gas is a good buy at this point. He thinks that it is extremely depressed.

3 Commodity ETFs with High Probability of Near-Term Success

My experience has been that a good time to buy a commodity is when the market price is below production cost, such as buying gold under $300 back in 2001, or buying oil at $35 a few months ago. Right now, it costs some producers more than the current price of $4 per mmBTU to produce natural gas. So even though the US may be the Saudi Arabia of NG, producers will stop pumping if they can't make money doing it. So it doesn't matter how much there is. Although I don't know when natural gas will bottom and at what price, I believe that it is hard to lose money buying in now if you set your horizon a little further than the next few months.

4 Ways to Ride Oil's Ups and Downs

The ratio of oil/natural gas price is near 18. According to Bespoke, each of the three times this ratio topped 18 in 1990-'91, it proved a good time to bet on gas relative to crude. Twice, the subsequent outperformance of gas was dramatic, the other time merely impressive. On an BTU per dollar basis, a proper ratio (I call it the energy-equivalent ratio) is closer to 6. So if oil trades at $60 a barrel, gas should be at $10. Granted, oil and gas aren't the same. Oil is used mostly in transporation, whereas gas is used in power plants. Also, the infrastructure for gas is not as well established as it is for oil. So it is not a surprise that gas trades at a discount to oil. Yet, these characteristics do not explain the wide gap between the present oil/gas ratio of 18 and the energy-equivalent ratio of 6. Furthermore, while oil has retrenched about 50% from peak, gas has fallen nearly 75%. It is quite obvious that the plunge in gas price cannot be justified by slowing demand. Finally, production costs at some natural gas producers are now above the current gas price. So if natural gas price stays at current level, producers will cut back production thus reducing supply and pushing price up.


On Jun 12 10:13 AM Shale Gas wrote:

> What are your thoughts on natural gas?

Profit on TARP Repayments Will Only Cancel Out Other Losses

It is also nearly certain that the loan to GM will creates a loss for taxpayers. The following is what Barron's wrote on June 8:

"The federal government may be lucky to get back half of the $50 billion owed by GM (ticker: GMGMQ), consisting of nearly $20 billion of existing loans and about $30 billion that Uncle Sam plans to extend through so-called debtor-in-possession financing in bankruptcy. ("Uncle Sam's GM Follies")"

"The government effectively is making a gift to the UAW, because it is converting about $40 billion of its GM loans that are senior to the UAW claims into a 61% equity stake in the new company, making its recovery highly dependent on the new GM's equity value."

"With Wall Street anticipating a $24 billion market value for the retooled GM, the government loans would be valued at about 50 cents on the dollar, after factoring in the $8.8 billion of new GM debt and preferred that Uncle Sam will get. For the government to come out whole, GM's equity value would have to approach $70 billion -- a very unlikely outcome. Ford (F) and BMW (BMW.Germany), arguably stronger companies, each have market values of $20 billion."

As the U.K. Goes, So Goes the U.S.?

No matter how officials try to downplay the possibility of a downgrade of Treasuries, there are plenty of intelligent people here on seekingalpha who know where all this is going. Perhaps the government can threaten to shut down the rating agencies if Treasuries are downgraded. Hey who knows? If the government can fire Rick Wagoner like that, and if it can force a solvent WaMu into the arms of JPMorgan while virtually giving a blank check to AIG, what can it not do? Or may be somehow the government can raise enough taxes to prevent a credit downgrade. Every time I turn around, there seems to be a new tax. You have to pay tax to keep a pet. Industries may soon have to pay tax to emit carbon. Soon, people will have to pay tax to exhale! Sadly, I agree that the U.S. government has become as tax-happy as the Brits were during the colonial days. However, the articles and comments here on seekingalpha give me hope. There are patriots and common sense out there afterall.

Good Times Return for Commodities (Stocks)

Another way to look at the high MOO/GCC and HAP/GCC ratios is that the commodity producer stocks are temporarily overbought, and that it is now cheaper to buy commodities than their stocks.

How Gold Gets out of the Ground

Good information. I'd like to add that different miners define 'cash cost' differently. So readers should be careful to compare cash cost in one company's report to that of another company. In addition, the way proven and probable reserves are calculated varies from one company to another. The amount of proven and probable reserves depends to some extent the price of gold and a company's production cost. A miner may calculate reserves assuming a long term gold price of $900 an ounce. Another may use a more conservative number such as $600 an ounce.

A Lose-Lose Situation for Long-Term U.S. Treasuries

Hi, everyone's needs are different. Since I do not have a good picture of your financial situation, I will do my best to provide some general advice, but please take it with discretion because it may not be appropriate in your situation.

Series I bonds are inflation-protection to some extent so they are not as vulnerable as regular Treasuries, which provide no inflation protection. Also, based on current prices, Series I bonds prices are attractive relative to other Treasuries. So I would recommend holding them.

Series EE bonds are tied to 5-year Treasuries. The Treasuries that I have a serious problem with are the long-dated ones, such as those with 20-year or longer maturity. So the shorter dated 5-years Treasuries are not so vulnerable. However, if I were looking for a bond investment for a 5-year time horizon, I would consider either the PIMCO Total Return Bond Fund or the Loomis Sayles Bond Fund (LSBRX). Both funds are run by fantastic managers. The PIMCO fund is more steady, but it may lose out to inflation over the time frame. The Loomis fund takes on more credit risks, but it should be reward with higher return, which helps hedge against inflation.

I hope this helps, and remember, my advice may not be appropriate for your situation. Good luck.


On May 19 08:40 AM User 55145 wrote:

> Advice, please:
>
> I have 20% of my net worth in series "EE" &amp; "I-Bond" U.S Trsys.
> I have held them, tax deferred, for several
>
> years. The EEs' yield varies with the current market; the I-Bonds
> have been held > 5 yrs.
>
> I'm 60 yrs old and was planning on keeping these bonds for retirement.
> Should I sell, and take the tax-hit?
>
> Thanks!

A Lose-Lose Situation for Long-Term U.S. Treasuries

I agree with your analysis. When a creditor country such as Japan runs into economic trouble, the result is deflation. But for a debtor country, the result is inflation. This era is comparable to the 30's. The U.S. was a credit nation during the Great Depression, and there was deflation. But during the same time, post-WWII Weimar Germany was a debtor nation, and it had hyperinflation. I don't know if we'll see hyperinflation here soon, but I do not think we will experience pervasive deflation in the near future.


On May 18 07:47 PM popey wrote:

> Those deflationists who try to compare Japan with the USA are wrong
> in my view. Japan is a capital flow creditor and the US is the world's
> largest alcoholic (debtor). The systemic structural weakness of the
> USA is profound. That is why you are completely right. Sure, there
> will be some rallies in Treasuries over the next 2 years, but they
> will pale into insignificance when the treasury bear market crushes
> the govt debt junkies and finishes the obscene debt binge that we
> have all witnessed over this decade.

India: Singh's Scale of Victory a 'Game Changer'

Good for India, and good for the world! We need someone to grow to help pull the world out of this mess. The rising middle class in India and in other BRIC countries will help prevent the world economy from plunging into the abyss while developed countries are faltering.

We Need to Make Banking Boring Again

As Charlie Munger says, any bank that is too big to fail must be boring. Institutions that are so big that its failure jeopardizes the world must be run in the most conservative fashion.

7 Questions to Ask Warren Buffett

I am sorry that I disagree that breaking Berkshire up is a good idea. Management of Berkshire's units is decentralized. The units are free to grow on their own. And better yet, they are backed by Berkshire strong capital base and do not have to tap the capital market. This credit crunch is a good case in point. If I were running a business, I would want to be acquiring some competitors at low prices now. But if the capital market is closed like has been recently, I can't take advantage of it. However, if I have a strong backer such as Berkshire, I would definitely be shopping. Being a part of Berkshire benefits from the financial strength of a great company without losing autonomy, and this ultimately benefits Berkshire and its shareholders. Furthermore, Berkshire files one 10-k a year now. If you break it up, it has to file multiple 10-ks. Who is going to file those extra forms? And who is paying for them?

On May 03 09:16 AM BlueOkie wrote:

> Berkshire has become too big. Break up the company into several smaller
> corps. Give current stockholders either stock in the new companies
> or cash. This will allow for growth.

Charlie Munger Wants Banks' Wings Clipped

From the article:

"I guess you have to admire his honesty but then you also have to ask why in the world they invested the kind of money they have recently in an industry they think should be downsized and restructured."

I think Buffett answered the question in the meeting when he said, “All banks aren’t alike by a long shot......"