Doc 224899

Gold Stocks: The Ultimate Options Strategy

If you look at Bruce Pile's disclosure list, it should tell you Bruce likes gold stocks, and some of his positions are "advanced investor" stocks (NG, NXG, RIC, GRS, NGD, EGO).

Bruce, where were you able to get XRA shares?

On Inflation, Precious Metals and the Mayan Calendar

The current rationale for investing in gold is that people have lost faith in the monetary and financial policies of the US government's leaders.

The new, record high price of gold reflects the broadly shared impression of new, record highs of government stupidity.

Secondarily, there is lost faith in American corporate leadership, and in the American workforce in general. Our workforce is collectively less competitive than it used to be because competitive employment has been replaced with protected employment status for those who are unable to compete successfully. There still are a few American workers who are competitive, but they have to work around entitled losers who clog up the system and who are protected by Federal Judges who are opposed to competitive promotions (and who get promoted to the Supreme Court where they can do it with greater impunity).

US currency is losing value because US currency only has value derived from the strength of the American economy, and that economy is going down the tubes. Investors in many countries share that opinion, as do government leaders in many countries, and they all think gold is money much more convincingly than they think the US dollar is money. So do I.

As for The Mayans: The Mayans are gone because they designed cities with survival needs that vastly exceeded the life support capacity of the land where the cities were built and the life support capacity of the land around those cities. They also killed each other off, and wasted their energy on silly ornamentation and dramatic posturing that involved very little actual productivity. They just designed their calendars around the idea that their cities would last a whole lot longer than they actually lasted. Some of the carved stones are still piled up neatly, and there is still some Mayan bling to be found in the ruins, but the cities are dead and gone. The way Detroit is headed, you ask? Cinncinnatti? Baltimore?

On Inflation, Precious Metals and the Mayan Calendar

Inflation is here, and it is beating us in the face with a jagged brick. We just don't have a bunch of numbers in an index that says so, but it is there.

Consider:

In 1972, when only one parent in a two-parent family had to work, the annual pre-tax income from only 1 to 2 years was enough to pay for a very nice house in a very nice neighborhood where the kids could go to an excellent public school where they were safe, didn't get mugged or raped, and graduated with almost none of the girls pregnant and almost all of the boys getting a diploma. No money had to be spent on pre-school, or private school, and it was safe for the kids to ride the school bus. Less than 10-20% of that annual income from only one parent working would pay for a year's tuition and expenses at an Ivy League university. 2 months' worth of salary and commissions from one parent's income would pay for a very, very nice Mercededs Benz, and nobody needed car loans. Car leasing? Not necessary. Kids didn't need play dates in neighborhoods like these, because they could hop on a bike and go where they wanted, safely.

In 2009, with both parents working their butts off, 50% to 75% of one parent's annual pre-tax income may pay for a year's tuition and expenses at an Ivy League university. Even if you live in a very, very nice neighborhood, you still spend money on pre-school and private school just to protect your children from the potentially life-ruining consequences of public schools, and private high school for our kids costs as much or more than the college tuition that paid for our own eductions. Kids are ferried around everywhere they go to keep them from being abducted, mugged, raped, murdered, and dragged off to child sex-slavery, and parents drive SUVs that are built like tanks, and cost almost as much as tanks, because that's the only thing they feel may provide adequate security in the event that they run into a diversity-enriched street situation on the way home from soccer practice.

So don't tell me we aren't being hammered by inflation. In many situations, an annual income of $50,000 in 1972 dollars bought more than an annual income of $2,000,000 would buy today in 2009

Exploring Gold Miner Stocks: Mid-Year 2009 Analysis

Go to the Lihir Gold web site, and look at the maps and photos of the PNG Lihir Island mine. It looks like the ocean is going to pop through a thin barrier and flood into a huge open pit that is much lower than sea level. And that's on a day when the weather is calm......

South African miners aren't undervalued. They are appropriately valued, based on the inadequate power grid they rely upon that shows no hope for being improved.

NEM is so big, bulky, numb and stalled that it is unerringly boring to investors.

BVN is in Peru, and Peru is a difficult place to operate gold mines.

EGO is in Turkey (a ferocious Islamist government that may nationalize the mines any day to finance a military push into Kurdish Iraq) and China (whose government has no qualms about changing corporate operating conditions in a heartbeat to suit its self-serving agenda).

KGC has mines in Russia (you can't trust 'em), and three states in the USA (over-regulated, too many lawyers and lobbiests). Brazil is the one good place to mine they are set up in now. If they buy Yamana Gold they'll have a pipeline for future production with low costs of production.

Barrick may beat Kinross to the punch and scoop up Yamana first.

So it's shaping up to be a nice year or two if you're long AUY.