Tuesday, September 28, 2010

An Open Letter To Charlie Munger

Dear Mr. Munger:

I read, with interest, your recent interview as it was recapped in Yahoo Finance.  I must say that I found it less provocative than that of your partner, Warren Buffett.  To refresh yourself, click here: http://markostake.blogspot.com/2010/09/open-letter-to-warren-buffett.html.   Nonetheless, I found this statement by you particularly troubling.

"I don't have the slightest interest in gold.  I like understanding what works and what doesn't in human systems. To me that's not optional; that's a moral obligation.  If you're capable of understanding the world, you have a moral obligation to become rational.  And I don't see how you become rational hoarding gold.  Even if it works, you're a jerk."

I guess that makes me and my fellow gold-philes jerks.  Mr. Munger, doesn't that also make your partner a jerk, too?  According to Silver Monthly:  "Beginning in 1997, the Oracle of Omaha (Warren Buffett) saw the value of silver glinting in the dust of depressed prices.  From 1997 until 2006, his investment fund-Berkshire Hathaway-accumulated over 37% of the world’s known silver supply-even more than the COMEX! During that time, he was not only an oracle but also the all-time silver bull".  Say WHAT?  I guess hoarding Gold is bad, while hoarding Silver is good?  Please 'splain it to me.

Charlie, my lips are sealed.  The last thing I want to see are two octogenerians in a cage match.  Leave that to Vince McMahon, would ya?

Mr. Munger, you are a very educated man.  Let's take out our notebooks as we review the history of Gold for a second.  Gold is the only form of currency that has EVER endured.  Surely, you would invest in currencies, wouldn't you?  Oh, but then there's the old argument that you can't eat Gold.  True enough. I'll bet those stock and bond certificates are particularly tasty.  So is real estate.  Hell, so is a Hundred Dollar bill with butter and garlic.  And a barrel of crude...YUM!

You can eat bread and meat, but the problem is they don't keep very long.  They go rotten, dude.  Gold has a pretty decent shelf life of a few billion years, give or take an eon.  Oh, and have you heard?  There is a whole planet of jerks who will ACCEPT Gold as a form of paying for things that we DO eat.

I'm sure you were delighted by the ridiculous decisions to de-emphasize Gold.  When the Gold window was closed at Bretton Woods in 1971 and we went totally to paper, boy did our financial system take off!  Remember how fun and prosperous the 1970's were?

Now, I'm also confused by this quote from the Charlie Munger book of quotes:  "Recognize reality even when you don't like it - especially when you don't like it."

Would I be correct that this particular statement was advice given to others, rather than a credo you live by?

Do I detect a wee bit of hypocrisy, here?

Charlie, the letter contained in the Berkshire Hathaway (BRKA, BRKB) annual report is legendary and read by millions of sycophantic investors everywhere.  May I suggest that you at least include "Marko's Take"?  After all, shouldn't you recognize reality, even when you don't like it?

Mr. Munger, TAKE ME ON!

Marko's Take

Friday, September 24, 2010

An Open Letter To Warren Buffett

Dear Mr. Buffett:

I have read about, and listened to, with interest your recent interviews on CNBC and elsewhere.  Mr. Buffett, I'm confused.  Could you clarify a few things for me?

You are familiar with the recent declaration from the National Bureau Of Economic Research (NBER) that the recession officially ended in June, 2009.  You disagree.

In fact you told CNBC that by your own "common sense" definition, the United States is "still in a recession."  In the same interview, you said taxpayer anger against President Barack Obama and Congress is counterproductive because policy makers took measures including deficit spending to stimulate the economy.  Yet you don't seem to understand why common folks like me are opposed to turning over more than one more cent to the government, which has clearly created the very mess we're supposed to entrust them to fix.

“The truth is we’re running a federal deficit that’s 9%  of Gross DomesticProduct (GDP),” Buffett said. “That’s stimulative as all get out.  It’s more stimulative than any policy we’ve followed since World War II.”

Always the altruistic one, you even castigated the rich by telling CNBC  that you don't buy the argument that raising taxes for them would derail the nation's economic recovery.  I think it's fantastic that you are so willing to sacrifice a much larger portion of your earned income.  Putting your money where your mouth is. Good show!

Now, correct me if I'm wrong, but you make how many tens of millions?  What's that?  Could you speak a little louder?  Your salary is $100,000?  Is that per minute?  Per hour?  Per YEAR?

Ok, with salary and other bennies it's nearly $200,000.  So, wow, you'd be willing to chip in another 10K for the good of your country?  Good for you!

But isn't your net worth on the order of $50 Billion?  Wouldn't it do the country more good if you supported a tax on wealth?  By your own reasoning, I'm surprised you haven't whipped out your check book and written a $10 Billion check to Uncle Sam for the purpose of deficit reduction.  But you've given so much to charity, I understand.  Strange, but if the U.S. Government is so adept at re-allocating wealth, why would you rely on charities?  I'm really confused here.

And, since every taxpayer needs to do their fair share, I assume you give back your Social Security check.  If, by your own reasoning, it is incumbent on the rich to help reduce the deficit, here's a great way to start.  According to a recent inteview you did with Lou Dobbs, you keep the money.   Hey, every penny counts!

Mr. Buffet, you have made your billions by exploiting the capitalist, free market system.  A system not hindered by over-regulation and government intervention.  Sad, that you don't wish to see others free to take advantage of the same "land of opportunity" that blessed you.

Do, I sense just a wee bit of hypocrisy?

Well, I'm going to try to cut you some slack.  If I were 80 and interviewed by a woman as beautiful and intelligent as Becky Quick, I might not be able to contruct a coherent sentence.

Mr. Buffett, this is "Marko's Take".  I welcome you to TAKE ME ON!

Marko's Take

Tuesday, September 21, 2010

Let's Get Technical (Part 2)

Yesterday, we built a case that the markets, despite a surprisingly strong Septemeber, were doing their best to prove Abe Lincoln right by "fooling most of the people, most of the time".  There is much more evidence of that.

Technical analysts often use an indicator called the RSI or (Relative Strength Index). According to Investopedia, the RSI is defined as follows:

"A technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset. It is calculated using the following formula: RSI = 100 - 100/(1 + RS).  RS = Average of x days' up closes / Average of x days' down closes."

"The RSI ranges from 0 to 100.  An asset is deemed to be overbought once the RSI approaches the 70 level, meaning that it may be getting overvalued and is a good candidate for a pullback.  Likewise, if the RSI approaches 30, it is an indication that the asset may be getting oversold and therefore likely to become undervalued."

To be sure, the RSI is far from perfect, but it has a pretty decent track record of at least measuring the condition of a market that is conducive to either an upside or downside reversal.

At the conclusion of trading yesterday, the Dow Jones Industrial Average (INDU) had an RSI of 66.60, the Nasdaq 100 (NDX) had one of 72.74, the Standard & Poors 500 registered 66.50, Gold came in at 72.50 and the HUI was 55.99 after hitting 68 several days earlier.

A good charting service from which one can review these numbers and other indicators is Stock Charts (http://www.stockcharts.com/). 

If you pull these charts up, you can see that most intermediate term rallies crap out with an RSI in the mid-to upper-60's and bottoms hit 35 or below.  Markets rarely rally much after crossing 70 on the upside or decline much if they penetrate 30 on the downside.

What makes the market seem so weak is not only the poor price action despite a long string of up days as highlighted in yesterday's piece http://markostake.blogspot.com/2010/09/lets-get-technical.html, but also in looking at how extended, or lack thereof, the market got.

A real lift-off will typically pull an index or stock well above its 200 Day Moving Average (200DMA).  Historically, major Gold rallies have peaked in excess of 30% above is 200DMA.  The HUI has historically peaked more than 50% above its 200DMA.

The bullion, despite a near-uninterrupted 10 week rally, has failed to get much in excess of 10% above its 200DMA, while the HUI has only gotten 15% above its DMA.  One might argue that this means that they have further to go.  True enough.  But, in light of the various overbought conditions are measured by the RSIs, it would appear that what we are seeing is a series of markets losing momentum. 

We continue, therefore, to urge extreme caution.  Today's Federal Reserve meeting is a perfect occasion to provide the market with an excuse to begin its trek to lower, perhaps MUCH lower levels.

Once again, while we believe that caution should rule the day even in the precious metals sector, it is highly unlikely that we will see the type of smash that occured in 2008.  And, it may even surprise everyone and rally.  However, use the guidelines outlined in yesterday's piece before jumping in with both feet.

Marko's Take

Monday, September 20, 2010

Let's Get Technical

On the surface thus far, September has seemed to be a very normal month.  Below the surface, it has been far from it.   Coventional wisdom is aware that, historically, it is the weakest calendar month in terms of average stock market performance and, therefore, there was a decent level of angst about what would happen when traders and portfolio managers returned from their summer vacations in the Hamptons.

The market has been up 9 of the last 11 days.   These extreme strings of near-consecutive days up or down are very often signs of exhaustion.  Market tops tend to be rolling like an upside down arc or parabola.  Significant bottoms, on the other hand, are very often V-shaped, characterized by panic selling.

If we put those two observations together we can form an educated opinion as to the technical health of the stock market.  In the last 11 days, the Dow Jones Industrial Average has gone up a mere 6% the Standard & Poors 500 has risen 7%, the Russell 2000 8% and the Nasdaq 100 11%.  If the market was firing its thrusters for a huge move up, we ought to have seen gains of about double those just experienced.

A 9 of 11 exhaustive string on the downside could potentially result in drops of 20% or more. 

Somewhat disturbing is the behavior of the Gold Bugs Index (HUI), especially in light of the move in Gold itself.  The HUI is up only 1% despite a 3% advance in Gold and a 10% gain in Silver.  In addition, the Dollar index is down 2%, which should have provided a modest tailwind.  This is NOT healthy action.  The breakout of Gold above $1,250 was NOT accompanied by a breakout of the HUI above 500.  For a true bull market to have begun, the twin conditions of Gold above $1,250 AND 500 on the HUI should have bene met.  That a breakout didn't occur was quite surpising. I guess Gold 2K will have to be put on hold.

Therefore, while the likelihood of a MAJOR drop in Gold or the HUI is small, we ought to remain on alert that a correction of some sort has become highly probable.  In combination with a waterfall decline in stocks, precious metals are better avoided than ridden-out except with long-term money. More importantly, whatever correction occurs will represent yet another low risk entry point.

The other key reason to argue for extreme caution at this time is the major headwind created by the plunging money supply.  The most recent figures and the implications are covered here:  (http://markostake.blogspot.com/2010/09/turning-economic-titanic.html).

The deflationary forces are confirmed by the action of the bond market which has made new highs after a nearly 30 year bull market.   In addition, longer rates have come down much more than short-term rates flattening the yield curve.  The slope of the yield curve is particularly critical to the financial sector as the bulk of borrowing is done on the short end, while lending tends to be longer term.  The spread between the two creates the level of profitability.

So, it continues to make sense to stay liquid.  There will be a better time to take risk.

Marko's Take

Sunday, September 19, 2010

Turning The Economic Titanic

For months, we've been reporting on the most ominous number for the economy and investors:  the record drop in the nation's money supply as measured by the broad aggregate, M3: (http://markostake.blogspot.com/2010/08/unusual-uncertainty-meets-qe2.html).  This one set of data virtually guarantees not only an intensifying downturn in the economy but major problems for both the financial system and the markets.

Recently, however, the first signs of a possible reversal have presented themselves.  M2, which is the broadest money measure now formally tracked by the Fed, has begun rising regularly (seasonally-adjusted) on a weekly basis since the 4th of July, at an annualized pace of 7.8%.  The impact on M3 has been positive but muted, with year-over-year M3 change down 4.3% as of August.

While this is a positive development, it is at best, a case of "too little", "too late".  Even with the recent uptick in M3 growth, it is still in a zone consistent with both vicious economic downturns and stock market waterfalls.  It would take, at the very least, a growth rate in the mid-single digits to starting turning the Titanic away from the iceburg.  And, like the famous cruise ship, the economy has way too few life boats.  And, the largest economy in the world, just like the largest steam liner, is thought to be unsinkable.  And, there will be few survivors.

The Fed has pulled out all stops to liquefy the financial system and has had about as much success at turning the ship in time as Captain Edward John Smith.  Like Smith, they didn't notice the economic iceburg until it was way too late.

The Fed, the Department of Treasury, and the Obama Administration have re-arranged the economic deck chairs by wasting valuable resources on poorly thought-out bailouts, nationalization of the banking sector and purchasing toxic assets.  The bill for all this mismanagement?  Who knows?  A trillion here, a trillion there, and pretty soon we're talking about REAL money.

The best case scenario, assuming that M3 begins to reverse and grow, is for a solid and nasty 6 month downturn.  Once the money supply turns meaningfully positive, it typically takes at least 6 months for the effects to filter through the system.  Whatever turn does occur will only take place from MUCH lower levels.

The U.S. economy is like an addict requiring greater and greater doses of monetary (cocaine) injections to keep it going.  Fed Chairman Ben Bernanke, like a good drug lord, has a very hooked population who now need pounds, not ounces of crack to stay stimulated.  Time to switch to heroine?  No, better yet LSD, so we can hallucinate ourselves into believing that "Helicopter" Ben can keep the high going.

In the interim, the beneficiaries of  "Helicopter" Ben's economic crack pipe have been the stock market and Gold.  Stocks remain absurdly buoyant despite a rapidly deteriorating technical and fundamental situation.  Gold just benefits from economic stupidity, plain and simple.

Even if the Fed is successful in reversing M3, the "side effects" of the economic drug policy will be an overdose which ought to lead to hyper-inflation.  Pick your poison.  Avoid Depression but get hyper-inflation, while Murphy's Law says we'll get both.

How to survive this "do or die" situation?  Use Gold as your flotation device.

Marko's Take

Thursday, September 16, 2010

A Nation Rich In Poverty

How does a nation that spends itself into bankruptcy trying to eradicate poverty end up with an explosive demographic:  the statistically poor?  Easy, it spends itself into bankruptcy, creates incentives to stay poor and thus creates the very opposite result.  Happens every time.

Incomes for the typical U.S. household fell slightly last year as substantial government aid and such self-help actions as families doubling up and young adults moving in with their parents muted the impact of the worst recession since the 1930s, the Census Bureau reported this morning.

The nation's poverty rate jumped to 14.3% in 2009, its highest level since 1994, and the 43.6 million Americans in need is the highest number in 51 years of record-keeping.

President Barack Obama said that economic-stimulus spending had kept millions more Americans out of poverty. "Even before the recession hit, middle-class incomes had been stagnant and the number of people living in poverty in America was unacceptably high, and today's numbers make it clear that our work is just beginning," he said in a statement.  Uh-huh.

The median household income, the pretax income of households smack at the middle of the middle, fell 0.7% to $49,777 in 2009, down 4.2% from the prerecession year of 2007.

The Office of Management and Budget defines the poverty threshold level as less than $21,954 for a family of 4 in 2009 and $10,956 for an individual.  The poverty rate increased for all racial groups except Asians.

The income used to calculate poverty status includes earnings, workman's compensation, unemployment insurance, Social Security, veteran's payments, pensions, interest and dividends, and just about every other source of cash.  Non-cash benefits, such as food stamps or subsidized rents, also do not count as income.

Some believe, that the poverty rate, like most statistics produced by the meticulous statisticians in Washington, does not fairly portray the rate. Perhaps the biggest problem is that the official poverty rate doesn’t account for the lion’s share of antipoverty measures such as subsidized housing and the earned income tax credit.  It is also believed to overstate inflation.  Huh?  Doesn't government reporting typically UNDER-state inflation?

Now, if the definition of poverty is on the order of $20,000 per year, and we have a broad unemployment rate of more than 16%, how do we arrive at a poverty rate of 14%?  Don't unemployed people make zero?

And, since we have a sea of UNDER-employed and working poor at minimum wage jobs, it's hard not to imagine a truer poverty rate of more like 30%, using our own definition.

But isn't our definition of poverty relative, as opposed to absolute?  It is.  And, if we compare ourselves to other nations, using our very own definition, we learn some amazing things.

Think China's rich?  The second largest economy.  Our worst economic foe?  Turns out, that their median income is less than one-tenth of ours.  ONE-TENTH!  How about India?  Their median income is less than one-third of China's!

About 20 countries have higher median incomes, but even here, the statistics are misleading.  Kingdoms such as Lichtenstein and Monaco are pretty high, as are the populations of many oil producing countries.  Among the oil producers, much of the wealth is very, very concentrated in the hands of very few.

As you can judge,  the poverty statistics are absurd.  If true, more than 80% of the world's population is poor.  If poor is relative rather than absolute, how can virtually the whole planet be poor?

The reason is simple.  Politicians have a vested interest in proclaiming people poor and then offering government programs to fix it.  It doesn't work, but what do results have to do with getting re-elected?

Marko's Take

Tuesday, September 14, 2010

Gold 2K

Is on its way!  With this morning's definitive breakout above the $1,270 per ounce level combined with Silver's vault above $20 per ounce, we can clearly view the entire precious metals complex as having reached a very low-risk entry point.  The Gold Bugs Index (HUI) now needs to confirm this move by decisively breaking 500. 

Long suffering Gold-philes now have in their lap what should prove to be one of the greatest opportunities of an investment lifetime, especially in the junior miner sector which has notably lagged the metal.  A very reasonable target for Gold itself would be on the order of $2,000 per ounce.  If this is realized, the HUI could see a fairly quick doubling to 1000. 

The HUI has historically traded at around one-half the metal itself.  At our upside "guesstimate" of $2,000, the HUI would be fairly valued at 1000. 

The greatest opportunities, however, are among the quiet junior sector.  Many of these issues, which we will update over the next several days, are likely to be what Peter Lynch used to call "10 baggers", or perhaps, much, much more.

Of course, you can expect the powers that be to attempt to manage the market lower.  This will fail.  You can expect the Jon Nadlers of the world to decry to bubble in the metals and the junior miners.  They will be wrong. Jon, still looking for $800 per ounce?

Bubbles are NEVER supported by fundamentals.  But, we shall see some major earnings delivered by the entire mining sector, and, therefore, we will see some of the most undervalued issues in history.

You can also expect a boom in mergers and acquisitions.  Resource rich but cash poor juniors will be bid up quickly.  With tiny market capitalizations, it will only take a relatively minor amount of capital re-allocation to exert some tremendous leverage. 

The fundamental underpinnings are further supported by prospects for the U.S. Dollar which are rapidly deteriorating after a very sharp bear market rally.  Look for the Dollar to plumb new lows.  Look for virtually all currencies to lose value against tangibles,

As the financial system goes into to meltdown mode, the precious metals market will also be supported by a crisis bid or "flight to quality".  Any sign of military action in the Middle East could cause moves in one day of $100 an ounce or more...OVERNIGHT!

As bullish as the situation is for Gold, the prospects for Silver are even better.  Silver is still leagues below its all time high of $50 per ounce, while Gold has is trading well into new-high territory.  For Silver to become fairly valued on a relative basis, it would have to double TODAY!  If Gold should approach the $2,000 level, Silver ought to reach something on the order of $60 per ounce, a tripling in a few short months.

The fundamental picture gets better.  Production in former powerhouses like South Africa is falling rapidly.  In fact, we appear to be past "Peak Gold".  So, we have the combination of falling supply AND rising demand.

It still gets better.  It appears that significant bottlenecks are now appearing in the physical market as the result of huge short positions by commercial players, such as the banks.  In fact, the very financial meltdown that is likely to occur will be aided by HUGE mark-to-market losses among those financial institutions that have taken it upon themselves to assist the Federal Reserve in silencing the messenger.  Higher precious metals prices tend to act as a thermometer in the mouth of the economic patient.  Can't show a fever, now can we?

Unlike Y2K, Gold 2K will NOT be a bust.  Get your first class seats for the ride of your life!  Your financial survival depends on it.

Marko's Take

Sunday, September 12, 2010

Paying Your Fair Share Of Taxes

George W. Bush, who was perhaps the most profligate Republican spender in history, had one crowning achievement in his presidency.  He rolled back the unconstitutionally retroactive tax hike imposed by Bill Clinton.  That tax rollback, without action by Congress, will expire this year. 

President Obama has recently taken to the campaign trail to decry the unfairness of this proposed lower tax rate, since it is a well known fact that high income earners do NOT pay their fair share.  (Sarcasm intentional).  On this, he is in complete agreement with Clinton.  Presidents Obama and Clinton never let the facts get in the way of pandering to potential voters.

That there is exists a level of inequality in income is not in dispute.  But what about fairness?

The distribution of pretax income in the United States today is highly unequal.  The most precise studies suggest that the top 10% of households, with average income of about $200,000, received 42%  of all pretax money income in the late 1990s.  The top 1% of households, averaging $800,000 of income, received 15% of all pretax money income.

Interestingly, the income inequaltiy has risen over the last several decades, which is cited by many as proof of the heartlessness of the rich, the Wall Street generation and indifferent Republicans.  Ironically, entitlement spending, designed to address this inequality, has literally exploded at a parabolic rate, yet has had absolutely no impact on inequality, except to make it worse.

So, for the accusation that rich do not pay their fair share to hold water, we would expect that distribution of taxes should be less skewed with a greater burden on the poor, right?

It would seem that data from the U.S. Treasury cast cold water on this claim.

According to recent Treasury figures, the top 0.1% of taxpayers by income pay 17.4% of federal income taxes (earning 9.1% of the income), the top 1% with gross income of $328,049 or more pay 36.9% (earning 19%), the top 5% with gross income of $137,056 or more pay 57.1% (earning 33.4%), and the bottom 50% with gross income of $30,122 or less pay 3.3% (earning 13.4%).

If we examine the wealth distribution rate, the net wealth (not only income but also including real estate, cars, house, stocks, etc) distribution of the United States virtually perfectly coincides with the share of income tax – the top 1% pay 36.9% of federal tax (wealth 32.7%), the top 5% pay 57.1% (wealth 57.2%), top 10% pay 68% (wealth 69.8%), and the bottom 50% pay 3.3% (wealth 2.8%).

President Obama and Clinton love to talk about tax cuts for the middle class.  If the bottom half of income earners contribute a paltry 3.3% to the total taxes received, how on Earth could they get their taxes cut?  You can only cut taxes to those who actually PAY tax.  Sure, it makes for a great campaign speech to those who don't know any better such as our friends in the media, but it just doesn't hold up under any scrutiny.

In a democratic society where the majority rules, what better way to buy votes than to virtually exclude half the population from taxes?  Soak the rich rhetoric plays well to the liberal media, but makes no economic sense whatsoever. 

I do agree with Presidents Obama and Clinton on one thing.  The rich SHOULD pay their fair share.  If someone would send each of them a link to this piece, I have NO DOUBT that they will acknowledge the error of their ways and immediately cut taxes for the high-income segment of the population!  (Sarcasm intentional).

Marko's Take

Thursday, September 9, 2010

Surviving The Mad Max World

If you buy the notion that life as we know it, is very likely to become life as we KNEW it, you must be wondering how on Earth this can be survived.  The good news?  It can.  The question is how?

In the "Mad Max" world that is rapidly unfolding, the key will be to survive until the new order replaces the decaying elements of our soon-to-be terminated empire.

The U.S. Dollar, will at some point, be relegated to toilet paper.  For now, it remains relatively strong, but not absolutely strong.  If its value as both a store of value and medium of transactions ends, are there any good subsitutes?  I suggest 2.  One is Gold and Silver, the most historically useful mediums of exchange.  No matter what transpires, precious metals will be around for the duration. 

Gold, now trading near all-time highs of $1,250 per ounce, is beyond the reach of most folks.  But Silver, still well below its all-time high of $50 per ounce, is currently trading at under $20 per ounce.  Most people can afford to have some around.  If you're in a position to accumulate more, by all means do so.  A great way is to purchase coinage from the pre-1965 era, when coins were minted with a 90% silver content.

Even pennies and nickels should be kept.  At current prices, each are worth about twice their face value.  Ultimately, the mint will discontinue them for that reason.  Save your change!

Another alternative form of currency is cigarettes.  Used in prisons, cigarettes will also be valuable, even if you're not a smoker.  And, as Uncle Sam looks to raise revenue, taxes of ciggies will undoubtedly go up.  So, a good time to purchase a few cartons would be today. 

Protect your access to food and water.  This can be done by purchasing a good supply of canned foods and dried foods such as beef jerky and de-hydrated fruit.  Or, if you have the ability, grow some.  Many foods can be grown on a balcony.  If you live in a region not conducive to growing, then by all means, go the dried route.  The 99 cent stores (NYSE: NDN) are a great and inexpensive source of canned and dried food.

Water is still virtually free, but may not be so for long.  Even if you get it from the tap, it can still be filtered using a relatively inexpensive store bought tap purifier.  Keep as much of a supply as you can.  Or, if you live in an area with heavy rainfall, collect that.  Last I checked, the guvmint has not taxed rain or snow. 

Access to energy is pretty much out-of-reach for most people.  Ideally, one could have solar panels, which have gotten much cheaper in just the last few years.  But, they are still expensive and require a pretty hefty capital outlay.  A decent substitute would be a back-up generator for home use, but that does nothing for you if you need to drive somewhere.  In that case, tele-commuting or the ability to work from home may help defray this cost.  Again, not everyone has this option, but many do.

For heat, there's always wood.  If you have a fireplace, that would keep the energy use lower, and reduce your need for expensive heating fuel.  If you don't have a fireplace, there do exist some relatively affordable indoor fireplaces at most home improvement stores.  Your landlord may not like it, but it beats having more vacancies.

If indeed, we enter an age of civil unrest, protecting one's self will also be paramount.  Few people will have the foresight to anticipate the coming shortages.  Once they materialize, the desperation to feed families may just drive hungry people into the streets.  Survival of the fittest.  Personal protection should be at the top of your list.

A great option for personal protection is a guard dog.  The shelters are literally brimming with dogs that would be suitable and trainable for that purpose.  You can both do society a favor by giving these magnificent creatures a home and protect yourself at the same time.  Another alternative is to purchase a firearm.  If you do, please get the requisite training.  Guns, in the hands of those who're not trained, are dangerous.

From an investment standpoint, even if you have absolutely NO wherewithall, there are still steps that you could take.  For example, consider the impact of a deteriorating currency.  That suggests that any liabilities you have such as a mortgage should eventually be fixed.  Yes, we maintain that rates ought to stay low for a while, but as hyper-inflation ensues, rates will ultimately have to go much higher.  Paying your debt back in depreciating dollars will protect you. 

On the other side of the coin, don't allow any cash flow you receive to be fixed.  Let whatever income you have to be, as much as possible, indexed to inflation.

If the seige comes to pass, how long will it last?  Tough one.  I'd say 6 months at a minimum.  Ideally, you should have a disaster preparedness mentality that assumes a pretty long period.

Above all, don't let anyone tell you that taking some or all of these steps is crazy.  If none of this happens, well, no loss.  You can eat the food and drink the water and burn the wood.  The guard dog will make a terrific companion.  But, what IF this comes to pass?  Once it does, taking these steps will be too late, and the cost of doing so will go WAY up.  So, why not get started now?

Be a Boy or Girl Scout.  Be prepared. 

Marko's Take

Tuesday, September 7, 2010

Independence Day, 2011 Will Not Be.....

Before reading this very dark forecast, you may wish to review a piece I wrote called "12 Steps Of An Empire" by clicking here:  http://markostake.blogspot.com/2010/06/12-steps-of-empire.html.  What follows is step 12, which we are now in.

The date: July 4, 2011.  It is the worst of the times. There is no best of times.  Instead of enjoying hot dogs and burgers at the beach with family and loved ones, we're all at home watching PTV (Propaganda TV).  The parade that no one attends is full of tanks, hummers and military personnel. 

As Monk would say, "Here's what happened": 

The fall election season saw continuing deterioration in the economy, the markets and the fortunes of the Democratic Party.  The Republicans, perhaps accidentally, did NOT seize defeat from the jaws of victory as was their typical modus operendi.  They grabbed undeniable control of Congress with a clear mandate to reverse the country's slide into destructive socialism.

Secretary of State Hillary Clinton, ever the opportunist, and still supported by bitter, older angry women everywhere, announced her resignation from the Cabinet and, simultaneously, her intention to run for President in 2012.

The Clinton investigative smear machine, held back in the 2008 election, now goes into full gear.  They realize that Obama has now lost much of his base, including the lame-stream media, and engage in finding out about our President's very mysterious and checkered past.  The Republican majority and Mrs. Clinton, on this matter, are the most unlikely allies.  They find out the same thing:  Mr. Obama is not qualified to be President, under the United States Constitution, by virtue of his place of birth, Kenya.

But, there's so much more.  New information reveals that Mr. Obama has been in contact with foreign enterprises that are clearly enemies of America.  The call for his head intensifies.

The President is impeached and the Supreme Court reviews the information.  It appears virtually certain that Mr. Obama will become the first President ever removed from office.  He has one option left and he exercises it:  Martial Law.

By declaring a National State of Emergency on Economic and Domestic grounds, he suspends all civil rights and nullifies the power of the Supreme Court.  A military state with National Guard, paramilitary units and roving gangs now assumes power.  To control the population which is growing frightened, impoverished and restless, food, water and fuel are rationed.  Concentration camps, first used to intern the Japanese after World War II, are re-opened to place the new troublemakers in confinement.  Racial tensions heat as many believe the persecution of our President is racially motivated and a new Civil War erupts.  You don't know who's on your side and who's against you.

So on July 4th, 2011, we see no rocket's red glare and no bombs bursting in air.  This is no longer the land of the free, but it remains the home of the brave.

Marko's Take

Sunday, September 5, 2010

Information Is More Than Power, It's Gold

Now that it appears that we have finally begun the long-awaited mega-bull run in Gold and mining stocks, it's a great time to revisit the best sources of information to make investment decisions. 

Quality information comes in many forms.  Some cost money,such as newsletters.  Some are free, such as websites, chat forums and the media.

In terms of newsletters, I've subscribed to or have been familiar with at least a dozen.  In fact, many months ago, I wrote a piece on 7 of them which can be reviewed by clicking here:  http://markostake.blogspot.com/2010/01/looking-for-great-gold-newsletter.html.

In general, the opinions I expressed then I would maintain now, but I'd like to elaborate with some qualitative comments.  For the purposes of full disclosure, I currently subscribe to two newsletters:  LeMetropole Cafe (http://www.lemetropolecafe.com/) and Clive Maund (http://www.clivemaund.com/).  Each is different and serves a different audience.  Each does so, in my opinion, excellently.

Le Metropole is by far the very best value out there.  It is written daily, and full of invaluable information.  Head guru Bill Murphy is not only among the most knowledgeable and best connected people out there in Gold land, but his organization, GATA (http://www.gata.org/), is on the front lines of protecting investors from the shady back-room operators who routinely intervene in what should be free markets.  I could write an entire essay on his efforts alone, but history will undoubtedly judge him as the most potent force in this market today.

Clive Maund writes a newsletter that is primarily technically oriented.  While his technical analysis is often scorned by Gold's perma-bulls, who hate it when he gets bearish, he has, in my experience stayed intellectually honest and has been very willing to acknowledge his bad calls.  Hey, even Marko's Take blows it! 

Clive Maund also gives specific buy and sell recommendations and timing, which for most investors is what they need to make money.  Unless you understand things like On Balance Volume and Candlestick charting, Clive's newsletter should be part of your information set.

In addition to these subscriber newsletters, there are a myriad of fine blogs out there.  Of particular note are Jesse's Cafe Americain (http://jessescrossroadscafe.blogspot.com/) and Harvey Organ's The Daily Gold (http://harveyorgan.blogspot.com/).  Other must reading includes Jim Sinclair's MineSet (http://jsmineset.com/) and a great site called Gold Tent: Poster's Paradise (http://goldtent.net/wp_gold/).

Sinclair is a legend in the Gold community and it amazes me that his site is still free.  In Gold Tent, you'll find a large number of well-informed traders and investors with whom you can exchange ideas and thoughts in a mutually supportive environment.  Unlike some other chat rooms, the decorum is kept very civil and participants politely exchange information rather than insults with whom they may not entirely agree.

In terms of Gold-Oriented web sites, the three that come to mind are Kitco (http://www.kitco.com/), 321Gold (http://www.321gold.com/) and GoldSeek (http://www.goldseek.com/).  They serve as excellent clearinghouses of information and feature various news reports and newsletter writers.

The only information that investors should be truly wary of are the various reports of the major brokerage houses and credit rating agencies such as those that are issued by our friends at firms like Government Sachs (GS), Moody's and Standard & Poors.  Study after study has shown that these firms are so full of conflicts of interest that the information they spread is anything but credible. You can be pretty-well assured that these reports are used to propagandize the firms' narrow self interests and NOT to provide a service to investors.

The other sites mentioned above have NO conflicts of interests and only prosper based on the quality of the information they provide.  The major brokerage and credit firms, on the other hand, make money whether they're right or wrong.

As Labor Day weekend ends, the traditional summer vacation is over and markets will begin to get more active and, in all likelihood, we have a very interesting fall ahead of us.  You know where we stand:  stock market meltdown is uncomfortably likely and gold market meltup is dead ahead.

Before making any major investment decisions, consider all the sources of information that you have.  The next several weeks are likely to be historically significant, and a chance to make a lot or lose a lot.  Never underestimate the value of information.  Toward that end, thanks for reading.

Marko's Take


Wednesday, September 1, 2010

The War On Social Wars

This country has a proud tradition of fighting social wars in an effort to achieve a more fair and just society.  We have launched wars on drugs, illiteracy and poverty to name a few.  The problem?  We are as good at fighting social war as the French are at military wars.  Oui monsieur, "I surrender"!

In order to fight a good social war, one needs politicians who are more than anxious to throw good money after bad to pander to their constituents and of course, get re-elected.  Create entitlements, so everyone can join in the "free lunch".  Who's paying, by the way?  Oh yeah, the rich!  You know, the top 2% of income earners who create all the jobs and pay 52% of taxes?  The people that don't pay their fair share.  Yep, those guys!

The War on Poverty was declared by Lyndon Johnson, who was as effective in Vietnam as he was right here at home.  Remember the belief that we could have both "Guns" and "Butter"?  Turns out we paid for both, but still ended losing BOTH wars!  And, we ushered in a horrible period of inflation to boot.

This led Gerald Ford to declare War on Inflation, another war that was lost until Paul Volcker became Federal Reserve Chairman. 

The War on Drugs has been just as successful.  It's been so successful, in fact, that California is about to pass a proposition legalizing marijuana.  Of course, we're in a military war in Afghanistan to protect Big-Pharma's supply of opium.   Thank God the marijuana war was lost.  With the Reefer State in deep budgetary hell, we need the commerce from the largest agricultural crop to help mend the yawning deficit.

The War on Drugs should have taken a cue from Prohibition.  Banning alcohol during a Depression?  That war led to the rise of organized crime and bootleggers.  So now, we have wars on the mafia.  And, our track record, I'm proud to say, remains perfect!

The War on Illiteracy has been another stunning success.  Seen the latest English SAT scores?  They keep falling like a rock.  But, we now have some new Cabinets like Department of Education to ensure that our population is indoctrinated with liberal propaganda on our campuses.  Success!

If you add up the total cost of these social wars, including the entitlement spending they created, you can see that these wars are the reason we have a parabolic budget deficit.  Let's call the troops home, shall we? 

The only war we COULD win would be the War On Social Wars!  Let's declare peace on problems the government can't possibly solve.  Let's have faith in the American people to address their problems if left alone by BIG BROTHER.  Let's declare victory over useless, baseless government intervention.

This is a war we can win.  Fire photon torpedoes...full spread!

Marko's Take

Shale Oil Not The Answer

This morning on CNBC, the Chief Executive Officer of Continental Resources (CLR), Harold Hamm, gave an overview of what he considers to be the answer to America's energy deficit:  Oil Shale.

Mr. Hamm was billed as the richest oil man in America, so he ought to know what he's talking about, don't ya think?  I think someone needs to send him the "Marko's Take" pieces on "Peak Oil", which discuss in detail exactly why oil shale is NOT the answer and NOT even close.

CLR is a major operator in what is known as the Williston Basin, a large fossil fuel deposit stretching from Canada into North Dakota and Montana.  Increased oil production is driving a healthy state economy, one of the only healthy states in the Union.

The Bakken Oil Shale Formation is believed to contain a whopping 3.65 billion recoverable barrels of oil.  Not bad, but hardly the answer.  Even if it could be accessed immediately at NO cost, it would last for 40 days of world oil consumption.  Yes, 40 days.

However, shale oil is notoriously expensive to access.  It is energy intensive, meaning that it requires substantial energy just to produce the energy.  So for every barrel accessed, it requires more than half a barrel in energy.  Thus, the 40 day supply shrinks to 20 days or less.

In addition, shale oil requires great quantities of water.  And, it is accessed through very environmentally unfriendly strip mining.  Have you every seen a shale oil project?  It would make the Sierra Club get out cannons, normally reserved for Japanese whaling boats, and launch them at the oil men.

Shale oil, on the other hand, is quite light, meaning that it has abundant quantities of the more valuable oil products such as jet fuel and gasoline.  On the other, other hand, it is full of various minerals and metals, which are very expensive and energy consuming to refine.  Our refinery system would need to be dramatically upgraded if shale oil ever became a great source of energy.  Don't worry.  It won't!

The large U.S. Oil Companies have passed on shale projects for the most part.  I know, they want to keep oil out of our hands so they can enslave us.  But, aren't they interested in making money?  Don't you think that if there was money to be made, they'd be there in force?  Yet, none of them show anything but a casual and passing interest. 

The majors prefer to pursue the "cheap" offshore oil in the Gulf of Mexico which must be accessed by drilling many miles down into the Continental Shelf.  And, incurring the wrath of environmental groups.  And, incurring the wrath of Congress.  And, the public.  Seriously, if shale were so promising, why would they pursue deep drilling, with all its expense and risk, when a cheap domestic source were available?

There are a plethora of articles which suggest that the U.S. and World are literally swimming in oil.  That is just not so.  Fossil fuels are being depleted are very rapid rates, and every major oil producer, with the exception of Russia and Brazil have entered their own "Peak Oil" situation, and production is now falling off a cliff.  That includes the United States, Venezuela, Mexico, the North Sea and most of the Middle East.  Only Iran and Iraq have healthy reserves.  Wonder why we decided to invade Iraq?  Wonder why we are so against Iran's nuclear capabilties?  I would think it's obvious.

In fact, our presence in Afghanistan is not only about Opium, but about natural resources.  Don't think for a second that we haven't mapped all the resources in that country.  If it had nothing, trust me, our troops would have left long ago.

For investors, opportunities in oil are fraught with multiple risks.  Most importantly, is the likelihood of a "Windfall Profits Tax", which was a failure in the 1970's and would be just as big a failure if enacted today.
However, the major oil companies have very fat dividends and are among the only safe plays in the stock market today.

Don't yourself be fooled by the un-justifiable hype in Shale Oil.

Marko's Take