The weekly ramblings of an eccentric trader. - Part 6

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Weekly Ramblings of an Australian Stock Trader - incorporating

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Finding Gold’s True Value (Part Two).

Finding Gold’s True Value (part two)An interview with Paul van Eeden, founder of Cranberry Capital

Yesterday, we published part one of an interview from our US sister publication, The Daily Reckoning America, with Paul van Eeden. He explained to you how he discovers gold’s intrinsic value; the key, according to him, is using his ‘Actual Money Supply’ measure, which he described yesterday. (If you missed Part One of the interview, you can read it on our website, right here.) Below, the conversation continues…

The Daily Reckoning: Today, we’re here again with Mr. van Eeden.

Paul, thanks for joining us.

Paul van Eeden: Thank you for having me again…

The Daily Reckoning: Since the Fed’s started inflating its balance sheet by trillions, there have been many calls, especially here in the DR, that, eventually, gold will have to shoot into the stratosphere. Why, in your opinion, has this ‘gold to the moon’ scenario not played out?

Paul van Eeden: That’s a very complicated question. One of the reasons is that the people who were expecting the gold price to go up dramatically were looking almost exclusively at the Federal Reserve balance sheet. They looked at the tremendous expansion of the Federal Reserve balance sheet and they said, ‘Well, if the Federal Reserve balance sheet goes from $500 billion to $3 trillion, what’s that – a sixfold increase? – then that should imply a sixfold increase in the value of gold.’

Well, no, it doesn’t. Because you have to look at how that money flows into the economy and into the ‘Actual Money Supply’ that’s available to the economy. [Read more →]

January 28, 2014   Comments Off

Big Trouble in Chinese Manhattan.

The global meet and tweet at Davos has produced something surprisingly interesting. In between the pretty pictures, a research report from UBS shows that government spending as a share of global GDP hit a high last year. The last time it reached 14% was in 1980. And it’s growing faster than private spending. That flies in the face of the austerity politicians have been crowing about. The result is of course record government debt to GDP levels.

The kicker is that UBS identifies the shrinking working age populations as a serious concern for reducing the debt levels of developed countries. Debt is fixed, and less people make it more of a burden.

Attempts to write off or inflate away the debt is going to clash with the growing voting block too-retirees. It’s their assets that will suffer in their pension funds. It’s going to be interesting to watch this dynamic play out.

The markets were interesting overnight too. Gold jumped and the Aussie dollar’s slide continued, despite a pickup in inflation. The theory is that higher inflation should reduce any chance of an interest rate cut. Stable or higher interest rates usually make the Aussie dollar more attractive in the market, so its value will increase.

But our currency is also a ‘risk on’ type of asset. You take a punt on the Aussie dollar and Australia’s resource economy if you’re feeling optimistic about China. But that’s a tough position to hold right now. There are rumblings in China’s shadow banking sector. Investors are currently selling out of construction projects at a loss. A ‘farmers mutual cooperative fund society‘ in Yancheng closed its doors…literally. Depositors had been unable to get their cash out. So they borrow the money instead. [Read more →]

January 28, 2014   Comments Off

Is It Time to Buy Gold Stocks?

Sell the tech stocks. Buy the gold miners.

This simple formula is our moneymaking advice for this year.

Not that we have any new insight into technology…nor any way of knowing what is ahead for gold or the companies that dig it out of the ground. Not at all. Our advice is based on ignorance, not knowledge. Not knowing what is ahead, we revert to an old rule: Buy low. Sell high.

What’s high? Open any newspaper to its financial pages and you will have your answer. Amazon. LinkedIn. Twitter. Zillow. Nest. Facebook. Google. Choose almost any internet-related company and you will find a good short sale candidate. Amazon traded at a P/E over 1,000 the last time we looked. LinkedIn was around 800.

As for most of the internet companies, there is no need to look. You will find plenty of P but no E to divide into it. Most of these companies do not make money; they lose it. Will they survive the year without crashing?

We don’t know, but beware a bear market. When the market turns south, the companies that led it up will lead it down. Those that rose the highest will sink the lowest. Take a look at a chart of the S&P. You will see what appears to be a ‘double top’. Does this mean the entire market - with the techs leading the way - is ready to take a dive? Maybe.

Last year, companies that mined the World Wide Web soared…but those that got their hands dirty slumped badly. Gold went down about 30%…some gold stocks were cut in half. [Read more →]

January 27, 2014   Comments Off

Trading the Trend.

Due to unseen circumstances our regular article supplier is experiencing site problems. So instead enjoy one of our popular articles from our extensive education archives.

                                         Trading the Trend.

Apart from “Gap Trading,” ( See previous article) I also use “Trend Trading.” Here is an explanation of what this strategy is:-

An easy way of seeing a “Trend” is firstly looking at a monthly chart and observing which way the stock price is going. (This is called using the “Old eyeball test”)
This is a cheap way of seeing what the stock is doing right now and does not involve any fancy, expensive computer software.

Just use your own two eyes. It takes a couple of seconds to work it out as there are only three directions a stock can go and that is Upwards, Downwards or Sideways. Another way is to look at the peaks and troughs. Making sure that each peak or trough is higher than the one previously.

Now as an added help I use a ruler or any straight edge and place it on the chart/monitor screen or you can print it off. Whichever is easiest and suits you best? [Read more →]

January 24, 2014   Comments Off

Finding Gold’s True Value (Part One).

Finding Gold’s True Value (Part One)

An interview with Paul van Eeden, founder of Cranberry Capital

Ed Note: The following is part one of an interview with Paul van Eeden, president of private holding and investment company Cranberry Capital Inc., and is well known for his work on the relationship between the price of gold and currency markets. Tune in tomorrow for part two.

The Daily Reckoning: Let’s dive right into the price of gold. Gold had a rough year in 2013 – hitting a low $1,178. Are you surprised by gold’s recent performance?

Paul van Eeden: No, I’m not surprised at all. I think even at $1,230 gold is still expensive. And it wouldn’t surprise me in the least to see gold go down another few hundred dollars. But I have to be very careful because I don’t try to predict what the price of gold is going to do in the next six months or a year. I pay attention to what I think gold is worth, because if the price’s higher than what I think its worth, then I have very little interest in buying gold specifically. If it trades for less than what I think it’s worth, then I’m more inclined to buy it – without paying attention to the timing. I don’t mind buying assets if they’re trading below intrinsic value and holding onto them; I don’t mind buying more if they continue to decline. But I try not to buy assets when they’re trading for more than what I think they’re worth, regardless of what I think is going to happen in the next three-six months.

The Daily Reckoning: Building on that, how, exactly, do you figure out what gold’s intrinsic value is?

Paul van Eeden: The basic premise is the fact I think gold is money. And I analyse it as if it’s money. Whenever you talk about the price of something, whether it’s gold, or a Mercedes-Benz, or a widget – it doesn’t matter what you’re talking about – the minute that you denote something as a price, then you’re making a comparison between two different things. You’re comparing a Mercedes against a bunch of US dollars. The minute that you express something as a price, you’re analysing two things.

To make it very clear, if I tell you I think the value of a Mercedes-Benz is going to go up in the next four years, I might mean that I think Mercedes are becoming scarce, and therefore its value is going to go up. Or I might mean I think the value of the US dollar’s going to go down, and therefore the Mercedes-Benz is going to retain value better than the dollar. Both have the same effect, but they mean very different things.

The minute you start talking about the gold price, it means you also have to understand what you’re pricing it in. In this case, most people price it in US dollars. So you cannot start an analysis of gold without first analysing the US dollar. So I’ve spent a lot of time and effort trying to figure out how the dollar’s intrinsic value changes over time. [Read more →]

January 23, 2014   Comments Off

Why It’s Too Soon to Burst the Stock Price Bubble.

Why It’s Too Soon to Burst the Stock Price Bubble

What was yesterday’s big news? China’s economic growth.

The market expected bad news.

That’s why the S&P/ASX 200 index fell as much as 43 points during the day.

So, what happened?

It turns out the news was better than the market had expected.

After that came out the market turned course and went up. It ended the day down just 10.9 points.

So much for the idea that the market is living in cloud cuckoo land with too-high expectations. In fact, is it possible that investors are being unduly pessimistic and undervaluing stocks?

As always, you can never know for certain if stocks are undervalued, fairly valued or overvalued until after the event.

What seems expensive today may turn out to be cheap tomorrow if stock prices continue to rise and if company earnings follow suit.

That’s a key point. We’ll come back to that in a moment.

You’ve doubtless heard talk everywhere claiming that stocks are currently in a bubble. But what’s the rationale for that reasoning? That stock prices in the US have gained 170% since the 2009 low. [Read more →]

January 23, 2014   Comments Off

Why I’d Rather Pick Bubbles Than Stock Market Crashes.

Why I’d Rather Pick Bubbles Than Stock Market Crashes

If you want to make a name for yourself in the financial markets, pick a crash.

If you want to build lasting and long-term wealth, pick a bull market and invest in stocks to take advantage of it as it rises.

OK, it’s not that simple or clear cut.

Many people have built a fortune from predicting a stock market bust – Jim Rogers, Dr Marc Faber, John Paulson…er, there are probably a few more.

While that’s an impressive (but short) list, there are two simple reasons why the list isn’t longer. It’s hard to predict a stock market crash, and it’s less lucrative.

That’s why we prefer to invest on the long side. Historically, stocks tend to rise more than they fall, and more importantly, you can make more money from buying stocks than short-selling them…

If you look at the market over the past 40 years it’s easy to come to a simple conclusion: over the long term stock markets go up. We can show you a chart to ‘prove’ it. [Read more →]

January 22, 2014   Comments Off

Data Roaming: The Technology Trend That’s NOT Your Friend…Yet.

Data Roaming: The Technology Trend That’s NOT Your Friend…Yet

Casey Snook’s parents were mad – and understandably so.

The 14-year-old Briton was on a five-day vacation in New York with her mom this summer, snapping pictures of the Big Apple to share with her friends on Facebook. None of that is particularly remarkable, though. The trouble came later, when Casey’s dad got the cellphone bill…

The teenager had racked up $6,000 in data roaming charges, a pretty hefty price tag just for posting some pictures to Facebook.

Casey’s story isn’t an anomaly.

Last year, an 11-year-old Canadian boy rang the register for $22,000 after three days of video streaming on his dad’s cellphone during a family vacation to Mexico. And in 2011, T-Mobile billed a Florida woman $201,000 after her brothers went to town with data usage on a two-week trip to Canada.

These stories seem unthinkable in today’s superconnected world. But the reality is that getting an internet connection while travelling is still the Wild West of the telecom world. That’s why tiny wireless carriers looking to change that could potentially make you a fortune in the process.

Why is the wireless business such a slam-dunk? [Read more →]

January 22, 2014   Comments Off

Genetic Technology: Changing The Focus on Biotech.

Genetic Technology: Changing The Focus on Biotech

This week we’ve had a bit of a biotech focus in the articles we’ve written. And for good reason. It’s a reminder to you that technology spreads across all industry.

It’s a catalyst for positive change, and helps to improve people’s lives.

In particular the huge advance in genetic technology has sparked what some people would decry as ‘miracles’.

When we talk about genetic technology a number of negative connotations tend to come along for the ride. The inevitable ‘designer baby’ argument arises, as does the controversial topic of eugenics.

We think that’s as ridiculous as arguing 3D printers should be banned because one idiot made a 3D printed gun.

If all we ever do is focus on the negative aspects of world changing technologies, how can the world advance?

And that’s why we’ve tried to shift the focus onto the modern day miracles that medical technology brings. In particular we’ve tried to highlight the benefits of genetic technology. [Read more →]

January 21, 2014   Comments Off

A Reasonable Way Investors Can Predict The Future.

A Reasonable Way Investors Can Predict The Future

The Federal Reserve Bank gets a lot of press. But Harry Dent has another idea about what investors should pay attention to.

What is more important than all the central banks of the world?‘ he asked the attendees at the Liberty Forum in sunny St. Kitts. The crowd, perhaps under the tranquilizing effect of the tropics, offered no guesses.

Babies,‘ Harry said.

There are many ways people make their guesses about what might happen in the world. Some people gaze at the stars. Some follow oddball theories of dead economists. Harry Dent – author, newsletter writer, forecaster of market trends – watches babies.

What I do is look at demographics,‘ Harry said, adding specifics, ‘and the predictable things people do as they age.

And that all starts with babies. On the next slide, Harry produced a picture of a cute little bundle in a blue blanket. ‘What’s going to happen to this baby? He’s going to grow up. He’s going to enter the workforce at age 20. He’s going to start earning money, spending money, borrowing money,‘ Harry said. ‘Does anyone know at what age you spend the most you’ll spend in your life?

That would be age 46. Here was something that I thought was interesting. Harry mapped out the typical life cycle of household spending in the chart below. [Read more →]

January 21, 2014   Comments Off