Random Musings VI

By: Sol Palha | Mon, Mar 5, 2007
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"Among those whom I like or admire, I can find no common denominator, but among those whom I love, I can: all of them make me laugh." - W. H. Auden 1907-1973, Anglo-American Poet

Many a naysayer, many of which fall under the newsletter writers camp keep pumping the nonsense that all paper money will cease to exist and that everyone will revert to the gold and silver standard in the not too distant future. First of all they are about 1000 years too late and second of all they are in sore need of a mental check up. They forget to take mass psychology into consideration and one must understand that the biggest driving force anywhere is mass behaviour also known as Mass psychology.

Nobody in hell including yours truly wants to run around with a heavy sack of gold or silver coins strapped to their necks. It just not convenient anymore and since we live in an instant demand and instant gratification society this line of thought will remain a dream. Another reason why this will never take place in the near future is that 90% of the current generation is brain dead when it comes to understanding the true function of gold. In fact one can state that they don't even understand the true function of money. In certain aspects this generation has received what amounts to a frontal lobotomy when it comes to understanding the concept of money backed by hard assets (Hard assets are gold, silver, palladium, antiques, collectibles, timber etc).

What might unfold one day is that certain governments will decide its time to back their money with a basket of commodities say oil, gold, silver, palladium etc. It does not necessarily have to rotate around one commodity; this will give investors all over the world the confidence to change their money into this country's currency. 3 nations are in a position to do this United States (but they have embarked on the "we are the toughest and we know it all mission" and hence the chances of them implementing it are at the moment slim at best). The other two nations are China and Russia; Russia is technically in a better position when one looks at things from a resource perspective but when one takes a strategic look at things the main country that comes to mind is China. In approximately 20 years they have achieved more then most nations have in 90 years and they continue to progress at a rapid fire rate. They understand the fact that true democracy is nothing but a fallacy whereby idiots are elected into power and these idiots then have cater to the morons that elected them in the first place. Thus a perfectly prosperous country slowly but surely becomes nothing but one huge welfare state.

Thus our advice to our subscribers is not to worry about this nonsense when there are very little facts to support these assumptions. A full generation would have to be financially wiped out before this concept becomes embedded in the mental psyche of the masses. Until then the best way to preserve ones wealth is to invest in assets that inflate at a faster rate then the governments are inflating the money supply. One way to do this is to make sure you have a portion of you money in Gold and or Silver bullion. We personally cast a more favourable eye on silver also know as the poor man's Gold.

In the end, who cares if the governments are inflating the money supply (as in realty there is very little one can do to stop them and if one cannot do anything to stop them then why worry over nonsense); the only thing we care as investors is that we do not want to catch a falling dagger. So let them inflate away for there is a secret benefit to inflation; certain assets over compensate for the rate of inflation by a huge factor. Thus for example the government might inflate the money supply say by 10% a year but certain assets could rise by say 30%-100% a year.

The problem we have now is that most central bankers have embarked on the concept of inflate or die as they compete to make their products the most affordable in the world markets. The best thing would be for them to all sit on the same table and decide on a fixed rate of inflation. As the true definition of inflation is an increase in the supply of money; they could all decide to say inflate their respective money supplies at the same rate. However such a simple concept is beyond the foresight of most central bankers; thus make sure you have some insurance and the best way to do this is to own a bit of Silver and or Gold bullion.

General Motors

It's truly amazing but it appears that over the last decade or so GM has not been able to make money selling automobiles. Thus one wonders what the hell they are doing in this business; to make matter worse their profits have plunged in excess of 45% in the same time period. Its total liabilities have grown from some 200 billion to some 450 billion. How can they ever expect to pay these liabilities down when they gross profits in 2006 were 22 billion dollars. At some point in time something is going to have to give; expect the workers who are depending on their pension and medical benefits to get a huge surprise in the not to distant future. The other U.S auto manufacturers are in just as much trouble. We stated a long time ago that the only way they could ever compete with the Asians was to completely close shop and move overseas or the other possibility was to hire non union workers. However their pension and medical insurance liabilities are so large now that they need to get the cheapest labour possible and one that does not require too many benefits. Such a scenario is only available in Asia. The article below explains in a clear and concise manner how the US government has actually helped the Unions bankrupt a once powerful Icon of the US economy. http://www.mises.org/story/2124

Uranium

There are currently 440 nuclear power plants operating in the world. Roughly another 175-200 are either being built or are in the planning stages; this number continues to increase by the day. The current demand from the existing 440 nuclear power plants is overwhelming supplies thus imagine what is going to happen when all these plants come online. Note to that the closure of Cameo's cigar mines has knocked out a huge amount of uranium from the markets. It is estimated that this mine will only be operational sometime in 2008. In the meantime any supplies that the smaller uranium companies may have found have almost been swallowed up due to the flooding of the cigar mines. In other words demand is still exceeding supply by almost 50%. Uranium mines currently supply slightly over 50% of the current demand the rest comes from above the ground supplies. These supplies are rapidly running out. When all the new Nuclear power plants come online we expect demand to surge by an additional 45% at the very least. It's for this reason it's so hard to predict how high uranium could eventually trade. We expect a pretty sharp pull back at some point in time when many of the hedge funds start to unload their uranium supplies and lock in profit; this in our opinion will be nothing but a wonderful buying opportunity. Finally it takes at least 3 years if not more for a new uranium mine to be fully operational; hence demand cannot be satisfied immediately and this is the perfect recipe for a bidding war.

"One never needs their humour as much a when they argue with a fool." - Chinese Proverb Sayings of Chinese Origin

 


 

Sol Palha

Author: Sol Palha

Sol Palha
TacticalInvestor.com

Sol Palha is a market analyst and educator who uses Mass Psychology, Technical Analysis and Esoteric Cycles to keep you on the right side of the market. He and his partners are on the web at www.tacticalinvestor.com.

The information contained herein is deemed reliable but no guarantee is made about its completeness or accuracy. The reader accepts this information on the condition that errors or omissions shall not be made the basis for any claim, demand or cause for action. Any statements non-factual in nature constitute only current opinions, which are subject to change. The author/publisher may or may not have a position in the securities and/or options relating thereto, & may make purchases and/or sales of these securities relating thereto from time to time in the open market or otherwise. Neither the information, nor opinions expressed, shall be construed as a solicitation to buy or sell any stock, futures or options contract mentioned herein. The author/publisher of this letter is not a qualified financial advisor & is not acting as such in this publication. Investors are urged to obtain the advice of a qualified financial & investment advisor before entering any financial transaction.

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