Monday, January 31, 2011

It's a Bull Market in Uranium! How to Invest in 2011

Read my article How to Play the Uranium Breakout at Hard Assets Investor.

It's a bull market in uranium—again!

Uranium's price was "in the tank" for the longest time, thanks to the massive supply provided by retired Cold War nuclear weapons. That supply started to exhaust early in the last decade, which prompted a uranium moonshot (see chart below).

Like most commodity superfast rallies, this one ended in tears. But uranium has since risen from its radioactive ashes—after forming a "higher low"—and recently broke out to a two-year high:

Breakouts always catch our eye because commodity markets have a tendency to rise much higher and farther than anyone think—which can be very profitable for investors like us.

Should this uranium breakout be bought? And if so, how can you best integrate it in your portfolio?

Higher Demand, Less Cheap Supply

Like crude oil, there's plenty of uranium available to satisfy global demand—if you're willing to pay up, that is. Because like crude, much of the "cheap" uranium, has already been extracted from the earth.

Please read the rest of my 2011 Uranium Investing Analysis here.

Sunday, January 30, 2011

Coal Outlook 2011: What Australia's Floods Mean for Coal Supply and Prices

Australia's nasty flooding is drastically hampering their ability to crank out coal.  How serious and long lasting will the effects of these floods be on coal supply, and prices?  Our energy guru Marin Katusa explores...

Australian Floods Cause Drought in the Coal Market

By Marin Katusa, Casey’s Energy Report

The most important metallurgical coal basin in the world is underwater. Open pits have become lakes, stockpiles are soaked, and rail lines are submerged and in places destroyed. Damage is estimated at $5 to $6 billion.

Australia accounts for almost two-thirds of global coking coal production. Much of it comes from Queensland, where an area the size of France and Germany combined is underwater. That includes the Bowen Basin coal region, which produces almost a third of the world’s coking coal. The Bowen Basin was hit with 350 mm of rain in December, against an average of 102 mm.

Floods are now receding from the Bowen, giving some miners an opportunity to ship from existing stockpiles. Other mines are still inaccessible, and several rail lines are still submerged or damaged. And since open pits are still flooded and will take weeks to drain, shipping from stockpiles only postpones the inevitable: a reduction in met coal supply. Analysts think a recovery to pre-flood coal production levels will take at least three months.

At least six major global coal miners have declared force majeure, which means they can miss contractual shipments because of circumstances out of their control. The list includes Anglo American, Aquila Resources, BHP Billiton, Macarthur Coal, Rio Tinto, Vale, and Xstrata. Mines responsible for between 100 and 140 million tons of annual coking coal production are now under force majeure, representing as much as 40% of global supply.

And it’s probably not over yet. Australia’s Bureau of Meteorology predicts both eastern New South Wales and southeastern Queensland have a 60% to 70% chance of receiving higher-than-average rainfalls between January and March 2011.

What does it mean for coal prices and coal equities?

First, coal is not traded daily, like copper or gold. Coking coal prices are set in quarterly negotiations between steelmakers and coal miners; contracts for the first quarter of 2011 were mostly settled before the floods, at an average of $225 per ton (already the second highest level ever). So prices have not changed yet, but there is lots of talk about where they will go next. Analyst predictions for the second quarter range from $250 to $350 per ton.

Coking coal producers not affected by the floods are already reflecting the increase, and that will likely continue. Teck Resources, for example, climbed from below $59 to almost $63 in the last days of December, before slipping with the markets. Western Coal and Grande Cache Coal also made gains. The longer-term impact will of course depend on how long it takes for Australia’s mines to return to normal operations, but in general the situation supports Casey’s bullish stance on coking coal: there is not a lot of supply, and demand is constant, if not rising, so prices can only trend up.

Casey’s support for coking coal has already generated big returns on at least one recommendation. Some ten months ago, I was on Business News Network (BNN) talking about met coal and recommended Cline Mining at just over $1. Those who traded on that advice are now looking at a 300%+ gain, as Cline is currently trading at more than $4, in less than four months. And Casey’s Energy Report recently added a new metallurgical near-term coal producer to its portfolio.

As for thermal coal, prices seem poised to edge up slightly because of the floods but, unlike metallurgical coal, there is plenty of thermal coal to go around. The situation has disrupted just 8% of global thermal supply. So while the floods may be causing a pop in thermal coal equities, the increase is unsustainable. There are thermal coal deposits all over the world, and many countries produce enough to meet most of their energy needs. China’s thermal coal stockpiles remain very healthy, for example, and it is the second-largest importer of thermal coal in the world. The top importer is Japan, but even it only imports some 113 million tonnes annually and relies on coal for less than 30% of its electricity needs.

As such, the pop in thermal coal equities is not going to last. Hence, investors should use the lift as an opportunity to reduce their positions.

The floods are also a reminder of the extremes of Australian weather – a prolonged drought in Queensland ended just two weeks before the torrential rains began. And while the rains pound Queensland and New South Wales, which cover the eastern third of the country, searing temperatures have residents of neighboring South Australia and Victoria on alert for bushfires. That is simply a reminder that Australia’s weather can often impact the country’s all-important met coal mines.

[No one is more knowledgeable in the volatile energy market than Marin Katusa and his team. That’s how subscribers could rake in an exceptional 818% gain on Uranium Energy (UEC) in only 24 months. Subscribe today and get Casey’s Energy Report for 30% off the regular price – plus one year of Casey’s Extraordinary Technology FREE. Find out more here.]

Ed. note: I am a Casey Energy Report subscriber and affiliate.

Friday, January 28, 2011

Jim Rogers' Favorite Ag Pick for 2011

Jim Rogers, a fervent agricultural bull since he launched the Rogers International Commodity Index in 1998, recently cited rice as his favorite grain.

He told MoneyNews:
"If rice goes down, I will buy more rice. Rice has a great future for the next few years."
When Jim casually name-drops a commodity—especially a grain—it's usually advisable to take a closer look at it. So let's dig into the investment-worthiness of rice and see if we should order up a side dish for ourselves.

Lower Acreage, Lower Supply

A recent Wall Street Journal article reported farmers are reducing acreage for rice by as much as 30 percent in favor of higher-priced cotton and soybeans...

Please read the rest of my supply/demand Rough Rice analysis at Hard Assets Investor

(and give it a 5 star rating, please! :))

Tips for Gold and Resource Stock Investing in 2011

Nice job here by guest author David Galland, who urges you to keep a level head when investing in resource stocks and companies.  Most importantly, he says, always know your goal for a trade or investment before you actually make it.  Solid advice that's all to easy to forget!
Before You Shoot Your Next Arrow

By David Galland, Managing Director, Casey Research

While I have read certain works on the life and ponderings of Buddha, I claim no deep knowledge of his philosophy. Note I didn’t use the word “religion,” because Buddha himself claimed no supernatural powers and even begged his followers not to deify him after his death. Hardly had he drawn his last breath, however, when the deification began – though most Buddhists won’t claim it as such.

Even so, there are Buddhist practices I think useful in this hectic world of ours – practices that don’t involve dressing in robes and refusing to swat flies. For example, I rather like to meditate from time to time. Nothing too involved, just ten or fifteen minutes of quiet deep breathing as part of calming the mind and all that.

I also find a lot of wisdom in the training of the Zen archers, who seek to clear their minds of all internal dialogue not related to the simple process of releasing the arrow at the target. Simply, they strive for only one goal – perfect form. Thus they clear their minds of all others, even those that might be considered complementary to the task at hand – for example, getting a pat on the back from the instructor, or plopping the arrow closer to the bull’s-eye than the next person down the line.

Of course, as humans are wont to do, Buddha’s successors have taken the man’s simple approach to life and wrapped it in gaudy and self-important rituals, in the process turning it into a livelihood for predatory priests. But that’s another story and shouldn’t take away from Buddha’s core beliefs.

Especially the bit about simplifying and focusing your goals. That idea has always seemed to me to have relevance for a wide range of pursuits, from the putting green to the stock market.

Based on my many interactions with investors over the years, I have concluded that there are really just two sorts. There are those that have clear goals, and those who don’t. Those who do make the money. Those who don’t provide the money to those who do (investing in a zero-sum game – for every winner, there is a loser).

This thought was made more tangible to me in recent days, based on a personal experience. Long story short, I had invested in a pre-public company years ago. It wasn’t a big investment, and it took longer than anticipated to ultimately go public. When it did, it had a fairly good run, but as the reason I bought it in the first place was still ahead of it, I hung on. Well, as is so often the case, the company’s missed a hurdle and came tumbling back to earth. With the stock trading hardly at all, and for just a few pennies a share.

Lo and behold, the company’s management reinvented the company as targeting rare earths and managed to acquire a project of merit. The investment that I had written off as worthless soared on high volume.

Now, if there is one thing that anyone with experience in the small-cap resource stocks will tell you, is that the time to sell is when there is someone to sell to – because absent volume, getting out of a decent-sized position is not easy.

So, there was the dilemma – hold on in the hope that the surprise home run turns into the sort you bestow on your grandchildren? Or secure your gains by selling and moving on?

At the point of such a decision, the mind gets very un-Zen-like. Visions of untold riches dance in the head, followed by fits of fretting as the stock pulls back. Next thing you know, you are tossing and turning in the night, conflicting thoughts chasing each other around like cats.

In the final analysis, I recalled the old adage that pigs get fat but hogs get slaughtered. I sold enough to take my initial investment off the table, and a healthy profit – holding on to a modest position to enjoy any further upside. And, having done so, the internal dialogue came to an abrupt halt.

Now, the funny thing is that after a brief pause, the company is again moving up – but I have no intention of second guessing my decision to sell when I did. On a percentage basis, my returns were in the moon shot category – the sort that only the junior resource sector can produce – so it would be just plain churlish to gripe.

More to the point, the stock could just as easily have peaked and once again collapsed, in which case I would really feel like a dolt had I not taken an exit.

All of which delivers me to the point. Namely that it is very important, especially for the resource investors among you, that you actually have a firm goal in mind for each investment you make – and that you remain single-mindedly focused on that goal.

Do you own gold or silver as a protection against inflation? If so, then why even bother checking the price on a daily basis, let alone every few minutes?

Or do you own it as a speculation? If so, what is your specific profit target? Don’t have one? If not, then it seems to me a bit like setting off on a journey without knowing where you want to actually go.

Do you know exactly why you own the resource stocks you do? What hurdle are you betting they will clear next, and by doing so ratchet the price higher? Is your goal to get your original investment off the table on a double? Or do you have a specific price target in mind, at which point you will close the position entirely and move on to more fertile ground?

This idea of keeping an easily understood, single goal in mind for each of your investments is hugely important, because without it you are going to be susceptible to the fears, fantasies, and folly that ultimately cause investors to end up on the losing side of the equation… by selling good companies on pullbacks, holding on to positions well past the point of reasonableness or chasing stocks after they’ve spiked.

Probably the most successful investor I know – I won’t say his name, because he might not like my pointing out that he has tucked away close to a billion dollars, thanks primarily through investments in the resource sector – has a well-deserved reputation for selling too early.

While it is remarkable that he has made so much money in this sector, what is more remarkable is how he did it. Which I would sum up as follows…

  • First and foremost, he follows a process – almost mechanically.
  • He buys low, with a specific objective in mind. Both in terms of hurdles he expects the company to clear, but also in terms of the returns he expects to get on his investment.
  • When his return objectives are met, he sells. Maybe enough to get his original investment off the table, maybe the entire position – depending on his reassessment of the company’s potential to clear the next hurdle. But he always sells at least enough to get his original investment off the table, no matter how much exciting news there is and how much optimism others may feel about the stock.
  • He only buys on his own terms. If invited to participate in a private placement, he will do so only if he is completely comfortable with the terms. If the company is offering a warrant with a one-year expiration term and he thinks the development work will take two years, he’ll ask for a two-year warrant. If the company won’t budge, he moves on, confident in the knowledge that there will always be another deal coming down the pike.
  • He’s careful with his money. As he likes to say, if you spend your dollars, they can’t mate and make you more dollars.
  • He’s not afraid to concentrate investments, but again on his terms, and only when he has done the due diligence needed to be confident that the potential reward warrants the level of risk involved.

If those principles and practices sound simple, it is because they are. But following that process is also incredibly effective.

Interestingly, this process rhymes with the finely honed investment methodologies of the late great Benjamin Graham, author of The Intelligent Investor and mentor to a small cadre of close associates that included Warren Buffett, Jean-Marie Eveillard, William Ruane and Irving Kahn – all of whom used what they learned from Graham to become billionaires, or close to it.

Let that sink in for a moment. One man, Graham, developed a methodology for investing – and it’s actually a pretty simple methodology – that the people working with him were able to duplicate in building their own fortunes. Following a proven process works.

And while Graham wouldn’t have touched a junior resource stock with a twenty-foot pole – his methodology was focused on balance sheet analysis, not a strong point for junior exploration stocks that have no E in their P/E – the principle of following a specific process that mitigates the odds of a loss holds up well. The proof in the pudding is the success of my aforementioned friend, and many others I know who are similarly disciplined.

With all of that said, do you know why you own what you own? Do you have a clear goal in mind for each of your positions? Do you know how much of your portfolio is allocated to speculative resource plays, and are you comfortable with the idea that those stocks have historically suffered extreme sell-offs?

Warren Buffett, whose investment acumen is hard to argue with, likes to quip that the two most important rules for investment success are, Rule #1 – Never lose money. Rule #2 – Never forget rule No. 1.

While it is almost impossible not to lose money along the way while investing in resource shares, it is equally true that once you have scraped your original investment off the table, it is impossible to lose money. Sure, you can give back your profits – but you can’t lose money.

All of which is, I think, worth reflecting on as you aim your next arrow.

[And if you aim your arrows just right, small-cap resource stocks can give you great leverage to the underlying commodities – such as the precious metals. Louis James, senior editor of Casey’s International Speculator, is a master at market archery, beating the S&P 500 by an incredible 8.4x in 2010. Subscribe today and get $300 off the retail price… plus one full year of Casey’s Energy Report FREE. But hurry, this offer ends soon. More here.]

Ed. Note: I am a Casey International Speculator subscriber and affiliate.

Monday, January 24, 2011

Why Jim Rogers Loves the Chinese Yuan/Renminbi - and How You Can Invest, Too

Looking to diversify your US dollar holdings into some Chinese yuan/renminbi?

Now you can - thanks to the Bank of China, which is allowing US customers to deposit up to $20,000 a year:
It's not as crazy as it sounds. As The Wall Street Journal's Lingling Wei reported Wednesday , the Bank of China here in the U.S. has started allowing American customers to open an account and to invest up to $4,000 per day — and a total of $20,000 a year — in Chinese yuan, or renminbi. Until now, you had few options to hold money in yuan, which is a "closed" currency managed, and protected, by Beijing.

The bank has three U.S. branches — two in New York, and one in Los Angeles. You'll have to fill out paperwork to open an account and provide two forms of ID. And there's a minimum deposit of $500.
Source: Do You Need a Chinese Bank Account? -

Regular readers know that our favorite financial guru, Jim Rogers, has been citing China's currency as a favorite investment idea of his:

Hat tip to The Daily Crux for the heads up on this story!

PS - We publish a free daily newsletter, The Contrary Investing Report, which highlights trading and investing stories that are key to your financial success and survival. Please subscribe here.

Thursday, January 20, 2011

Did You Know...China Has Actually 'Decoupled" From Commodities?

Most bullish commodity cases offer the seemingly irrefutable argument of "China" as a driver of higher prices in the weeks, months and years ahead. The logic is sound—demand for [Insert Commodity X here] is growing like gangbusters, and this trend will not only continue, but is likely to accelerate as China becomes a net importer for [Commodity X]. This increased demand, coupled with stagnant-to-declining supply for [Commodity X], will give prices a strong tail wind in the months ahead.

Sounds great in theory—but then again, so did communism. So I began to wonder if China's economy was in fact serving as a reliable leading indicator for commodities. In theory, a strong Chinese economy should lead to higher prices for many of its favorite commodities, but an economic setback (like the one we saw in 2008) could send prices on a one-way trade heading south.

Please read the rest of my piece at Hard Assets Investor.

(And by the way, this is my first ever guest piece for our friends at HAI - so if you'd be so kind as to give the post a generous five star rating, I'd really appreciate it!)

Monday, January 17, 2011

A Look at Facebook's $50 Billion Valuation - And How it Compares With Google, Apple, Intel, and Microsoft

Slightly off-topic with regards to commodities, but I know many readers also are big on tech - so here's my take on the current valuations and prospects for Facebook, Google, Apple, Microsoft, and Intel...

Facebook's alleged $50 billion valuation granted by Godfather Goldman really has had the investment community aflutter.  "A social networking bubble!" proclaimed value investors around the globe.

But is this a fair claim?

On the heels of news that Apple has passed energy giant ExxonMobil to become the world's second most valuable company, why don't we take a step back and look at the big picture with regards to our favorite tech companies.

Which are overvalued?  Is this another bubble?

Are there any tech stocks that are - dare I say it - undervalued?

When it comes to technology, you really have to look past the obvious fundamental valuation metrics.  Multiples on sales, earnings, and cash flow are OK places to start, but used alone they'll lead you astray.  Instead, we need to peer through the fog (as tech hedge fund legend Andy Kessler says) and figure out who will be the big winners of tomorrow.

Because today (not to mention the last quarter) is old news.  The stock market is a forward looking vehicle - which is hard enough to gauge when it comes to "old economy" companies with fairly static markets and cash flow prospects.

It's especially tricky when we look at the tech sector, where someone is always eating someone else's lunch, and the untouchable stalwart of today (ie. Microsoft circa 2001) is the fading dinosaur of tomorrow (ie. Microsoft circa 2011).

Also I make the assumption, when looking at technology stocks that have a lot of analysts covering them, that their stock prices are relatively efficient and have most of the "known knowns" priced in.  Hence, we are going to attempt to peer through that proverbial fog, to see where there may be pricing inefficiencies as we speculate how the next 5 or so years may unfold.

So please join me as we take a stroll down technology valuation lane.  Equipped with only a pen and back of an envelope (because software hasn't managed to do better than this, yet), let's map out the rough prospects for the tech stalwarts of today going forward, to see where potential values (and overvalues) may lie.


The Almighty Google is the reigning King of the Internet, and hence, King of the Universe.  Google controls the internet because it owns Search.

When most people look for something on the internet, they navigate to Google's homepage and type their query in the search box.  Some people use Google for everything - and I mean EVERYTHING.

For example - I see this on customer support calls all the time - when I tell the person I'm on the line with to type in a URL, there are many people who are in the habit of typing URL's directly into Google's search box (rather than the URL line in the browser itself) - now THAT's lock-in!

Google makes its money - or really, prints vast swaths of it - by running relevant ads based on the search terms that are typed in.  If you click on one of those ads, the advertiser pays Google for the click.

"The Google" has tried to "get wide" with its product offerings and serve up other free products that will keep you further locked in to their world - so that you'll keep using them for search.  Some have been more successful (Gmail, Google Maps) than others (Google Buzz anyone?).

Ultimately they want to serve up relevant ads to you anywhere and everywhere.

A brilliant play by Google was the Android phone - which essentially turned the smart phone sweepstakes into a two horse race.  With the Droid, Google is able to get you hooked on its stuff (instead of drugs, Google peddles apps - cocaine is soooooo 20th century).

And of course, the Droid's default search engine is Google's own.  So that when you search for something from your phone, Google can serve you up...Google Adwords!

The "hook" worked for me personally - within a couple of months of getting my Droid, I finally switched from Outlook to Gmail (which happens to integrate seamlessly - go figure) and the rest was history for me.  I became a full fledged Google App fanboy.

So is GOOG cheap?  Expensive?  I'm inclined to think it's priced more or less appropriately - by the aforementioned smart people who crunch Google's numbers all day.

Other than the late '08 panic, Google has been more ore less rangebound:
With a market cap of just under $200 billion, there's not a ton of upside available - as trees don't grow to the sky.  Yet as long as people start their internet experience with Google, Adwords will keep humming, and this cash cow should provide reasonable enough support for Google's stock price.

Couple that with the anticipated growth that Search should continue to see with more of Earth's inhabitants connecting to the internet, and things look pretty good.

So is there anything that could possibly trip up the Google juggernaut?


Believe it or not, Google is utterly terrified of Facebook.  Because Facebook is the one internet site today that could "head off users at the pass" when it comes to their internet experience.

Remember what AOL used to mean to its users in the mid-late 90's?  It was their gateway to the internet.  Instead of being faced with a random browser homepage and confusing address bar, users were greeted at AOL login by their very own concierge (perhaps a poor man's concierge, but a help nonetheless) to assist them in their next move.

Want sports information?  Click here.  Finance?  Click here!

And this "dummy proof" form of navigation is still the preferred method of surfing the net for your average internet user.  (By the way, if you're reading this article, you are WAY more sophisticated than the average internet goer. :) )

Back to Facebook.  You go to Google when you need to find something.  But let's assume that Facebook becomes your default "go to" site - you chat with your friends there, send messages back and forth (perhaps replacing email), and because Facebook knows everything about you (because YOU told it!), it can basically anticipate your next move.

No need to search Google, because Facebook is your new Mother Hen - it knows you better than you do!

And if you think Facebook's appeal is limited to teenagers and college kids, you're greatly underestimating it.  It's already broken into the mainstream, and you're just as likely to see a stay-at-home mom living on Facebook these days as you are to see a college kid.

While Facebook's reported latest $50 billion valuation may have been a misrepresentation, let's say, for the sake of argument, it's around $30 billion.

This would still represent a "breakout" - a new all-time high - in Facebook's valuation.  The chart would be going from the lower-left to the upper-right relentlessly - no question the trend is up.

And at $30 billion, Facebook is quite a bit cheaper than Google at $200 billion.  And for a company with a better than puncher's chance of "owning the internet", that may not be a bad value relatively.

Plus, Mark Zuckerberg has proven himself to be at least a very good product guy.  In the technology world these days, the best product usually wins (best marketing stopped winning about 10 years ago - see Dell).

I would never sell short a good product company, or good product CEO.  Speaking of which...


Is probably THE best product company on the planet right now, led by one of the greatest product CEO's of all-time.

Yes, everybody knows this.  Yet, everybody knew this when Apple broke $200, and the stock has continued its climb to the upper-right hand of the chart, thanks to it's latest groundbreaking innovation, the iPad - a Jobs original that you'd have needed to peer through that fog to anticipate.
I love Apple's position going forward, because it owns the devices you use to connect to the internet - the iPhone, iPad, Mac, and whatever Mr. Jobs comes up with next.

Because they've got you hooked in at the device level, Apple has the initial say on where you navigate to on the net.

This, also, is a BIG potential threat for Google, because if Apple so chooses, they could switch their default search engine over to Bing, or something else, and that'd totally jam up Google.  Somebody else would be serving you relevant ads!

Given Apple's solid position, and excellent product CEO, their future looks quite promising.  But most of this is probably priced into the stock.  I'd neither go long Apple, nor short it, at this point - I don't find the risk/reward compelling either way, as it, like Google, is probably roughly fairly priced.

Though being a great tech product company, if you're going to take a position, go long!

One potential threat to watch is Jobs' insistence on owning the entire user experience, soup to nuts.  Their platform is not as open as Google's, which could end up hurting them.

But given that we're looking at a two-horse race, with room enough for both to be quite successful, Apple should be alright with their more authoritarian product approach, provided Jobs doesn't push the envelope too far (like he did in the 1980's with the Mac).


What a difference a decade makes, huh?

Remember in 2002 when Apple was trading in the low teens, not far above the cash on its books?  This was before iTunes was released, and long before the iPod, iPhone, and iPad.

The Mac looked like it was dead in the water - permanently confined to the artistic class.

And Microsoft was Master of the Tech Universe!  Charging $299 a pop for their shoddy Windows OS - sure it was highway robbery, but what choice did consumers have?
And so we see in hindsight, once again, nothing fails like success - especially monopolies.  Microsoft continued to make its OS worse, its software worse - the more developers they tossed at a project, the crappier it'd turn out.
But, argued Microsoft bulls, at the end of the day, they still had a monopoly.
Perhaps they did - on 1990's/2000's computing technology, that is!  But a funny thing happened on the way to monopolistic heaven - and that, my friend, was the Cloud.
To the cloud!

Yes, the magical Cloud that Microsoft ads now boast about - you know, the ones that don't ACTUALLY feature any software in the cloud - is the same cloud that's leaving Microsoft in the dust.
Make no mistake about it, Microsoft is a complete disaster.  They have not been able to develop good software in many years.  They've continued to throw more and more developers at their products, which paradoxically is the WORST thing you can do when it comes to software development.
Because, building software is not like building a bridge, where more manpower can actually help.  With software, too many cooks in the kitchen can quickly lead to diminishing returns, and more likely, negative returns, for every extra coder you toss in the pot.
The cloud's emergence is hurting Microsoft in two big ways:

  1. It's making the desktop operating system obsolete - not good if you happen to have a monopoly on desktop OS's
  2. It's making software really easy to develop (and distribute, too)
Let me give you an example  near and dear to my heart - my software startup, Chrometa, built a very slick time management desktop/cloud combo app (if I do say so myself) with four guys.  Count 'em: 1,2,3,4!

This is the future of software - get a few talented developers, and build a web app that solves a very specific problem.  Then, make sure you have an open API, so that your app can talk and exchange data seamlessly with other apps - which are likely built by other small dev teams.

GONE are the days when you need to throw hundreds of developers at a project - it's now counterproductive!  It'd take Microsoft years to get our product past the drawing board alone.

They are just not well adapted for software development in the year 2011 and beyond, in my opinion.  You don't need complicated specs and a huge dev team - you need one really good developer, and a market ready to validate what you built.  Then you iterate on feedback - which you can do quickly, because development on the web can move very fast.

By the time Microsoft has finished their initial specs, you've been able to iterate tens or hundreds of times on your app.  Ballgame over - the small dev team wins!

So while Microsoft's stock may look cheap, it probably SHOULD be cheap.

It all went downhill when Bill Gates - the product guy - left the company, and started turning his focus towards saving Africa.  Not that there's anything wrong with that...unless you're a Microsoft shareholder.

After all - would you feel good about investing in a software company run by a socially awkward bean counter?

'Nuff said on MSFT.


Like Microsoft, Intel looks dirt cheap to value investors.  But it's cheap because it too has fallen behind the times - namely putting their vaunted silicon in the latest and greatest computing devices, tablets and mobile phones.

But unlike Microsoft, I think a punt on INTC may be an interesting speculation, as, based on history, they've got a decent shot at figuring this next act out.
Intel is making two bets going forward.  First off, they want to be the "backbone" of the cloud.  Intel wants (and needs) the cloud to run on Intel processors.  So far so good on that front - most of Google's servers to run on Intel's chips, for example.

This is why Intel purchased McAfee - it wasn't for their crappy desktop antivirus software, but instead for the enterprise security inroads that McAfee has.

Security is a big issue in cloud computing - with everything now "out there", people want to make sure some evil hacker can't easily access their stuff.

Intel, in their purchase of McAfee, made a reasonably intelligent speculation that security in the cloud will remain an important issue going forward.

But providing processors for cloud servers has not been enough to keep Wall Street bullish on INTC - not with the PC market going "bye-bye" at a slow but steady clip.  Intel inside?  Not on tablets and smartphones.
At least not yet.  Intel management admits they were caught flat footed here.  But Intel is USUALLY caught flat footed on new stuff.

Instead, Intel's expertise is in execution - building chips that are better, faster, and cheaper than the competition's.  Intel watches how you do something - then they do it better than you, and take your lunch money in the process.

They don't have a tablet chip presence - not yet.  But they did just announce a new tablet division last week, and they've got all the smart people internally flocking there.

So, while Wall Street yawns at Intel's past record quarter - and rightfully so, as the future is cloudy for INTC - it's reasonable to think that Intel may very well get this tablet thing figured out.
If they do, current investors could be handsomely rewarded, given Intel's pretty cheap valuation.

Summing It Up

Intel and Facebook both look like they could be good speculations at current valuations - though if/when Facebook eventually IPO's, it's likely the stock will be more fully valued than it is today.  Out of the five tech companies we previewed, these two appear most likely to surprise to the upside, given their current valuations.

Microsoft is toast - don't go there!  They are a software company that can no longer develop software in the year 2011.  Their existing businesses (enterprise, servers, and even PC operating systems and software) will spin off cash for some time - but beyond that, I"m not optimistic.

And the Big Two in tech - Apple and Google - appear to be valued roughly right.  The future looks good, but everyone knows this.  At least that's how it looks on the back of my non-digital envelope!

This article was originally published on our sister site,  

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Saturday, January 15, 2011

Marc Faber's 2011 Outlook for Barron's Roundtable

Marc Faber delivered an OUTSTANDING libertarian friendly rant for Barron's 2011 Roundtable.  The moderator, and his fellow panelists, were utterly terrified to ask his opinion on, well, just about anything.

Until Faber weighed in with his usual excellent insights, I found the rest of the panel to be nauseatingly boring and far too friendly to The Establishment.  Most of these guys - like Bill Gross for example - have too much as stake in the preservation of that status quo to state what should be said.  While smart guys, they toe the party line far too much for my liking.

Faber, though, lets it rip here.  He seems to be one of the rare financial gurus with a knowledge of history pre-WWII.  His reference to 19th century prosperous deflation in America is excellent, and one you don't hear enough.

For your enjoyment, here's Faber's take.  If you want to read the full piece, and the link below does not take you to the full article, try typing "Attention, Stockpickers" into Google - that should take you to the full piece, without requiring a user name or password.  Enjoy!


Source: Barron's 2011 Roundtable

Marc, you have been very quiet. What are you worrying about?

Faber: Have you got an hour? You are all wrong. You say you would do this or that if you were policymakers, but nobody says "I wouldn't do a thing. I would let the market correct itself." The crisis in the U.S. happened largely because of government intervention that began 25 years ago. The government continuously implemented policies to boost consumption, when everyone should know that an economy will grow in a sustainable way through the implementation of policies that foster capital formation—that is, spending on infrastructure, R&D, education and the acquisition of plant and equipment. By fostering more baseball games, more TV shows, more talk shows, you aren't going to create a vibrant, growing economy.

The government didn't create more baseball games.

Faber: But it created policies to borrow more money. Through artificially low interest rates, it created a huge credit bubble, which led to a bubble in consumption, a symptom of which was the growth in the trade and current-account deficit from $150 billion in 1997 to more than $800 billion in 2006. Now it is around $600 billion, but if these policies continue it will remain at this level or grow.

So you're really saying it's the Fed's fault.

Faber: What I am saying is that Archie lives in a dream world. I admire you all but you are all dreamers. The Federal Reserve was founded in 1913. Before that, throughout the 19th century, the U.S. had strong per capita income growth in a deflationary environment.

It also had huge financial panics.

Faber: That refreshes the system. Worldwide, we have two economies. Rich people and resource producers are doing incredibly well. The ordinary people aren't doing all that well. In 1970 the U.S. controlled 28% of world manufacturing output and China had 4%. In 1990 the U.S. still had 22%, but Japan had come up in the ranks and China still had only 4%. Now the U.S. says it has 20%, and China, by its own account, has 19%. In the U.S., not much happened in the past 20 years. But in China, India, Vietnam, Russia and Brazil you can see huge progress. That said, I agree with Archie that U.S. stocks might outperform other stock markets—once in a century.

MacAllaster: At my four-score-plus, I don't have to wait too much longer.

Faber: History has shown that giant countries on the way down are very dangerous because they are desperate. But this year the U.S. has stabilized and is going to grow modestly.

One more thing: Janet Yellen, vice chair of the Federal Reserve, said about a year ago that if it were possible to push interest rates into negative territory, she would vote for that. This is a very important statement because it implies that the Fed will keep real interest rates negative as far as the eye can see. Negative real rates amount to expropriation and destroy one function of money: to be a store of value and a unit of account. If you measure the stock market not in dollars but gold, it is down 80% since 1999. I no longer regard the U.S. dollar as a valid unit of account. People shouldn't value their wealth in dollars because one day, in dollars, everyone will be a billionaire.

Gross: I agree with Marc on many things, though not everything. I don't know if the U.S. has reached a desperate point, but it is employing instruments and vehicles and policies that smack of desperation. We are not looking at a default here, but at years of accelerating inflation, which basically robs investors and labor of their real wages and earnings. We are looking at a currency that almost certainly will depreciate relative to other, stronger currencies in developing countries that have lower levels of debt and higher growth potential. And, on the short end of the yield curve, we are looking at creditors receiving negative real interest rates for a long, long time. That, in effect, is a default. Ultimately creditors and investors are at the behest of a central bank and policymakers that will rob them of their money.

Faber: It is much easier for a government to print money and default in the way Bill just explained than to come out and say "we aren't going to pay half our debts." Also, one of the big debates these days is between the deflationists and the inflationists. The deflationists claim the Dow will drop to 1,000 or less and the economy will contract sharply, and therefore you should be in government bonds, not commodities, equities or real estate. But if China and India continue to grow and car makers do better, as Mario said, commodities will do OK.

In a deflationary environment, tax revenues go down and fiscal policy remains expansionary. Deficits stay high, and even increase. Interest rates on government debt go up, and the quality of that debt declines. In a disaster scenario, I would rather own equities than government bonds. Since I am ultra-bearish, my preferred assets are equities and hard assets: real estate, commodities, precious metals and collectibles.


Marc, much as we dread to hear it, what are you thinking?

Faber: When you have short-term rates at zero, it is difficult to value anything. The market could be a lot more volatile in the next five years than has been suggested here. I expect to see the market move up and down at least 20% this year, as it did in 2010. The S&P was at 1219 on April 23. It dropped to 1010, and now we're at 1270. Daily trading hasn't been volatile lately, but there has been a lot of volatility in individual stocks.

The Dhaka Stock Exchange in Bangladesh dropped by 16% in two days. They closed it down and now they have riots. I guarantee you that emerging economies aren't going to tighten. Everywhere in the world, once markets drop by 10% or 15%, QE3, QE4 and QE5 will come.

Gross: How can you compare Bangladesh to tightening in Brazil or China or India?

Faber: The central bankers of the world are hostage to asset markets. They will not let asset markets drop significantly. They would rather let their currencies go. Worldwide, they will print money. In such an environment, I look to corporate bonds, equities, global real estate and precious metals and commodities. I don't want to be in cash and government bonds in the long run.

But where will the market go this year?

Faber: The U.S. market has almost doubled since March 6, 2009. Some emerging markets have gone up much more than that. A correction is overdue. Then we'll have the second leg of the bull market. In the third year of the presidential cycle, you want to be in the most speculative stocks. As we approach the 2012 election, the Fed is going to print like hell. I am bearish about everything, but in my bearishness I'll be better off in stocks than government bonds.

So you're bearish, but you're not.

Faber: I'm very bearish about the ultimate outcome.

Source: Barron's 2011 Roundtable

Hat tip JL for the text heads up on Faber's outstanding rants!

Thursday, January 13, 2011

Silver Predictions 2011: Big Reasons for Big Price Increases

The Silver Sleuth
By Jeff Clark, Senior Editor, BIG GOLD
We once had an ongoing series in BIG GOLD called, "1001 Reasons to Own Gold." The idea was that there were so many valid reasons to own the metal that I wanted to track and report on them. If you've been invested in the precious metals arena, you know there have been a myriad of bullish indicators for silver this year as well.
Here's a couple new reasons to own silver that a lot of mainstream investors probably aren't aware of…
Due to increased demand from industry and investors, silver exports from China are expected to drop about 40% this year. And that's actually an improvement; customs data show exports plunged almost 60% through the first eight months. China exported about 3,500 metric tons of silver in 2009, but has exported only 970 tons through August of this year.
What a lot of Westerners don't know is that China ended export "rebates" two years ago to stem the shipment of natural resources leaving the country. As a result of the regulation, silver exports decreased in 2009 but are nothing like what they're experiencing this year. In other words, the large drop in exports is a direct result of a huge increase in demand within China itself. According to one Chinese banker, the spike in demand is coming from all areas – jewelry, investment, and industrial. In his words, it's led to a "physical market shortage in the Far East."
How important is this? China is the world's third largest producer of silver (after Peru and Mexico), so the amount of silver coming to the global marketplace this year will drop by more than 74 million ounces. This represents roughly 8.3% of total annual global supply from 2009. If worldwide demand continues at its current pace, where is the extra metal going to come from? This alone tells us the price of silver will move higher.
The next item I sleuthed out was that the U.S. Mint is expected to release a new five-ounce silver bullion coin this year, the first ever. The coin will be three inches in diameter and have a composition of .999 fine silver.
I've read the five-ounce bullion coins will be near-exact replicas of the America the Beautifulquarters. There will reportedly be five different designs, and the mint plans to produce 100,000 of each. I can't wait to see them.
The coins will be classified as bullion, meaning they should be available to the same dealers already authorized by the mint. This will likely create excitement in the silver market, especially when you consider its affordability. At $23 silver, the five-ounce bullion coin will cost $115, plus premium. One ounce of gold runs $1,340 as I write, while five ounces will cost you $6,700 plus commission.
Perhaps most bullish is the fact that silver is vastly underpriced when compared to gold. Look at it this way: gold is currently priced 57% above its 1980 nominal high of $850; silver would have tomore than double to reach its 1980 nominal high of $48.70. And that's excluding any inflation-adjusted calculation. Yes, silver's spike was partly a direct result of hoarding by the Hunt Brothers, but my question to the skeptics is this: what's keeping us from seeing similar stockpiling today? What if there are several Hunt Brothers out there?
It's true that central banks don't buy and store physical silver, so one source of demand that's common for gold isn't present for silver. But let's keep things in perspective: demand for all forms of silver is rising, and we see no reason the trend won't continue. And with indicators like decreasing supply from China and increased attention from a new bullion coin, I say the big picture on the silver price is extremely bullish.
This silver sleuth says, buy some silver on the next dip. There's lots of reasons you won't regret it.
[Ed Steer, editor of the free Gold & Silver Daily newsletter and longtime GATA member, believesthat silver will go to the moon, and soon. Read his explanation why that’s the case and how you can profit from this enormous upswing. Details here.]

Tuesday, January 11, 2011

Price Outlook and Forecast for Gold and Silver in 2011

How High Will Gold Go In 2011?

By Jeff Clark, BIG GOLD

After stellar years for both gold and silver, what prices will precious metals hit in 2011? Here's an analysis based strictly on their price behavior in the current bull market.

First, take a look at the annual percentage gains that gold has registered since 2001 (based on London PM Fix closings):

Excluding 2001, the average gain is 20.4%. Tossing out the additional weak years of '04 and '08, the average advance is 24.8%.

So we can make some projections based on what it's done over the past 10 years. From the 12-31-10 closing price of $1,421.60, if gold matched…

  • The average rise this decade, the price would hit $1,711.60
  • The average rise excluding the three weak years = $1,774.15
  • Last year's gain = $1,858.03
  • The largest advance to date (2007) = $1,875.09

But what if global economic circumstances continue to deteriorate? What if worldwide price inflation kicks in? And what if government efforts at currency debasement get more abusive? If Doug Casey is right, a mania in all things gold lies ahead – what if that begins in 2011? Here's what price levels could be reached based on the following percentage gains.

  • 35% = $1,919.16
  • 40% = $1,990.24
  • 45% = $2,061.32
  • 50% = $2,132.40
  • 1979's gain of 125.7% = $3,208.55

It thus seems reasonable to expect gold to surpass $1,800 this year, as well as reach a potentially higher level since the factors pushing on the price could become more pronounced.

Here's a look at silver.

As you can see, silver had its biggest advance in 2010. The average of the decade, again excluding 2001, was 27.5%. And also tossing out the '08 decline, the average gain is 34.3%. So, from the 12-31-10 closing price of $30.91, if silver matched...

  • The average rise this decade, the price would hit $39.41
  • The average gain excluding 2008 = $41.51
  • Last year's advance = $56.22
  • The 1979 gain of 267.5% = $113.59

So, $50 silver seems perfectly attainable this year. And that's without monetary conditions worsening.

It's titillating to ponder these advances for gold and silver, especially when you consider we might be getting close to the mania. And if we are, that should do wonderful things to our gold and silver stocks, too.

I would add one caution: the odds are high that there will be a significant correction before gold begins its march to these price levels. In every year but two ('02 and '06), gold fell below its prior-year close before heading higher. And here's something to watch for: in every year but one ('08), those lows occurred by May.

In other words, a buying opportunity may be dead ahead. And if you buy on the next correction, your gains on the year could be higher than the annual advance.


Are you satisfied with the amount of bullion you own if monetary and fiscal circumstances deteriorate? Are you prepared to profit from the mania in precious metals that Doug Casey projects is ahead? If not, start the year right with a risk-free trial to BIG GOLD, where we list the safest dealers to buy physical metal and the best stocks to profit from the ongoing bull market. Check it out here.

Monday, January 10, 2011

Jim Rogers' Two Favorite Commodities to Buy Right Now

Jim Rogers may like gold - but he LOVES silver.
“I would rather own silver than gold," Rogers tells India's ET Now

“Silver is still 40 percent below its all-time high. So silver has not been any sort of great bubble compared to perhaps some other assets we know." (Source:
And Jim, an agricultural bull since he opened his commodity fund in 1998, picks rice as his favorite grain:
“Likewise for the rice, if rice goes down, I will buy more rice. So both the silver and rice have a great future for the next few years,” Rogers says.
Incidentally there was an article in today's Wall Street Journal that reported farmers are reducing acreage for rice by as much as 30%, in favor of higher priced cotton and soybeans:
A shift in planting likely will come in the spring when farmers sow their fields in Arkansas and Louisiana, analysts said. They are projecting as much as a 30% cut in acreage devoted to long-grain rice. Growers will turn to soybeans, cotton or other crops after becoming frustrated with rice prices, which have lagged behind other agricultural commodities.

In 2010, U.S. rice futures fell nearly 4%, in contrast to soybean futures that climbed 34% and cotton futures that rose 91%. Driving the price gains were concerns that production wouldn't keep pace with demand, particularly as China's appetite for imports surged.
With corn, soybeans, cotton, and rice often competing for the same land, the sharp speculator can often do quite well buying the laggard(s) - which, in this case, is rice.

Precisely because farmers usually neglect the crop with the lagging price, and instead plant the crops that have already rallied.  Which reduces the supply of said grain.
rough rice 5 year price chart
Rough rice is still well off its 2008 highs - with potential acreage reductions on tap, we could see a breakout soon. (Source:
This is exactly the reason we we'd been salivating over the potential for cotton for so long - it was a matter of when prices would rocket, not if.  And rocket they did!
cotton price chart outlook 2011
When cotton broke out - largely thanks to supply constraints - it really did a moonshot!

The playbook was analogous with King Cotton - soybeans and corn had been rallying for years, while cotton's price languished.  So farmers who had traditionally planted cotton increasingly got eyes for the sexier returns its ag cousins could bring instead.  Supply fell - and soon after, prices rocketed.

So if you're looking to invest like Jim Rogers - and get some exposure to the grains - it looks like rice is the most reasonably priced starch for your plate today.

Hat tip Daily Crux for the original link.

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