- the ongoing economic problems faced by many of the developing countries, and signs of a slowdown in Chinese GDP growth;
- escalating plant construction and operating costs; and,
- escalating country risk issues that are becoming ever more transparent.
While these things ought not to be discounted at the broad resources companies level, consider what may prove to be the ‘flip side’ of that negativity, which at a macro level arguably is aimed largely at base metals producers:
- the price of physical gold broadly is believed to be sensitive to global economic risk;
- not all gold exploration, development and producing companies are created equal from the point of view of their comparative attributes, only four of which are:
- ‘quality of management’,
- balance sheet strength,
- ability to obtain financing if necessary, with reasonably balanced resultant share dilutions) in what is clearly a down financial market, or
- project location in the context of political and societal stability and related risk; and,
- if the world economy sours further from here in a manner that:
- negatively affects the supply of physical gold over time, while
- positively affects the demand for physical gold
the ‘best of breed’ gold explorers, developers and producers may well reward their respective shareholders in what may prove to be ‘bad economic times’, particularly where those shareholders exhibit patience and hold their positions as investments, and not as trades – where a good investment result likely would be longer than shorter term in nature.
That said, carefully consider the view expressed in the previous paragraph in the following contexts:
- first, as a general observation, commentators and ‘stock pundits’ often fail to reference overall financial markets conditions and directions when recommending specific companies and investments, as trades, or as both. Importantly, they often seem to make a general unstated assumption that the financial markets are not going to generally go up or down over time as in world and country specific economic conditions change. If you agree with this observation, consider its implications carefully, and carefully consider when making your investment and trading decisions what you think will be the likely near-term direction of the financial markets.
Remember that a commentator could be exactly right with respect to the underlying ‘positive attributes’ of a particular company, but those ‘correct thoughts’ could well lead to investment or trading losses if the overall financial markets drop in the near term following a specific company recommendation; and,
- second, if you are an investor consider carefully:
- that in the end, the financial markets largely are driven by world and country-specific economic prospects, and
- a very large component of the current financial market activity is driven by algorithmic trading.
Accordingly, if you are an investor and make ‘investments’ in today’s financial markets environment, be prepared to accept what might be serious ups and downs in the price of a given security through your ‘hold period’.
Consider also that:
- contrary to the opinions of some, not every human financial advisor is completely self-interested, heartless, and uncaring of his/her clients; but,
- computers run programmatically on ‘logic boards embedded with mechanical computer chips’. No computer has a heart.
Topical Reference:
Little left to stoke mining stocks, from
The Globe and Mail, Kevin Allison, July 16, 2012 – reading time 2 minutes; and
Gold mines face radical downsizing, from
Miningmx, David McKay, July 16, 2012 – reading time 3 minutes.
Snippets From Today’s Commentaries
Snippet #1: As a general observation, commentators and ‘stock pundits’ often fail to reference overall financial markets conditions and directions when recommending specific companies as investments, as trades, or as both. Importantly they often seem to make a general unstated assumption that the financial markets are not going to generally go up or down over time with changes in world and country specific economic conditions.
Snippet #2: Remember that a commentator could be exactly right with respect to the underlying ‘positive attributes’ of a particular company, but those ‘correct thoughts’ could well lead to investment or trading losses if the overall financial markets drop in the near term following a specific company recommendation.
Snippet #3: Consider also that contrary to the opinions of some, not every human financial advisor is completely self-interested, heartless, and uncaring of his/her clients, but that computers run programmatically on ‘logic boards embedded with mechanical computer chips’ where, no computer has a ‘heart’.
Snippet #4: Think hard about Roubini’s views, and don’t discount them either because you think he is repetitive, or because you don’t want to hear them. Consider he has a lot to lose personally by being wrong when forecasting what governments, central banks, and people at large likely do not want to hear.
Snippet #5: Also think hard about what Roubini says because, if you missed picking up on his prediction for 2008 – which might have proven worthwhile to you at the time, consider the odds of him being right a second time. While doing that, recall the old saying ‘fool me once shame on you, fool me twice shame on me’.
Snippet #6: This (U.S.) drought and resultant consequences as they unfold are things to focus on and watch closely in the days and months to come.
Brief Commentaries prompted by world headlines
World >> General: Nouriel Roubini – a reputation to polish and cherish!
Consider carefully that:
- liking someone, or liking what they say, often is a very different thing from ‘respecting someone and listening hard to what they say;
- it takes very hard work for an individual to gain a ‘big’ reputation;
- once gained, those with ‘big reputations’ invariably cherish them and want to hold on to them; and importantly; and,
- reputations typically take time to nurture, and can be lost in an instant through bad advice, bad behavior, one thoughtless comment made out of context, or for any number of other reasons.
Nouriel Roubini, who famously predicted the 2008 financial crisis, has now said, or gone most of the way to saying, that 2013 was the year things may converge and result in a ‘derailment of the global economy’. Roubini’s views have been again referenced in at least one article this morning
Think hard about Roubini’s views, and don’t discount them either because you think he is repetitive, or because you don’t want to hear them. Consider he has a lot to lose personally by being wrong when forecasting what governments, central banks, and people at large likely do not want to hear.
Also think hard about what Roubini says because, if you missed picking up on his prediction for 2008 – which might have proven worthwhile to you at the time, consider the odds of him being right a second time. While doing that, recall the old saying ‘fool me once shame on you, fool me twice shame on me’.
Topical Reference:
Nouriel Roubini sticks to ‘perfect storm’ in 2013 prediction, from
The Telegraph, Angela Monaghan, July 18, 2012 – reading time 1 minute.
North America >> United States: U.S. drought – likely far-reaching consequences!
Everyone is inundated daily by mainstream media reports of drought in across much of America, the resultant major forest fires, and that drought conditions will very significantly impact America’s 2012 food crops and beef prices (since it is becoming increasingly difficult to feed cattle, and they are being slaughtered early). Not to dwell on this, but consider this from 20,000 feet:
- America is struggling economically. At a macro level it does not need this drought and resultant what will be increasing consumer food prices. This will cause further economic strain on America’s consumers, and further thwart U.S. economic growth and recovery;
- societies in other countries, dependent on American grain and other foodstuffs production will be likewise harmed on price. Worst case, this may contribute to potential exacerbated societal disruption; and,
- overall, this drought could hardly be happening at a worse time from a world economy point of view.
This drought and resultant consequences as they unfold are things to focus on and watch closely in the days and months to come.
Topical Reference:
America’s worst drought since ’56 threatens world food supply, from
The Financial Post, from Reuters, Andrew Stern, July 17, 2012 – reading time 3 minutes.
