Vancouver Investment Advisor Ritch Wigham

The Other Shoe Has Dropped for Potash!

Demand has finally resumed…

Take a look at this article on the Globe and Mail on Potash Corp raising its outlook…

Mackie Research Capital Corporation (MRCC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-RCC website please understand that it is independent from MRCC and that MRCC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by MRCC.

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital Corporation (”RCC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor RCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member CIPF.

China sinks $1-billion into venture with B.C. miner

The significant result of this investment by China is the continued demand for a product that they need!! Apparently they are concerned about maintaining their inventories beyond end use purchases.

See this article from the Globe and Mail to see what I mean.

Ritch Wigham
Mackie Research Capital

http://ritchwigham.com/

PH.(604)-662-1853
T.F. 866-662-1853

Mackie Research Capital Corporation (MRCC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-RCC website please understand that it is independent from MRCC and that MRCC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by MRCC.

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital Corporation (“RCC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor RCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member CIPF.

This sums up nicely the current problems in the U.S. crops

See this post on The Pig Site about the current grain market situation in the U.S:

Research Capital Corporation (RCC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-RCC website please understand that it is independent from RCC and that RCC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by RCC.

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Research Capital Corporation (”RCC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor RCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to RCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member CIPF.

The Great Inflation!!

By Ritch Wigham

In the last piece I wrote on the gold bear argument I used the term “The Great Inflation”.” What the heck does that mean”, I was asked by a friend.

Let me try and explain:

Back in the old days of the late 1970′s and early 1980′s interest rates were taken into the stratosphere and reached into the high teen’s and low twenties for borrowers in North America and Europe. It wasn’t pleasant. They reached these levels because the world was caught in a spiral of ever increasing costs directly related to ever increasing wage pressures. If it costs me more to feed my family, you must pay me more and therefore it costs more now to produce the product that my company sells. This nasty circle created a time when everyone went on strike for a “fair” living wage. It is when “cost of living” clauses were introduced into almost everything. Consequently,” The Great Inflation” became the economy’s greatest test.

In Canada wage and price controls were tried for a period but ultimately it was the use of interest rates to sky-rocket that was the mechanism that brought inflation back into check. This of course shut down the economy and a recession ensued that can be argued lasted until the great expansion of the nineties. Productivity was crushed and inflation finally receded.

See the following report. (opens a .pdf)

If you look at the charts from the link above you will see a very close correlation from 1980 onward between the CPI (consumer price index) and the bond rates in the U.S. The interest rates were how the Federal Reserve and the Bank of Canada here in Canada were able to finally get inflation in check. At different times the economy suffered but it was realized (or at least believed) that short term interest pain was much better than longer term price pressures that were more economically deleterious. So the balance between price and interest rates has dictated what has happened since roughly 1980. So far that balancing act has been relatively successful with the central banks world wide collectively patting them selves on the back for their collective interest rate policy.

Gold and the present

Sooooo, this is why the gold bugs are saying that gold prices are going to the MOON. The theory is that the central banks will no longer be able to control inflation through monetary policy (interest rates) without throwing the entire world into a deflationary recession. Raise interest rates, stop the economy or allow rates to stay low and allow inflation to rear its ugly head and recreate the wage/price/production cycle of the 80′s but on steroids. What has been left out of all of this is the effect that these rates have on the currency markets.

Normally low rates happen when your currency is strong and getting stronger. Everybody else is “buying” your currency and consequently rates on your financial instruments decline. Hence lower rates. But if inflation is causing your currency to “cheapen” or decline, so you have to raise interest rates to support your currency and make yourself more attractive to foreign investors. i.e. Give them a better rate of return on your financial instruments (T-bills, Bonds, Corporate paper)

Well the problem has been that we have effectively no interest rates on anybody’s financial instruments and the currencies of the world (in general) have been appreciating against the U.S. dollar anyway. So the price of gold has gone up, and so have most other commodities relative to the U.S. unit since most world commodities are priced in U.S. dollars. The problem that the gold bugs have is that inflation may seem to be happening in the U.S. but it is not happening in everybody else’s terms.

The really big question is how long this balancing act can continue were the currency market in effect is enough of a proxy to keep inflation in check.

The simple answer is as long as money continues to plow into the American bond market. There is effectively no return on this money at this time, and as I have said before, coverage on U.S. bond auctions has been stunning. This means that if you are buying these bonds it must be that you think your “safe” return will be made up from an appreciating U.S. currency. And if you believe this than the appreciation in gold will come from tightness of supply and not inflation on the near term. This last week saw gold go back under $1000/ounce the stock market slightly decline, and the U.S. dollar to appreciate against most currencies. Sooooo,”Where is the GREAT INFLATION”?

Talk to you soon,

Ritch

Mackie Research Capital Corporation (MRC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-MRC website please understand that it is independent from MRC and that MRC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by MRC.

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital (”MRC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor MRC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member CIPF.

The Gold Bull/Bear Argument

From the desk of Ritch Wigham..

First of all, EVERYONE HAS AN OPINION. I will quickly try and give a reasoned response to a subject that can start fist fights and insults to your mother.

The first thing to remember is that gold is a commodity. So ultimately supply and demand is the first factor that you need to deal with. As we all know from being informed over and over again is that something like 80-90% of all the gold ever mined is still potentially in circulation somewhere. Either in central bank depositories or held privately by individuals for what ever reasons they may individually have. So the question is:

Is there enough gold in current supply?

I don’t believe there is. The pace of replacement coming from the ground like all other commodities is in decline. It has been in decline for some time(a number of years). New discoveries like almost everything else from sulphide nickel to copper is not being discovered at a pace that would safely cover current off take from mining sources. The few discoveries that are being made are relatively small or have inherent difficulties in the processes needed to liberate the gold from the other elements that are there. For example, most of the Alaskan gold in large deposits has expensive processing or climate problems. Heap leaching as a source works in Nevada because it is hot and very dry; it doesn’t work as well in Alaska on lower grades because it is colder and much wetter. This is simplistic, but I am just trying to make an illustration. In essence new discoveries in safe political places are becoming more and more problematic. So if demand only keeps pace with current levels the price should by nature drift higher all on its own. So supply is a problem.

What about inflation?

What about it. There is none and there is not the prospect of any real inflationary pressure in the near term. Sorry “bugs”, but it just isn’t happening. The economies of the world can’t afford it. With the current decline in the flows of money that is not being lent and put into circulation, money supply is actually contracting, and not expanding, at the pace that would create inflationary pressure. This is of course contrary to what the loudest gold bugs would have you believe.

But does gold really need inflation to appreciate in price?

Here’s the kicker; “NO IT DOESN’T” It would take me quite some time to dig back into my archives for exactly where you can find this little know point, so please bear with me and accept this next statement. My understanding is that if you look historically at the price of gold it has always been more likely to appreciate in times of stress much more than during inflationary periods. That doesn’t mean just wars it means in times when one area is depreciating relative to another area. The GREAT WARS are an example of where gold had greater importance as a hedge against currency concerns if you where say French during 1940 or German after 1944. Weimar “inflation” was because of currency collapse in Germany not from price increase necessarily for goods and services. (No it is not the same thing).

We are actually in kind of a similar currency environment. The U.S. dollar isn’t collapsing as did the D-Mark, but it is drifting inexorably lower relative to just about every where else. As a currency hedge there has yet to be a better vehicle than gold to compare your currency to that which gold trades in. Namely the U.S. dollar. Even if there is some mechanism to create some other reserve currency you still have to compare,” your stuff against some one else’s stuff”. As long as that is the case(there has to be a yardstick to measure against) and consequently gold will hold that elite position.

In the time I have been in this business gold has been very high and then it has been very low. It is in assent ion again as we go forward in this new financially challenged world. Gold has always been my friend when I didn’t like the U.S. dollar. It has never been my friend when I thought it would go up for some other reason beside either supply and demand or a hedge against the policies in Washington. Or the mess the Americans have managed to inflict on the world this time around. If you were long gold during the eighties you were pulling your hair out because it just didn’t co-operate, and go up with price increases(Inflation), same for the nineties.

Am I a gold bull or a bear? Well, that depends on what I think of the “GREENBACK” over the next short period. Longer term I am definitely a bull.. Short term I would be looking to solidify profits as the U.S. dollar has probably gone down enough against the Euro, as parts of Europe appear to be coming out of recession quicker than the U.S.

Either way it isn’t because I believe that THE GREAT INFLATION is upon us.

Yours,

Ritch

Mackie Research Capital Corporation (MRC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-MRC website please understand that it is independent from MRC and that MRC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by MRC.

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital (”MRC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor MRC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member CIPF.