Vancouver Investment Advisor Ritch Wigham

The European Confusion

I won’t use the acronym..

The European Union is experiencing it’s first real on-shore crisis. The Mediterranean countries plus Portugal have created what may become a devastating set of circumstances for the common currency that the union adopted some years back.

In a nut shell the debt to GDP (gross domestic product) ratio that is used as a bellwether or gauge of a sovereign countries ability to re-pay its debt has been extended past that particular countries ability to re-pay that debt.

Greece is the first of these over-extended countries to come into crisis. The others are Italy, Portugal, Ireland and Spain. Pick your favourite for who comes after Greece. The problem with this Union is that Greece does not stand alone. Due to the common currency the other countries sharing that currency are forced to paddle in the same boat. So if Germany and France don’t come to some form of rescue it impacts them as well.

Originally (a few weeks ago) it was thought that the rest of Europe would come to the rescue of Greece and we would all move forward. A small bump in the road toward a better and stronger European Union. That has turned out to be “not” the case. The IMF (International Monetary Fund) had to be called in because as it turned out Greece was not the only problem for the stronger countries. It has turned out that due to “incestuous” cross borrowing contamination between the worst offenders that the intertwined borrowing of these countries has made it one larger pot of trouble. Greece owes Spain money but Spain also owes Greece money and they all owe each other money that none may be able to pay back. This creates a large problem because it is almost like one great big sovereign debt that has actually no ability to pay itself off. The fear then becomes how do you stop the domino effect of a series of countries, all with the same common currency paying off this debt?

At the moment the bond market is trying to distinguish between the debts of these laggards by penalizing with interest rates the debt of one country verses the other. I.e. Greece v. Germany. The problem with this is eventually how do you distinguish between the players if the common currency has to be devalued while some parts of Europe are solvent and others aren’t?

It is a certainty that at some point (especially if they feel like they are standing alone) France and Germany will not pay the debt of their profligate partners in this fragile union.

That is what the world is afraid of. What happens if the E.U. breaks down?

What happens is that some parts of Europe become insolvent and others regain their old currencies and move forward. The prospects of this are untold. I don’t believe any one can accurately measure what the ramifications of this will be. I can tell you that the whole world will pay and pay dearly. After the melt down of the last two years I don’t believe that the leading countries will let this happen. The pain of the recent past was too severe to have been forgotten this soon. What ever gains we have made to leave the “Recession” behind will not be jeopardized by what are the relatively minor problems of a relatively small country such as Greece. If the problems spread to the other countries in this group a series of events that can not be controlled, may be unleashed, and those effects would be even worse.

The way the world would have dealt with this if Greece had not been a part of the E.U. is it would have been to crush their currency, and impose severe borrowing penalties (interest rates) until Greece had at least started to fix their problems. Since Italy, Portugal, Spain and Ireland are also involved the only outcome is then for the common currency to be devalued and stiffer penalties being imposed on the borrowing costs of all of the countries collectively. This may not seem very palatable to Germany or France but they really do not have a great deal of choice in the matter unless they start the breakup of the E.U itself.

The conclusion then is that the Euro Dollar will decline and the pricing of commodities as we know it will change. Remember that the modest and as yet fragile recovery in the U.S. is largely based on a cheap U.S. dollar relative to the rest of the world. This is a fact that should not be lost on us hear in Canada as this is exactly the mechanism that we used when we allowed our dollar to trade down to the $.60 cent level to stimulate our economy in the 1990′s and early 2000′s

So if I was in Europe, what I would do is buy gold and essentially convert my holdings to U.S. dollars and understand that the U.S. period will do whatever it can to keep their currency relatively week while helping Europe through the IMF to keep their Union together and thus keep the current fragile world recovery in tact.

Till’ next time

Ritch

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-MRCC 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 (”MRCC”). 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 MRCC 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.

Peak Gold: Fact or Fiction?

Supply concerns regarding gold are only now being realized by the market.

As I have written in the past, these concerns may ultimately over-ride currency related trade!

See this article on peak gold by the Globe and Mail.

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 (”MRCC”). 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 MRCC 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.

Junior Mining Firms left out of sector rebound

With my new found bullishness for gold going forward, The premise behind this article should allow for the acquisition of comparatively “cheap” junior miners with good advanced projects!! I have a couple in mind!

See what I mean here.

Ritch Wigham
Mackie Research Capital
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.

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.