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Financial news I consider important, with my opinion, which is worth as much as you paid for it.
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Wednesday, November 27, 2013

Christmas is early, Gold Miner Gift is here

  I got out of miners in September 2011, waiting for what I thought was a good time to re-enter, I was mistaken in July 2012.  I have had several mis-starts, each time with cutting losses before the next leg down.
It has gotten so ugly, that people who I know are very pro gold can't even think of buying into miners.

Is this time different? Lets go over the facts.
1) India citizens are paying about 20% higher on the black market for gold.  This is in reaction to India trying to cut off gold sales in India.   Basically pent up demand waiting to hit the world market.
2) China has kicked up buying gold in India's absence, otherwise gold would have fallen much farther...
3) CME has altered the rules on margin requirements for Gold this past Monday, lowering gold by 9% and Silver 11%.  Basically allowing higher leverage to buy these materials.  A nod and a wink from central authority OK to go into these sectors with more leverage.
4) Buying gold shot up today (lifting this from Gary's blog, click here to purchase, best there is)
$123 million in the ETN for gold GLD, yesterday it wasn't even in the top 100.

Not a fact, but I consider it one. :)
My thesis still stands, 2.5 Billion people (China/India) are getting wealthier by the day. Both cultures purchase gold, this will drive gold higher.  Anything to do with gold and financial stability concerns is just extra value for gold/silver.

So I pulled out the stops and started buying again last two days.  Today just solidified the gut feeling I had with the buying on weakness report above.

If  you wish to invest in this sector, consult a professional, see my disclaimer, I am a hack.
There are easy ways to buy.  The top two ETF's are GDX and GDXJ.  GDX is a mix of gold miners, with GDXJ a mix of silver and gold miners.  
If you wish, but I don't do this myself, GLD is for gold and SLV for silver.  I prefer to buy companies not price of gold, but it is valid if you wish.

See chart at bottom for GDX, how we got here.  GDX is $21.66, GDXJ is 31.50, GLD 119.82, SLV 19.13

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I do NOT advise doing the next thing I am going to explain. I took some capital for high risk 'investing'.  Its really legalized betting when you take away the spin.

Aside from buying GDX, gold miners ETF directly, you can buy stock options with a brokerage account.

I bought options that expire in January 2016, at strike price of $23.  GDX as of today is 21.66.  IF GDX is every higher than 23 dollars on January 2016 expiration day, all profits are kept.  if it is lower, i lose only what I paid for this option.   I paid $4 per share for this right.  So, to make money, need to be over $27 to make any money.
Example: if you buy 10 options (each option is 100 shares, for total of 1000 shares) for Jan 2016 strike $23 for $4 dollars, and the price of GDX is at 30, you will make $3,000.  If for some bizzarre reason GDX is at a new high, say $73, you will make $50,000.  If GDX is at $23 or lower, you lose the $4,000.

If at any time between now and then the option is worth more, say $5, you can sell and pocket the money.The option is a combination of the price of the stock and the strike price of the option ($23),  the time remaining (2 years vs 2 days, etc), and overall market volatility. (more volatile, more premium)
UPDATE EXAMPLE 11/29/2013, the option that I bought for 4 dollars is now $4.35, even though GDX rose to only 22.28 today.

If you buy the same option for Jan 2016 for $35, it costs about $1   So for the same $4,000, you could buy 40 options (4,000 share rights).  With the price so far away, its prudent to follow the stock and sell if/or you are up quite a bit before the option expires.

There is an entire science around options, and tons of strategies.   Buying straight up like I did is considered by the pro's a novice move.  But I did want to document for you ways to LIMIT your risk, capital while maintaining the possible gains.    Options of course can only be done in a trading account.

To the charts!


Sunday, November 24, 2013

Gold miners, how low can you go?

Gold miners have gotten SMOKED, any attempt to buy has been rewarded by one heck of a slap!
But lets take a look at the Gold Miner ETF.  It sits now at 22.25,
The ultra-low of GDX back in the depths of 2008 crash was 16-17.

Gold miners can go lower, heck the ETF could go below 2008 crash, anything is possible.
BUT, with China loving gold, India paying 20% premium and smuggling gold in due to import restrictions, I think this may be a demand spike waiting to happen.

I really have a hard time saying buy, after trying to catch a falling knife several times already.
But me liking gold miners has been between 25 and 30 GDX, and here we sit at 22.50.
Really not THAT bad of a timing on my part (assuming we don't go lower).

I am putting myself in again tomorrow, about 1/2 my purchasing power left, leaving 1/2 for later.
Good luck

Thursday, November 21, 2013

Decentralizing and Centralizing the economy

I see so many aspects of the economy changing rapidly due to technology.   Between 3d printing, the maker movement, kickstarter, youtube video, bitcoin, and an ever increasing list.

These new business models are tearing away and the centralized business model and distributing it.
Today I ran across a coffee machine that promises to roast, grind, and make your coffee in one machine.
The idea being that once you have such a machine, coffee farmers can sell direct, revolutionizing the coffee farmer, and hopefully putting more in the end worker pocket.

This continues to be a theme, 'lose the middle guy'.   Its happening to media, and now its going down the chain.
Once all these changes settle, will be interesting to see the new landscape.

I am applying a new label to this post, economy3.0. Version 1.0 was pre industrial, 2.0 industrial, now we are moving into a more direct, social economy.

Sunday, November 3, 2013

Consolidation - Command and Control

The corporations created since the manufacturing era have been consolidating for last few decades.  A nifty graphic from Reddit shows how so many consumer products are attributed to a few corporations.

My reaction just a few years back would have been one of aversion, I am for decentralization generally speaking.   But in reflection, I think we are seeing a much broader change, one that is hard to grasp.

The millennial generation and beyond frankly, are not going to be as material as the baby boomers.  They need very specific things, and must have it, but don't need as much of broader items.  What we are seeing is, the end game for old business.

The new businesses some of them are here, many are technology based corporations.   Some are starting, such as the maker movement, and home-DYI.   Many of the manufacturing and food companies are going to face strong headwinds as the people attitudes change.

The complex manufactured foods are going to continue to decline, cheap plastic sold at high prices will go away as 3d printing comes to life.   I am starting to realize the same goes for Media Consolidation, something I have been very concerned over.  I don't watch ANY TV, and rarely any mainstream media.   My media is purely Internet alternatives, blogs, YouTube, etc.  Considering how old I am, pretty sure the younger people shun old media even more.  Newspaper? Magazine? Fox news? 

So I present to you this graphic, and link to article from Mish, and while it does smack of concern, put your thinking cap on.  How important will these companies be to the general economic and growth of the world in the next 40 years? Most I think are past their peak.  Many won't exist or be a small version of their former glory due to dropping demand.