Month: February 2016

Insiders

One of the best ways to make money in the junior resource market is to follow the moves (buying and selling) made by those that have inside interest in the company that you want to buy or sell. Typically, when someone speaks of insider trading, people immediately think of it in a negative light – but it doesn’t have to be. The Canadian Securities Administrators (CSA), or Securities and Exchange Commission (SEC) in the United States, have criteria in which people who are deemed insiders can purchase or sell their own stock without the threat of reprisal.

By definition, an insider is:

“Director or senior officer of a company, as well as any person or entity that beneficially owns more than 10% of a company’s voting shares. For purposes of insider trading, the definition is expanded to include anyone who trades a company’s shares based on material non-public knowledge.”
~http://www.investopedia.com/terms/i/insider.asp (Feb.22/2016)

Walking the Talk

I have personally used insider buying as a trigger to add to my positions. My most recent example of this is November of 2014, I doubled down on True Gold Mining (TGM), as Executive Chairman Mark O’Dea made a few fairly large buys while the stock took a big hit because of the political issues in Burkina Faso. Mr. O’Dea is highly respected within the mining industry and one of the main reasons I originally invested in TGM, so when he used the political turmoil to add to his position, I thought it was a no-brainer to follow suit. Now, I will admit, there is a lot of risk associated with Africa, especially when you are investing more money into an area that is clearly under duress, but this is when a speculator truly gets the chance to hit a home run. Over the course of 2015, the stock trended lower, but so did most of the junior mining sector. Over time, however, I believe that it will be one of my best speculations.

One thing that I haven’t done is used insider selling to trigger me to reduce or sell one of my positions. What I have done, and you should feel comfortable doing this, as well, is call the company and ask to speak to the insider that sold the shares – I ask them ‘why.’ You may be surprised how accessible some of these insiders are. I was.

Getting in the KNOW

How do you find out when insiders are buying and selling? Besides knowing someone that is in the “know” within the industry, I suggest opening a FREE online account with Canadianinsider.com. I believe you can track a maximum of 25 companies (for free), and they will email you when insider trading has occurred. Also, for a fee, you can purchase full insider buying reports for whichever company you like.

One other FREE service that appears to have the same potential benefit for tracking insider buying and selling can be found at chat.ceo.ca. More information to follow on this, as I have just registered for the application and have yet to use it. Also, I do have a pending interview with the application’s creator, Tommy Humphreys, on March 5th. I hope my conversation with him will shed more light on the application’s uses and how it can benefit us, the investors.

Until next time,

Brian

By Doug Casey

My Introduction to Doug Casey: A Turning Point

When I was introduced to Doug Casey, it was a major turning point in my life. In 2008, my brother-in-law raved about a company that wrote newsletters, called Casey Research. He spoke about the massive gains he had made through their stock picks and about the glut of information they provided on the global economy.

My curiosity was sparked; what was with this gold obsession and why do they think the market is so screwed up? I started with Conversations with Casey, a free publication that was sent directly to my inbox, each and every Wednesday. Doug would have conversations with Louis James (Casey Research’s International Speculator Editor) about a ton of different things, but typically topics that related to what was going on in the economy at that time.

Needless to say, I was hooked on Doug’s view of the world and excited by the success he’s enjoyed while putting his world view to work to make money. I couldn’t get enough of his writing, I bought all of his books; The International Man, Crisis Investing, Strategic Investing, etc,. and I became an avid reader of a couple of his monthly newsletters, mainly The Casey Report and The International Speculator.

Right on the Money, at a Glance

I forget when it changed, but Conversations with Casey no longer exists in its original form. It left the free Wednesday publication and moved to the monthly newsletter, The Casey Report, and from there, has mostly vanished. You can, however, check out all of the best conversations in Doug’s latest book, Right on the Money.

Doug has chosen to include the conversations pertaining to investing and what he’s best known for – speculation. The book is broken down into five parts: An Economy in Trouble, The Art of Investing, A Moral Minority, You and Me and the Other 8 Billion, and finally, Wrestling for Countries.

Each of these sections is very different in terms of their focus, however, they all tie together to present a particular view of the global economy, and most importantly, to shed light on what it is that you need to do to survive and prosper. An amazing thing Doug does is that he ties philosophy and psychology with investing and/or speculation. With a great deal of travelling and successful business deals under his belt, Doug’s real-world experience gives him a leg-up on the average Joe investor, as he has a much better understanding of how the global economy works, and especially, how it’s all tied together.

Speculation

Doug earned his fortune from the speculative investments he’s made over the course of his adult life. In fact, Doug credits the bulk of his fortune to three specific specualtions; “an accident (Diamond Fields), a scam (Bre-X) and a psychotic break (Nevsun)” (Casey, 72). Doug talks about each of these winning speculations in great detail in the book.

If you’re new to this, you might be asking yourself, ‘what is speculation, anyway?’

“A speculator is someone who allocates capital in order to profit from distortions in the market caused by government intervention” (Casey, 68).

Currently, we’re living in a time where there has been unprecedented government intervention in the global economy through money printing and extremely low interest rates. If you haven’t already, educate yourself on this subject and Doug’s comments will be that much more meaningful, not to mention actionable.

Actionable Advice

Purchasing gold is an absolute must. I could go into all of the reasons why, but I think you’re better off reading about it from someone like Doug, or start with Mike Maloney’s, A Guide to Investing in Gold and Silver. In both cases, the authors’ theses with regards to precious metals are very clear, and in my view, undisputable.

Purchasing the physical metal is most likely the best way to start, as it’s the easiest to understand. And, if you believe the metal price is going to go up, this is what you need to buy. That said, leverage to the gold price, or the ultimate in speculative gains, junior mining stocks give you the best bang for your buck. The caveat to this is that you NEED to understand the risk of what exactly you’re getting into. These are the most volatile stocks in the world, and succumbing to emotion or investing in a company that you know nothing about can be the fastest way to separate you from your money.

In the chapter, Doug Casey on Winning Speculations (Casey, 67), Doug outlines his strategy; The Eight Ps of Resource Stock Evaluation, for speculating in the juniors. This is a must-read and a must-follow for anyone intending to buy junior stocks.

Doug’s best piece of advice within this chapter:

“The first P is people. No matter how great the rest of the Ps are, if you don’t have confidence in the people, you can’t have confidence in the rest of the story” (Casey, 71).

It’s all about the people and their track record. The resource sector has a bunch of serially successful people, these are the guys you want to speculate in because they’re the only ones with which you have any real chance of making money. Spend your research time finding these people and let them show you what you need to buy.

A Must-Read for Anyone Looking to Speculate

I’ve really only grazed the surface of what this book covers, because it’s impossible to condense everything into just one review. I believe Doug’s comments on speculation are the most important in the book, which is why I chose to focus my review largely in that area.

This is a great book to add to your collection and a must-read for anyone beginning their journey as a speculator. That said, I do feel that if you really want to glean as much value as you can from this book, you need to have some understanding of the current fiat monetary system, in which Doug’s views are rooted.

Until next time,

Brian

By James Rickards

Disclaimer: To really make this a worthwhile read, I’d recommend that you first check out Guide to Investing in Gold and Silver, by Mike Maloney, as it provides the background or monetary system history that’s missing from Rickards’ book. Without some understanding of how the system works and has been working for the last 15 or so years, you’re going to miss the value in Rickards’ arguments or just find yourself totally lost. On To the Review…

Written in 2014, The Death of Money follows up where Rickards left off in his previous book, Currency Wars. He cites his experience working with the US government and federal agencies like the FBI and CIA to support his outlook for the future of the US dollar and its place in the global economy.

Truly, this book could be called, The Impending Lack of Confidence in the US Dollar, or something to that effect, because the ‘death of money’ and the coming collapse of the international monetary system is directly connected to the fate of the greenback.

Financial Warfare

Rickards uses examples of events from the last century to support his view that it’s only a matter of time before people lose confidence in the dollar. He starts by describing his involvement with Project Prophesy and the CIA and FBI, arguably the government’s two most important security agencies.

Prophesy was started after 9/11, in direct response to the pre-September 11th shorting of American Airlines and United Airlines. Millions of dollars were made by a bunch of short sellers who seemingly had the ability to see into the future, making massive bets on the demise of these companies. Rickards’ experience working with some of the largest banking organizations in America made him an obvious choice to work on a team that created a system to identify short-selling trends.

It’s not only terrorists that use the financial system to wreak havoc on targeted nations, however, as seemingly innocent countries partake in financial warfare, too. As Rickards explains,

the US also placed financial sanctions on Syria, actions that caused the Syrian pound to plummet 66% against the US dollar, in the course of just one year (July 2012 to July 2013). When combined with levels of inflation that rose as high as 200%, the Syrian government had no choice but to do business in their allies’ currencies (Rickards, 57).

This is just one example of the power of financial warfare and why it’s been such a popular and effective tactic throughout the ages. With the integration of the modern day global economy, it’s just that much easier to wage war in the financial markets. In the future, wars will start in cyberspace and systems such as the one created by Project Prophesy will be a country’s first line of defense.

Financial warfare is a commonly known threat, within the G20 and some of the other developing nations. However, it may be most prevalent within the BRICS nations: Brazil, Russia, India, China, and the newly added South Africa. These countries recognize their vulnerability to the US dollar and have taken enormous steps to insulate themselves against this massive umbrella, by creating their own BRICS nations banking system where trade can take place without the participation of the greenback.

The Eurozone

Rickards believes the Euro will play a major role in the future of the global economy, as their policies better reflect good economics. Specifically, the European Central Bank’s (ECB) belief that savings and trade are the best routes to growth, versus the Federal Reserve’s (Fed) borrowing and consumption model.
Coming out of their sovereign debt crisis of 2010 to 2011, the ECB’s plan for growth was detailed in the Berlin Consensus, which consisted of the following seven pillars*:

• Promotion of exports through innovation and technology
• Low corporate tax rates (most American Fortune 500 companies have bank accounts in Ireland)
• Low Inflation
• Investment in productive infrastructure (Gotthard Base Tunnel in Switzerland, for instance)
• Cooperative labour-management relations
• Globally competitive unit labour costs and labour mobility
• Positive business climate

(* Rickards, 121)

While Rickards says that both the EU and the US have been able to keep inflation rates low in recent years, Europe has done it without having to print anywhere near the same amount of money. He says that,

going forward, they have a lower potential for inflation than the States, as well. China, on the other hand, struggles with inflation because they continue to try to match the Federal Reserve’s printing of the dollar with their Yuan (Rickards, 122).

Rickards believes that this reality will draw more future investment and thus strengthen the Euro against its competitors, sealing it as a pillar within the global monetary system and its future with the Special Drawing Rights (SDR or World currency), which is controlled by the International Monetary Fund (IMF). The strength of the EU is further supported by Robert Mundell, who wrote about a single currency area in his 1961 article, A Theory of Optimum Currency Areas:

“In a currency area compromising many regions and single currency, the pace of inflation is set by the willingness of central authorities to allow unemployment in deficit regions…Unemployment could be avoided…if central banks agreed that the burden of international adjustment should fall on surplus countries , which would then inflate until employment in deficit countries is eliminated…a currency area…cannot prevent both unemployment and inflation among its members” (Mundell, The Death of Money, 125).

Rickards explains Mundell’s comments in context of the EU. To put it simply, he says that if capital from a wealthy nation shifted to a poor country, or some of the unemployed people in a poor country moved to a country where there was more capital, the unemployment problem could be solved without inflation (Rickards, 125).

This is a very effective explanation of Mundell’s comments and one that can’t be ignored when evaluating the EU’s place in the global economy.

The International Monetary Fund, at a Glance

As Rickards briefly describes in the Eurozone discussion, the International Monetary Fund (IMF), created at the 1944 Bretton Woods Conference (in the US), will play a major role in handling the collapse of the international monetary system. The IMF controls the distribution of what could be considered ‘world currency,’ the Special Drawing Rights (SDR). SDRs are made up of, or backed by, the 4 major currencies in the world: US Dollar, Japanese Yen, British Pound Sterling and the Euro. I found this section of the book particularly fascinating, as I had very little knowledge of the interworking of the IMF and the role it plays in the global economy. This section alone makes the book worth reading, in my opinion.

A lack of confidence in the US dollar will have a devastating effect on the global economy and will severely handicap the IMF’s ability to manipulate the markets in response to this crisis. Rickards believes that the answer is adopting the Chinese Yuan into the SDR basket.

Over the last 5 years, the course of action taken by the Chinese would indicate their inclusion in the SDR basket is exactly what they’re trying to achieve. As they continue to be both the largest producer of gold ounces and the largest consumer, they consume all domestic ounces produced and import ounces through the Shanghai Gold Exchange. The imported ounces are bought by government sovereign wealth funds and delivered to vaults within Shanghai. Sporadically, the Chinese have released updates on their gold holdings. Most recently, they have raised their official gold holding to around 1600 tons, which most believe is drastically understated from their actual position. This makes sense because they’ve continued to buy gold even throughout this very depressed gold market.

Rickards’ Conclusion

Rickards states:

Whether the loss of confidence in the dollar results from external threats or internal neglect, investors should ask two questions: What comes next and how can wealth be preserved in the transition?
“The dollar’s demise will take one of three paths. The first is world money, the SDR; the second is a gold standard; and the third is social disorder. Each of these outcomes can be foreseen, and each presents an asset-allocation strategy best able to preserve wealth” (Rickards, 292).

There is no way to tell which of these paths the dollar will take; you definitely need to arm yourself with the knowledge from this book and delve more deeply into these scenarios on your own.

Rickards goes on to give seven signs of warning that an unravelling is near*:
• The price of gold – rapid movements in the price, beyond the very typical 100 to 200 dollar swings
• Gold’s continued acquisition by central banks
• IMF governance reforms – Larger voting rights given to China and/or the inclusion of the Chinese Yuan into the SDR basket of currencies
• The failure of regulatory reform
• System Crashes- Repeats of the flash crash seen on May 6, 2010
• The end of QE and Abenomics – QE is over, for now, with the Fed raising rates in December 2015
• A Chinese Collapse – Started January 2016

(*Rickards, 295)

Takeaways – Rickards’ Investment Advice

The book ends with some really valuable investment advice that can be put into action, should it jive with your overall investment style:

• Gold – 10 to 20% of total investible assets
• Land
• Fine Art
• Alternative Funds
• Cash – A crash will deflate the market, cash allows you to buy low

~(Rickards, 298)

My Take on The Death of Money

I feel this book is a must-read for anyone interested in preserving their wealth, and unless you’re a billionaire that likes to piss away their money, I’m guessing that goes for pretty much everyone. That said, there were some parts of the book that I found a bit tedious, but you can use my review as your guide to identifying the sections where there’s real value to be gleaned, because all and all, it has some of the best and most current information out there. Pick up a copy and dive in!
Until next time,

Brian