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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED
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To: t2 who wrote (51593)5/17/2002 11:04:50 AM
From: Jim Willie CB  Read Replies (2) of 65232
 
methinks you underestimate correlation (stocks to dollar)

if the dollar drops, then foreign owners will unload
I read that 20-25% of US stocks are owned by foreigners

of course, a select few multinational US stocks will benefit as the dollar comes down, from foreign operations and currency translations

the big experts on currency state emphatically that US stocks are more at risk than US bonds, with dollar decline

methinks you underestimate the corrosive effect on the derivative books of hedgers as gold rises, even a little
recall Barrick
an extra $500M in losses just from hedging if gold rises from 310 to 350/oz
that is $125M added loss per $10 move in gold
that is something close to a full year of earnings
no, hedging will destroy a few gold miners
what good is incremental profit from ongoing mining efforts if your derivative desk blows up the whole company?

think of the leverage involved, and the fact that several like Barrick have hedged more than two years forward
I expect by this time next year to see a few gold miner bankruptcies
which will interrupt the supply chain for gold production
AngloGold in SoAfrica announced unwinding of hedges
this entire hedging issue will be explosive soon
the somewhat hedged are unhedging gradually in a race to avoid becoming acquisition targets by the heavily hedged, who will probably go bankrupt

even Newmont had some hedge exposure in its recent qtrly earnings release
a couple acquisitions were slightly hedged, and NEM undid them at big cost

/ jim
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