Notes from PDAC
March 5, 2006
These are the notes that I took on the first day of PDAC, which featured talks by various newsletter writers.
Ian McAvity
• Ian is a chartist, to him price action is the story. He is not a stock-picker, he is a big picture guy.
• Chart of the Dow:GOLD ratio – This is a secular trend. IM thinks that ultimately the ratio will be somewhere between 5:1 and 10:1
• This part of the cycle (up) is getting long in the tooth
• Over the next ten years, GOLD and GOLD stocks will outperform the S&P
• We are due for a correction, though the current situation more closely resembles 1974 than 1979
• Shares:Metal price ratio is high
• Junior stocks are outperforming larger stocks, indicating that we are at the end of this leg. This is characteristic of a late-stage part of the cycle (note: not the bull market, just this particular leg of it)
• Ian expects GOLD to trade under $500 sometime in 2006. He believes the sentiment is just too positive.
• Ian expects to see oil trading over $100
• The GOLD:oil ratio historically averages about 15:1. So if oil goes to $200, that would imply $3000 GOLD.
• Ian thinks that the US Dollar is heading up and that the upside surprises will catch many off-guard.
• Bernanke may be a lot tougher than people think (though the slide shown displayed a picture of a Sikorsky helicopter). He may be more akin to Volcker than he is to Greenspan.
• Interest rates are heading up. The Two and Five-Year have already broken out. He sees the Ten-Year going to 7%.
• There is a shakeout coming in the GOLD market. GOLD is heading to $450 that will take out the newcomers. It will be a few more years until the public rushes in.
• 2006 will be a tough year but 2007 will be a lot of fun.
Dave Skarica
• Dave does not make stock recommendations, but does maintain a watch list. He will follow 27 stocks at most and currently has 13-14 on his list.
• Dave thinks we are in the midst of Phase II of the GOLD bull market. The easy money has been made (note: if I had a nickel for every time I’ve heard that, I wouldn’t need to attend these conferences). Charts of the producers like Newmont and GOLDcorp show that these stocks have doubled or tripled over the past few years.
Phase I – move off the bottom
Phase II – Long-term uptrend
Phase III – blow-off/mania
• The recent breakout that we got marked the transition to Phase II. Dave feels that it is unlikely to get a major correction following the long consolidation period that we have just exited.
• Dave has a target of 3000-4000 for the Dow, but we may instead get a 1970’s style “invisible crash” where the market stays flat in absolute numbers, but is actually going down significantly in inflation-adjusted terms.
• Dave’s approach is to keep a base position of at least 50% in GOLD stocks at all times.
• Dave says that if we get a pullback here, then he would look for 270-280 as a downside target for the HUI, although he expects 305 to hold, which is where the 50 day MA is (note: wrong on 305, hopefully will be right on 270-280). GOLD should not trade below $525 on a pullback.
• Some of the stocks that Dave is watching include:
Fortuna (FVI)
Capstone (CS)
Aberdeen (AAB)
Paramount (PGDP)
Simba (SBAM)
Consolidated Spire (CZS)
McMillan (MMG.V)
Ian Gordon
longwaveanalyst.ca
• Ian Gordon focuses on the Kondratieff Wave cycle (see web site for details). He believes that we are now entering the winter part of the cycle. This part of the cycle serves to cleanse debt out of the economy.
• 1929 was the beginning of the previous winter cycle, 2000 marked the beginning of the current winter season.
• The debt bubble will implode because it has to do so. GM and Ford are bankrupt and we are beginning to see it.
• Each season has a set of investment classes that are appropriate for it. For the winter season, cash and GOLD are the key assets, and also bonds after prices peak. Autumn is the season that always hosts the biggest bull markets for the general stock market.
• Ian gives himself credit for recognizing this turn early and participated in his first junior financing in October, 2000.
• The junior mining stocks are GOING A LOT HIGHER.
• You want to own GOLD during the Kondratieff winter because GOLD is money. “It’s going to be horrendous!” So far, the symptoms have been masked by a mushrooming money supply, but that is temporary. GOLD is your protection.
• We will experience economic and financial chaos with the bursting of the debt bubble. The US government has unfunded liabilities to the tune of $70 trillion. We will see major bankruptcies and banking collapses.
• A major bear market in stocks will take the Dow to the 500-1300 range.
• Real estate will crash along the lines of the Japanese experience.
• The derivatives debacle will be the catalyst. It will be like the Long Term Capital Management crisis, but much bigger. We will see the collapse of the world monetary system based on the US Dollar (like 1931-1933). This collapse will be the end of the US role as the world political/economic/financial leader.
• Ian sees the failure of the fiat money system as inevitable and people must seek the security of GOLD.
• China and India are dependent on the US. The Kondratieff Cycle is a worldwide phenomenon and it will not be good for oil and base metals.
Bob Bishop
• Bob sees the current commodity cycle as historic, a supercycle. We are still early in the process.
• Buy the dips, pure and simple.
• GOLD is NOT going to $480.
• Bob does not feel that you can generalize about the sector effectively, but instead you need to look at stocks individually.
• This week is probably a good week to take a LITTLE money off the table. This is just sound money management, not in and out stuff. Look to take long-term gains vs. short-term gains. PDAC is like the Academy Awards, everyone gets buffed up and companies never look better than they do for PDAC.
Laurence Roulston
• We are in the early part of a long-term bull market in commodities. The party is just getting started.
• Metal prices will be less of a factor in the valuation of mining shares going forward.
• GOLD has been a laggard when compared to the other metals.
• Do you want to speculate on commodity prices or invest in growing companies?
• Growth drivers for commodities include:
China/India modernization
Oil producing countries are reaping enormous amounts of cash
Latin American countries are hugely benefiting from the commodity bull market
• These drivers are not going to change anytime soon. China is NOT entirely dependent on exports and the growth there is set to continue for a long time.
• Look at the supply side of the mining industry. You have seen consolidation that does nothing to increase reserves:
BHP Billiton and WMC
Barrick and Placer Dome
Falconbridge and Noranda and Inco
• Voisey’s Bay is one of the only new big mines to go into production recently. New mines are just covering depletion, but are not addressing new, increased demand.
• Chip Goodyear has noted that it used to take five years to get a mine into production, now it is eight to ten years.
• There were five big takeovers in the last year and there will be a wave of takeovers in the next year. The industry has more cash than at any other time in history.
• Everyone expects a post-PDAC sell-off, so it may not be as severe. There is $3.5 billion of new liquidity because of the takeovers that will be re-invested. Everyone knows that there will be a spring correction, so everyone has been selling in anticipation of that, so there is lots of cash on the sidelines.
• Some companies are way overbought and may get a bit of a correction, but lots of companies have not been run up.
• LR is watching the following companies:
Altius
Atna
Bear Creek Mining
Crosshair
Dynasty
Exeter
Exmin
Fortuna
Frontier
Full Metal
GOLDen Valley
Int’l KRL
Lumina
Majestic
Manex
Monster Copper
Nautilus (still private, IPO in April)
NovaGOLD
Rare Element
Serengeti
Skye Resources
Strathmore
Tournigan
Viceroy
Virginia
White Knight
Wolfden
John Kaiser
• This year, Q2 could be stronger than most expect. We are in a new supercycle.
• John discussed the debate between Cyclical Bears vs. Structural Bulls. He believes that there will be a showdown in 2006 and that this debate will be resolved one way or the other (JK appears to be in the latter camp).
• John discussed a number of diamond exploration companies, including:
Ashton ($5 target)
Kettle River
Archon ($10 target)
Paul van Eeden
• Japanese interest rates are the dominant factor in the GOLD market right now but nobody is even talking about it.
• PVE took us through the various currency crises that began 15 years ago with Brazil and moved through Mexico, Japan, Southeast Asia, Russia and Argentina.
• As a result of these crises, money flowed in to the US for safety. Flight capital goes in to bonds, driving interest rates down. US corporate profits went up as interest rates dropped. Corporate spending increase, employment increased, bolstering consumer spending. $4 trillion came in to the US economy (note: this coincides with the tech bubble).
• From 1996 on, commodities dropped as the US Dollar strengthened.
• There was no bear market in GOLD in the 1990’s, just a bull market in the US Dollar. In 2002, the USD started to fall.
• Until recently, the trade deficit has not been causing the slide in the USD, because Asians are keeping their USD reserves…however…
• Something fundamental has changed. China and Japan have been supporting the USD by keeping their USD reserves. They each have about $1 trillion in USD reserves. Why would they stop supporting the USD? When the US consumer stops increasing purchases of imported goods.
• Real estate market is slowing down and prices are falling. The bubble has peaked. If it just stops growing (levels off), the growth in consumer spending will slow.
• China recently made a public pronouncement about shifting their policy. They have told their businesses to prepare for a USD decline and to re-evaluate the way the Renminbi is valued.
• The Japanese are starting to raise rates. Savings have been invested outside Japan but will be attracted back in to the Japanese market.
Message 22253461
AZK/MNG/CMM.V/IPT.V/MUG.V |
