₪ David Pescod's Late Edition February 5, 2008
ARISE TECHNOLOGIES (T-APV) $1.73 -0.17
TIMMINCO LTD. (T-TIM) $13.89 -1.38
WESTERN WIND ENERGY (V-WND) $1.70 +0.10
It’s a cute article, but obviously has a serious side to it. We are talking about “The Next Bubble” in February’s issue of Harper’s Magazine and the article is about “Priming the markets for tomorrow’s big crash”.
It takes a look at some of the bubbles over the history of the world’s financial markets and almost suggests that times are so tough, it might be good to start another bubble to get us out of the last one!
They write, “A financial bubble is a market aberration manufactured by government, finance, and industry, a shared speculative hallucination and then a crash, followed by depression.
Bubbles were once very rare—one every hundred years or so was enough to motivate politicians, bearing the post-bubble ire of their newly destitute citizenry, to enact legislation that would prevent subsequent occurrences. After the dust settled from the 1720 crash of the South Sea Bubble, for instance, British Parliament passed the Bubble Act to forbid ‘raising or pretending to raise a transferable stock.’ For a century this law did much to prevent the formation of new speculative swellings. Nowadays we barely pause between such bouts of insanity.”
The seven-page article then gets down to the dirty work of trying to figure out what next would make a good bubble to resurrect financial market and get traders, brokers and the like hopeful again.
They write, “There are a number of plausible candidates for the next bubble, but only a few meet all the criteria. Health care must expand to meet the needs of the aging baby boomers, but there is as yet no enabling government legislation to make way for a health-care bubble; the same holds true of the pharmaceutical industry, which could hyper-inflate only if the Food and Drug Administration was gutted of its power. A second technology boom—under the rubric ‘Web 2.0’ - is based on improvements to existing technology rather than any new discovery. The capital-intensive biotechnology industry will not inflate, as it requires too much specialized intelligence.”
“But there is one industry that fits the bill: alternative energy, the development of more energy-efficient products, along with viable alternatives to oil, including wind, solar, and geothermal power, along with the use of nuclear energy to produce sustainable oil substitutes, such as liquefied hydrogen from water. Indeed, the next bubble is already being branded”…
We’ve already seen some interest in alternative energy stocks, some of which south of the border got to hyper-elevated levels. But one thing about high oil prices and for that matter, high energy costs everywhere these days, is it suddenly does make alternative energy (be it wind, solar or whatever) much more viable that we simply wouldn’t disbelieve the possibility of this exact situation happening down the road. Stay tuned. It’s a great article and we would consider it must-reading.
Meanwhile, for our own alternative energy Bubble Portfolio, we have Timminco, Arise Technologies and Western Wind. If you would like to see an analyst report on Arise, just e-mail Deb at debbie_lewis@canaccord.com.
GOLD:
Clement Gignac of National Bank Financial might finally be right ... for years he has been predicting a recession and now we might well be there.
Meanwhile, the good folks at National Bank make another projection as they raise their target on gold from $900 an once to $1500 an ounce. They point to five different upside pressures on the price of gold the first being financial instability and massive bank writedowns. He writes, “With the implosion of the U.S. housing bubble, the emergence of a credit crisis and the spectre of U.S. recession, volatility has returned to capital markets with a vengeance.”
Secondly, they point to massive injections of liquidity and a return to negative real interest rates. Gignac writes, “Historically, negative real interest rates have been a major boost to the price of gold.”
A third factor is the decline of the value and role of the U.S. dollar.
A fourth factor and something that’s not talked about much recently is the swelling U.S. budget deficit and inflation expectations.
His fifth point was increased financial demand for gold as a distinct asset class and points out that “Among the financial innovations of recent years is the gold ETF—exchanged traded bullion fund—as an instrument of portfolio diversification.
Physical holdings of gold through gold ETF’s now amount to more than 800 tonnes—more than the total billion reserves of the European Central Bank.”
The bottom line Gignac writes, “We think gold has attractive potential for appreciation and, especially, as a tool for medium-term portfolio diversification via gold stocks or gold ETF’s. The current price of crude oil, around $90 a barrel, is about the same in constant dollars as the late-1970’s high. Our new gold target of $1500 an ounce is still far from the early-1980’s high of $2200 in constant dollars.”
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