I truly believe that wherever there is a boom, there
will later be followed by the bust. Look at Asia (ie.
Japan, Thailand, HongKong, and etc). There was a boom.
Now there is a bust. North America (Canada & US) are
going to experience the biggest bust of all time. The
household debt is at the highest. It is even higher than
that period of boom before the great depression. Look at
nowaday you can buy everything on credit. Zero financing
for at least one year for a car or furnitures. In the
eighties, you pay interest roughly $1,000 (CND)/month for $100,000
mortgage on the home. Now you could borrow $200,000, and
still pay $1,000 (CND)/month interest. This is dangerous. When
the bust comes, people will lose everything. Too much
debt. In the mean times, if the trend is up, you will keep
on buying whenever there is a retracement. Enjoy the ride
while it still last. Whenever there is change in trend, you
cut loss, and never look back. If it is a down trend, you
can keep on selling short.
Is the bank stocks overvalued ? I do not know. I let the
market tells me. You tell me if it is overvalued. Fundamentally,
they make tons of money. It is trading at 12 to 16 P/E ratio.
It is giving 1.5% to 2% dividend yield. The chance of it going
broke it is low. Therefore the risk is low. The major trend is
still up. Fundamentally, and technically, it still sounds good.
Always have the stop loss ready when the market turns. Anyway
in one's portfolio, there should be an asset allocation. Some
in bond, some in stocks, some in money market. Everything has
to be defined in term of risk/reward.
What is the risk in investing BANDORE now ? Not much. If the
company goes broke, you lose 60 cent per share based on Friday's
price. What is the reward ? It could be good in a few years
from now. Can you wait ? If yes, then buy it.
Now why the commodities prices are down ? (1) there is
very little demands from Asia due to the bust which
also affects the gold price. (2) Technological advancement
to mass produce and produce it a lower cost. Therefore
more supply than demand. (2) India,
and China are major buyers of gold. India recently increased
the tariff on the imported gold which also drive the price down.
But it becomes more expensive for the people in India to buy.
China,
there is an economic slow down. The government of China is
laying off millions of people. (3) Central banks around
the world are selling gold. If European central banks come
to agreement to only keep 10% to 15% of gold reserve, imagine
how much gold will be dump in the open market if they still
have about 30% of less of gold reserve. (4) There is a new paradigm.
Gold no longer is a universal currency because of the
advanced global computers networks. With one button pressed, you
could transfer your money to any currency that you want
when there is a crisis in one's country.
In early 80 or before, it was not easy for ordinary
people or the banks to exchange money to different
currency due to the ancient computer networks technology
compared to those of today. Whenever there was a crisis,
you have to carry bags and bags of paper money to the bank
especially in third world countries. It takes a few days
to exchange to different currency. Therefore paper money
was not considered as valuable as gold. Do you know nowadays,
"money has no country" ? Which ever country has the
strongest currency whether it is US dollar, EURO dollar,
or Yen, that is where the money from different countries
go there for safety with a single computer button pressed.
Smart investors always have their assets hedged in the
conservative manner. They do not put all eggs in one
basket.
(5) Gold bears no interest payment. If you have cash
of $10 million dollars (US), you buy US treasury bill,
let say paying 5% annual interest rate, you will get
$500,000 interest payment per year. Imagine the central
banks, and wealthy people with billion's of dollars,
they will get at least $50 millions dollars of interest
payment per year. If US is in trouble, the hedge fund
manager will dump the US treasury bill, and buy other
country's treasury bills with a single computer button pressed.
I agree, you should not put all eggs in one basket. This
might explain why the European central banks only want
to hold 10 to 15 percents of gold reserve. At least 85
to 90% of their assets are in some form of treasury bills
and earn interest.
(6) Gold is priced in US dollars. When the US dollar
appreciate, gold is in trouble. Note: most of the
commodities are also priced in US. Therefore they are
also in trouble. The US dollar now is
very strong due a few factors. One, the US government
is going to have or having a budget surplus. Hopefully
they will use the surplus money to pay off some debt.
Two, the economy is strong compared to the rest of the
world. Three, the companys' productivity are very efficient
due to technological advancement. Four, low commodity
prices which lead to low inflation. Five, look at the
30 years bond yield, it is about 5.6%. This is a very
low interest rate for long term financing.
(7) Whenever there is a rise in gold price, the producers
are constantly selling forward of their gold. This in
turn always create more supply than demand.
(8) Gold is not a consumable item. You can keep it for years,
and still can re-sell it. This means that when in tough times,
people will take out their gold, and re-sell it for food or
shelter. Therefore the supply of gold is always there when
needed. Look at South Korea for example, when the currency
crashed, the government gone broke, people donate their gold
to help out with the crisis. Altogether they have a few tons
of gold to sell it in the market. What happen ? It drove down
the price of gold in the market. Look at other commodities
(ie. oil -- black gold). Once it was consumed, it is gone.
No more. You have to buy from the producer again. Whenever
there is a boom, the consumable commodities are the ones will
experience the most price appreciation. The luxury commodity
like gold will then slowly creeping up when people have extra
cash.
Anyway, I still believe there will be a bust in Canada
and US. The market can not go up forever. Still you
will never fight against the tape but obey it. People use
margin for leveraging in stock market. The household
debt is at the highest. When the market crash, everybody
will be hurt. North America, Europe, Asia, Latin
America, South Africa will all be in trouble. Then one or
two years later follows by real estate market crash. Look at
1987 market crash. In 1989, the real estate in Canada
crashed. When every one is in trouble, do people have money
to buy luxury item such as gold ?
No !! Everyone will try his/her own best to meet end's
need.
Gold will be become valuable when there is a war and
cause money supply to stop flowing due to computer
networks breakdown. There will be very little or not
currency trading. Will you still trust paper money ?
What is the exchange rate to buy goods from other
countries ? When there is world war III, do you still
want to buy gold ? You want to buy foods, and shelter.
Anyway, I still believe we have to buy at least a few
ounces of gold coins to keep.
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