Hi Bobby. Thanks for the links. Agree that the creditors should assume the risk. However, I expect that we are seeing this ( the bailouts ) unraveling before our eyes. This has been the biggest party of the century and I think that the hangover will testify to that. There's just a lot of bumping and shoving going on now before the pandemonium breaks out imo. From Kaplans site.................
LEHMAN BROTHERS COMMENTS ON THE OUTLOOK FOR GOLD MINING--In a report by Peter D. Ward of Lehman Brothers, issued early Friday morning: "We are lowering our 1998 and 1999 average gold price estimates to $290 per ounce from $300 per ounce. The current First Call forecast for 1999 is $322 per ounce. We are concerned $300 per ounce may prove to be a technical ceiling for this market. We are continuing with our sector underweight recommendation . . . . For any investors still fearful of inflation, there are inflation indexed US Treasuries. For investors fearful of inflation and overexposure to the US dollar, France this week successfully issued its first inflation indexed bond. We expect other countries to do the same thus further diminishing gold's allure as an inflation hedge. Inflation indexed bonds maintain their value and pay interest which, in our opinion, makes them significantly more attractive than gold as a safe haven investment. We've heard from several people recently who suggest that gold equities are oversold this year since the XAU gold equity index is down while gold is actually up year to date. We disagree. The oversold theory suggests that gold equities should move about 3% (or more) for every 1% move in gold prices. We view the widely quoted "3 to 1" rule as overly simplistic. Even if the "3 to 1" rule did have analytical validity, it does not lead us to a bullish conclusion. For example, the price of gold has declined by about 30% since its peak in 1996. The "3 to 1" rule would, therefore, imply a 90% correction in gold equities when the XAU has only corrected about 55%".
GOLD MINING OUTLOOK COMMENTS ON LEHMAN BROTHERS--In direct rebuttal to Peter Ward's comments, it must be remembered that inflation-linked notes, like any paper asset, are only as good as the authority which has issued them. Gold is an asset which has no corresponding liability. If one were currently holding inflation notes denominated in Russian rubles, one would be receiving large quantities of rubles in interest, but they would hardly be considered a prudent investment. Even if one assumes that the U.S. does not experience hyperinflation, if the dollar is declining at a faster rate than the rate of inflation, then one would still lose money with inflation-adjusted notes, whereas gold mining equities would be appreciating substantially in value. Most importantly, there is a critical mass of investors who are not satisfied with the modest single-digit returns available from inflation-linked Treasuries, even if the dollar remains strong, and who seek alternatives to the stock market which have the potential for double-digit gain. Gold mining shares are one of the few such investments which do not correlate positively with the overall equity market. Of course the 3 to 1 "rule" is an oversimplification as are many useful rules of thumb. As for Lehman Brothers' overall trading skills and reliability, their stock price speaks for itself: currently at 34, down 3-5/16 Friday; from their July 13 peak of 85, this represents a 60% drop in just over two months. Although the reason for this decline is sheer speculation on my part, if they are holding positions similar to most of the other firms on the Street, they are probably long stocks on margin and short gold on margin. Since they have certainly lost money in the stock market, by their own admission, it is possible that a rise in the price of gold would squeeze them at both ends and put them in serious financial trouble. Since the gold market is much smaller than the stock market, it is possible that talking down the price of gold is a necessary survival strategy for Lehman Brothers (and, by extension, for their clients). As a comment to Peter Ward, I have learned the hard way that it is dangerous to make a prediction such as "$300 an ounce may prove to be a technical ceiling", since the day that gold goes above $300 an ounce, one is immediately discredited. Finally, I quote from the last line of the report, just before the copyright: "The Lehman Brothers analyst who covers this company also has position [sic] in its securities." Enough said! |
