Wednesday, June 22, 2011

Two New Posts on The Daily Capitalist, and Comments on President Obama's Leadership

Click HERE and HERE for the last two posts. Message of the second (more recent) one: Gold miners represent good relative value in what remains a generally overvalued financial marketplace. Message of the first one: financial stocks are pointing downward, and that has tended to be a poor portent for the economy.

I also want to comment politically. It is not clear what is motivating Barack Obama. He is maintaining a large military presence in Afghanistan. Do the polls tell him that a partial withdrawal, to a troop level that exceeds the level it was at when he took office, will win him votes?

Economically, not long ago the Senate rejected the Ryan plan with about 40 votes in favor. But it rejected the President's budget with no votes in favor.

It's not clear to me that this president is a leader. With FDR, it was clear that he (at least in posture and headline actions) favored the common man, who was a poor man in those days. With Mr. Obama, he favors the poor- but he also favors the rich, and he has turned out to be far more corporation-friendly than almost anyone expected. So he favors everyone. But he and the country are only what they are. And there are no tall aliens with the ability to serve man by making the deserts fertile. So, choices must be made. This business of trying to please all, which in my field of interest, finance, I correlate to pleasing both the stock and bond markets, simply is not working. It worked for Lula of Brazil, but that followed a prolonged period of hyperinflation. There was public and private support for conservative, growth-oriented policies. And who knows what Lula swept under the rug to get to 70+% approval ratings?

Unfortunately I am getting an LBJ-Carter feeling of a failed president. LBJ and BHO are both guns-and-butter-oriented. Both led the economy into big-time price inflation as the central bank obediently helped to monetize the resulting deficits. But no one would mistake LBJ for other than a leader. Mr. Carter, who may have been well-meaning, ended up looking unfocused and indecisive, and chose (was "forced" to) move to the right giving near-hyperinflation toward the end of his tenure. The world is not ending, and as I have noted recently, a number of headlines are overly histrionic. So what is "priced in" in the markets is impossible to know, especially given the vast amount of money the Fed has printed that has been seeping into the real economy. We do not need a QE3 for lots and lots of price inflation to occur.

Got gold? (And shares of gold miners?)


  1. Hi Dr,

    Sundar here. Would like to know your thoughts on how you pick undervalued companies.

    For e.g., Anglogold Ashanti is down more than 4% today. Is the market acting too panicky, therefore such a senior miner is probably a good buy?

  2. Sundar-DoctoRx here.
    I like Franco-Nevada FNNVF.PK or FNV on TSE. Great mgmt and IMHO great royalty model a la SLW. I require adequate gold reserves and require the company if an operating company to meet and beat earnings ests. This is separate from takeover candidates aka explorers. As you know, I like trends. So I like stocks with structurally strong charts over the years. GG and even ABX meet that criterion. NEM fails on earning disappointments and also on the chart.
    Note that I have come to be skeptical of logic in non-pros picking stocks in the current market of algos, bots and Fed-induced stock market changes. In the old days, if a bellwether such as ORCL was down 4.4% after hours, how on earth could the NAZ be up 0.5% on the futures mkt rather than down?
    That's why I diss the stock market regularly in my blog and focus on more macro, thematic aspects in my personal investing. Please tell me how AMZN can trade at 50X est 2012 earnings, with said 2012 earnings ests way down? In anything other than a bubble market, this non-takeover candidate's stock would be maybe $50, not $190+. So I "give up" on spending a lot of time anymore on indiv stock analysis. But I do trust gold (money) in the ground if I trust mgmt of a miner. I honestly don't even follow the daily stock prices of the miners I currently own, namely GG/ABX/FNV. They have the gold, thus I have it. Plus I get some dividends.
    All the best-

  3. (Sundar)

    Thanks for your reply. Yeah I do agree that the equity markets are making no sense at all from a valuation perspective.

    Slightly unrelated, but it occurred to me when you were discussing about investing in Treasuries -- what about foreign government bonds? I'm not talking about any bond, specifically the countries that are able and willing to pay their debts. Countries such as Chile, Switzerland, Norway, Singapore, Hong Kong there any mutual or some blended fund out there that combines these bonds of the fiscally prudent governments? or can we buy them directly to create our own portfolio? what are your thoughts on this?

    I suppose there are currency and inflationary risks, but aren't they better than the irresponsible spending of the .gov?

  4. Sundar- DoctoRx here. I really like ALD. There also are EMB and PCY, which I have not researched yet. I am also bullish on Aussie interest rates going lower, but you can't separate that from the likely drop of AUD vs USD. IF the ECRI is correct that global industrial output is about to peak right around now, then since the US has de-industrialized, IMO it sets the USD up for a counter-trend rally.

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