Okay, so I went over in a very general way how we will see rapid decrease in the supply of all things tangible and base. This not only sets the playing field for part two, but also amplifies it exponentially.
PART TWO - THE TSUNAMI EFFECT
As a result of the crises worldwide, governments worldwide have decided they need to pitch in and provide work for their people in the wake of rapidly rising unemployment AND decreasing wages.
Most notably, USA alone has committed $800 Billion over 2 years to infrastructure projects to provide jobs. China has committed $560 billion, Russia has committed $130 Billion, and Brazil has committed $90 Billion.
That's a big number in total. $1.5 Trillion dollars for infrastructure. Wowie. At Citigroup's peak in 2006 they were the largest company on earth, managing $1.1 Trillion in assets. To put that into perspective as a Canuck, that is more than my country's total GNP!
On infrastructure.
By infrastructure, these governments mean they will be building roads, bridges, railways, etc etc. What do you think they will need to build such things? Blackberry's? Ipods? Toyota Camry's or Ford Focuses? Nope. (obviously)
They will need basic materials! Over a trillion dollars worth!
Oil, coal, steel, iron, copper, zinc, molybdenim, etc etc.
So while on one hand you have a massive decrease in supply you simultaneously have an unprecedented hike up in demand.
If we go back to good old Economics 101 and remember what happens when you have a few of somethign that a whole lot of somebodies need, does the price go up or down?
Hmm.... And with further decoupling of the paper fantasy profits industry and "service" industry investments, the money pulled out of there needs to go somewhere. Somewhere easy to understand, after all of the complexities of the derivatives markets. Somewhere safe where the thing you own is something you can touch and not just a bunch of papers that say IOU on them.
An unprecented flood of money will pour into the commodities markets. More importantly, that money will flood into the stock of companies that have tangible things. It will be a tsunami. If you do your due diligence and find companies with cash that have low production values and are making money selling to foreign countries, or better yet are IN foreign countries making money in non-USD's, you could ten-fold or more your investments.
Why avoid USDs, you ask? That is something for my third post.
Wednesday, December 31, 2008
The ultimate buy. PART ONE
THE OPPORTUNITY - PART ONE
I will paint a picture for you now. One of a perfect storm to profits. One of this buying opportunity you are hopefully smacking your forehead with impatience to read.
The first is of hedge funds, banks, retail investors and all alike trading on margin. Some of these leveraged out 35:1 on their assets. Some of these trading in these debt vehicles in the tens of billions or more.
Well the party ended. Only so much weight could be added to the cable before it snapped - and a thin lifeline it was in the long term to begin with. Now we have the credit crisis on our hands (credit crisis being a bogus term, since it will inevitably force people and businesses to save and use their capital wisely, which will hopefully re-establish a solid foundation for what is right now basically a "fake" economy).
Part of this little party was a surge in commodity prices. As of right now they have fallen in value quite drastically but this is because of sheer psychology. If anything their valuations should be just as high as they have been.
So here is the perfect storm for you. High commodity prices caused a huge spike in commodity explorations, i.e. commodity exploration companies and also projects by the big guys. This temporary plummet in prices has caused many of these projects to become completely unviable. 60% of current exploration companies are on the verge of completely shutting their doors, as the cost-to-produce for their projects is over 20% above current market prices.
Short-term reaction.
However once they have closed and unwound all of the work put in, the process to continue will take time. More time for far less exploration (i.e. new sources of resouces) to worm its way through the market.
Even better, the credit market is dried up. Even if they wanted to, most of these companies can't get financing to keep their operations going (since they aren't actually producing anyting yet and therefore do not have any cash-flow). Double slap to the face.
Even the big guys have shed projects like a snow-suit in high summer. The end product is far less future product coming to market. FAR less. Massive shriveling of supply is the end result.
So the first leg of your buying opportunity is to notice which companies have high debt-to-equity and more importantly debt-to-cashflow ratios. The higher the ratio, the worse the possibilities. Interest rates are going to be very very high in 2010 and a lot of these companies will either go bankrupt or sell off for cents on the dollar to competitors who were smarter with their money. STAY AWAY.
Companies with lots of cash, though? They will benefit hugely. Increase market share at 50% off. If you own that company, YOU increase market share 50% on sale. Sweet deal for us!
Part TWO will lay out the next leg of the opportunity.
I will paint a picture for you now. One of a perfect storm to profits. One of this buying opportunity you are hopefully smacking your forehead with impatience to read.
The first is of hedge funds, banks, retail investors and all alike trading on margin. Some of these leveraged out 35:1 on their assets. Some of these trading in these debt vehicles in the tens of billions or more.
Well the party ended. Only so much weight could be added to the cable before it snapped - and a thin lifeline it was in the long term to begin with. Now we have the credit crisis on our hands (credit crisis being a bogus term, since it will inevitably force people and businesses to save and use their capital wisely, which will hopefully re-establish a solid foundation for what is right now basically a "fake" economy).
Part of this little party was a surge in commodity prices. As of right now they have fallen in value quite drastically but this is because of sheer psychology. If anything their valuations should be just as high as they have been.
So here is the perfect storm for you. High commodity prices caused a huge spike in commodity explorations, i.e. commodity exploration companies and also projects by the big guys. This temporary plummet in prices has caused many of these projects to become completely unviable. 60% of current exploration companies are on the verge of completely shutting their doors, as the cost-to-produce for their projects is over 20% above current market prices.
Short-term reaction.
However once they have closed and unwound all of the work put in, the process to continue will take time. More time for far less exploration (i.e. new sources of resouces) to worm its way through the market.
Even better, the credit market is dried up. Even if they wanted to, most of these companies can't get financing to keep their operations going (since they aren't actually producing anyting yet and therefore do not have any cash-flow). Double slap to the face.
Even the big guys have shed projects like a snow-suit in high summer. The end product is far less future product coming to market. FAR less. Massive shriveling of supply is the end result.
So the first leg of your buying opportunity is to notice which companies have high debt-to-equity and more importantly debt-to-cashflow ratios. The higher the ratio, the worse the possibilities. Interest rates are going to be very very high in 2010 and a lot of these companies will either go bankrupt or sell off for cents on the dollar to competitors who were smarter with their money. STAY AWAY.
Companies with lots of cash, though? They will benefit hugely. Increase market share at 50% off. If you own that company, YOU increase market share 50% on sale. Sweet deal for us!
Part TWO will lay out the next leg of the opportunity.
Tuesday, December 30, 2008
The real storm still brews
It's time like now that I am eternally grateful that I am Canadian. Not that I have anything against Americans - you guys are nice every time we visit - but what it comes down to is that I am being paid in Canadian dollars. And that is the core theme of this post. Currency, and how massive shifts in mentality toward their fundamentals will completely alter the face of the USD.
When I say shift in mentality I mean that the fundamentals have always been there but they are now coming to surface as the problem escalates further down the slippery slope.
All I have to say for the next few years (probably decade, truth be told) is that if you are American the smartest thing you can do with your money is invest outside of your own country's companies and anything to do with either credit or currency.
Better yet, think of what happened this year: One of the core reasons for the massive crash in all things investment (except treasury values, which I will discuss shortly) is because the majority of "profits" were unrealized and even worse based on intangible "assets".
By this I mean things like the default-swap derivatives market, used to package large blocks of debt and sell them off to the rest of the world. People are finally realizing that collusion between rating agencies and creditors to shore up the security rating on these packages, coupled with a negative savings rate for the individuals this debt attached to, unattainable living standards, and debt-to-consumption practices (leaving a grossly over-inflated asset to back the paper, or even worse - nothing!) has created a giant black hole for investment money.
No wonder they are currently priced at $.15 on the dollar. The market has finally decided what they are really worth.
But I digress. The point to be made is that the future of investing for superior, even astronomical (I love that word) gains, is in things that are actually worth money. Hard assets. Not only hard assets, but hard assets that people WANT and need.
These are things that are the spine and legs of the product cycle. Things that are used to make products, which are then sold to users the world over. Unfortunately, the US economy is currently only 20% based in hard assets and 70% based in consumer spending. This paints a very ugly picture for the future.
But I am not a perma-bear or anything ridiculous like that. On the contrary I believe that there is always money to be made if you know where to put it. A combination of fundamental valuations (using a true realism and none of the crap traditional analysts with biased and profitable perspectives use in their predictions) and technical analysis can dig out rare gems of opportunity and further provide you with good entry positions to maximize gains by additional double digits!
I am bullish as always on stocks. The only catch is that they not only must be the right companies with the right products, but they also must have excellent management, shareholder loyalties, and be naturally hedged against a rapid decline in the value of our purchasing power.
Which brings me to what I have recently discovered and will call "the ultimate buying opportunity between now and whenever the hell it is when you decide to quit the rat race".
Bold claim, no?
Why yes, thank you.
For Americans it is even more ultimate that a Canuck like myself.
But why, you ask? And besides, EVERYONE is saying they have found the ultimate buying opportunity of a lifetime!
Yes, everyone is saying that right now. But there is a catch. You have to PAY all of these people to find out what this information is. Usually a pretty hefty sum, plus they somehow have to manage your money for you for even more money in order to truly take advantage fo this incredible buying opportunity.
From me to you, a late Christmas gift. This information is free for any and all who wish to use it. My hope is that I might be able to save even one person from the tragedy that will soon befall America's citizens.
Ugh, too gloomy. We're talking about making a lot of money here. This should be cheery stuff.
So, what is the ultimate buying opportunity between now and the whenever the hell you decide to leave the rate race? I already spoiled it at the beginning. It is those hard assets that are going to be appreciating so sweetly in value as the rest of the smoke and mirrors investment vehicles fade away and more leverage is wound out.
Meanwhile money is being printed by central banks and blown about like a blizzard, further debasing the currency. In my next post (which should be up within the next hour) I will lay out the first leg of the scenario.
When I say shift in mentality I mean that the fundamentals have always been there but they are now coming to surface as the problem escalates further down the slippery slope.
All I have to say for the next few years (probably decade, truth be told) is that if you are American the smartest thing you can do with your money is invest outside of your own country's companies and anything to do with either credit or currency.
Better yet, think of what happened this year: One of the core reasons for the massive crash in all things investment (except treasury values, which I will discuss shortly) is because the majority of "profits" were unrealized and even worse based on intangible "assets".
By this I mean things like the default-swap derivatives market, used to package large blocks of debt and sell them off to the rest of the world. People are finally realizing that collusion between rating agencies and creditors to shore up the security rating on these packages, coupled with a negative savings rate for the individuals this debt attached to, unattainable living standards, and debt-to-consumption practices (leaving a grossly over-inflated asset to back the paper, or even worse - nothing!) has created a giant black hole for investment money.
No wonder they are currently priced at $.15 on the dollar. The market has finally decided what they are really worth.
But I digress. The point to be made is that the future of investing for superior, even astronomical (I love that word) gains, is in things that are actually worth money. Hard assets. Not only hard assets, but hard assets that people WANT and need.
These are things that are the spine and legs of the product cycle. Things that are used to make products, which are then sold to users the world over. Unfortunately, the US economy is currently only 20% based in hard assets and 70% based in consumer spending. This paints a very ugly picture for the future.
But I am not a perma-bear or anything ridiculous like that. On the contrary I believe that there is always money to be made if you know where to put it. A combination of fundamental valuations (using a true realism and none of the crap traditional analysts with biased and profitable perspectives use in their predictions) and technical analysis can dig out rare gems of opportunity and further provide you with good entry positions to maximize gains by additional double digits!
I am bullish as always on stocks. The only catch is that they not only must be the right companies with the right products, but they also must have excellent management, shareholder loyalties, and be naturally hedged against a rapid decline in the value of our purchasing power.
Which brings me to what I have recently discovered and will call "the ultimate buying opportunity between now and whenever the hell it is when you decide to quit the rat race".
Bold claim, no?
Why yes, thank you.
For Americans it is even more ultimate that a Canuck like myself.
But why, you ask? And besides, EVERYONE is saying they have found the ultimate buying opportunity of a lifetime!
Yes, everyone is saying that right now. But there is a catch. You have to PAY all of these people to find out what this information is. Usually a pretty hefty sum, plus they somehow have to manage your money for you for even more money in order to truly take advantage fo this incredible buying opportunity.
From me to you, a late Christmas gift. This information is free for any and all who wish to use it. My hope is that I might be able to save even one person from the tragedy that will soon befall America's citizens.
Ugh, too gloomy. We're talking about making a lot of money here. This should be cheery stuff.
So, what is the ultimate buying opportunity between now and the whenever the hell you decide to leave the rate race? I already spoiled it at the beginning. It is those hard assets that are going to be appreciating so sweetly in value as the rest of the smoke and mirrors investment vehicles fade away and more leverage is wound out.
Meanwhile money is being printed by central banks and blown about like a blizzard, further debasing the currency. In my next post (which should be up within the next hour) I will lay out the first leg of the scenario.
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