And another gold scheme bites the dust ....

The modus operandi seems to look like this:

• Take a commodity that is "hot", for instance gold
• Take a business model that resembles a pyramid
• Take a term from a country that is regarded safe, for instance Switzerland
• Open a big office
• Ka Ching!
• And don't forget to get away on time

From the Straits Times (Singapore) two articles, "More than 100 file police report against gold buyback firm" and "High returns, low risk a red flag".

One would guess that people learned from previous cases like the Genneva saga, but apparently not, some snippets:


"On Monday, more than 100 people gathered to make police reports with the Commercial Affairs Department about local investment company Suisse International. They claimed to represent about 250 people who had lost around $35 million to the firm. They had invested in a gold buyback scheme but claim that they have stopped receiving their promised monthly payments, some since as far back as last September."

"Some of the investors had previously bought gold from another firm, Genneva Gold, which was raided by the CAD in 2012, and were eager to sell it off. They were told Suisse International bought and sold gold to turn into novelty coins to be sold at a profit to local or overseas companies."

"The MAS put both the Singapore and Hong Kong arms of Suisse International on its Investor Alert List last November. Both firms are listed with the same Beach Road address. The company offered investors returns of 20 per cent, which financial experts say is unusually high and should have been a red flag. They advise people to do more research to find out what the usual return rates are for various types of investment."

"At first I thought the investment was not bad, there were returns... it looked legitimate, the office in Toa Payoh was so big and I was at the opening of the Johor Bahru office as well," said the retiree who is in his 50s. "But the more we hear, the more we feel we have been very naive. It's a really painful feeling."

"In the wake of the latest alleged gold scam, in which more than 250 investors claim to have lost $35 million, financial experts and consumer watchdogs here urged people to vet a company's track record before investing in it. This includes checking if the firm is licensed by the Monetary Authority of Singapore (MAS), looking up its data on the Accounting and Corporate Regulatory Authority website and scrutinising the firm's financial and audit reports."

The Fed, Luck and Skill, History of Money

Three interesting articles with some snippets (for the full articles, please click on the links):

Jeremy Grantham: The Fed is killing the recovery

It's quite likely that the recovery has been slowed down because of the Fed's actions. Of course, we're dealing with anecdotal evidence here because there is no control. But go back to the 1980s and the U.S. had an aggregate debt level of about 1.3 times GDP. Then we had a massive spike over the next two decades to about 3.3 times debt. And GDP over that time period has been slowed. There isn't any room in that data for the belief that more debt creates growth.

The Bernanke put -- the market belief that if anything goes bad the Fed will come to the rescue -- has had a profound impact on people and how they act.

Yes, I agree that the Fed can manipulate stock prices. That's perhaps the only thing they can do. But why would you want to get an advantage from the wealth effect when you know you are going to have to give it all back when the Fed reverses course. At the same time, the Fed encourages steady increasing leverage and more asset bubbles. It's clear to most investing professionals that they can benefit from an asymmetric bet here. The Fed gives them very cheap leverage on the upside, and then bails them out on the downside. And you should have more confidence of that now. The only ones who have really benefited from QE are hedge fund managers.

So are you putting your client's money into the market?

No. You asked me where the market is headed from here. But to invest our clients' money on the basis of speculation being driven by the Fed's misguided policies doesn't seem like the best thing to do with our clients' money.

We invest our clients' money based on our seven-year prediction. And over the next seven years, we think the market will have negative returns. The next bust will be unlike any other, because the Fed and other centrals banks around the world have taken on all this leverage that was out there and put it on their balance sheets. We have never had this before. Assets are overpriced generally. They will be cheap again. That's how we will pay for this. It's going to be very painful for investors.


Luck and Skill Untangled: The Science of Success

It turns out that investors earn dollar-weighted returns that are less than the average return of mutual funds. Over the last 20 years through 2011, for instance, the S&P 500 has returned about 8 percent annually, the average mutual fund about 6 to 7 percent (fees and other costs represent the difference), but the average investor has earned less than 5 percent. At first blush it seems hard to see how investors can do worse than the funds they invest in. The insight is that investors tend to buy after the market has gone up — ignoring reversion to the mean — and sell after the market has gone down — again, ignoring reversion to the mean. The practice of buying high and selling low is what drives the dollar-weighted returns to be less than the average returns. This pattern is so well documented that academics call it the “dumb money effect.”


A Brief History of Money


If the entire history of Homo sapiens was represented by a 24-hour clock, money would only have been around for the last 18 minutes. Because it connects people, it is arguably humankind's most important invention, up there with the printing press and the internet.

But, as George Goodman (a.k.a."Adam Smith") points out, “The trouble with paper money is that it rewards the minority that can manipulate money and makes fools of the generation that has worked and saved.”  Under a fiat money system, higher inflation slowly confiscates savings. Wall Street and the financial sector have been viewed with scorn in the aftermath of the 2008 global financial crisis, but one positive development in the world of finance is that we no longer have a “minority” that can use money to their advantage—anyone can do it. For a long time, only the privileged rich could access global market opportunities, but thanks to innovations like exchange-traded funds and low-cost online trading accounts, participation in the global stock market is cheap and easy.  Because of the now low barriers to entry, all investors can protect themselves from inflation and grow their wealth.

Born after 1980, millennials are the first complete generation of Americans born into a world of dollars without an anchor. No anchor means no check on inflation, no check on money printing, and therefore no check on the value of our U.S. dollar.  With inflation eating away our purchasing power, we should invest in assets that grow at the highest real rate (after-inflation) over time. 

Over the long run stocks have outperformed bonds and bills, usually by wide margins[xi].  And while U.S. bills and bonds did provide slightly positive returns after inflation during this period, bonds and bills in other countries lost money between 1900 and 2012.  Investments in supposedly “safe” short term bills lost purchasing power in Germany, Japan, France, Italy, Belgium, Finland and Austria. In the U.S. and in countries abroad, bills and bonds have failed to help investors build wealth.

Zulauf and Faber: buy GDX (Gold Miners ETF)

In the "Barrons Roundtable 2014" both Marc Faber and Felix Zulauf recommend to buy gold minining companies through "GDX", a gold miners ETF managed by Van Eck, more information can be found here.

The ETF closely tracks the appropriate gold miners index and only has a 0.5% management fee.

Top holdings are Barrick Gold, Goldcorp Inc., Newport Mining, Silver Wheaton, Yamana Gold, Franco-Nevada and Newcrest Mining.

The article on Barrons is behind a pay wall, but the individual stories from Marc Faber can be found here, from Felix Zulauf here.

Wishing all readers a happy and prosperous new year of the horse.

Losing Faith in Gold?

Long and interesting article on Bloomberg's website by Peter Robison & Ekow Dontoh:

"Losing Faith in Gold From Ghana to Vancouver Proves Rout"

There is an infographic from Bloomberg:

"Damage of Declining Gold Prices Felt Globally"

I recommend to read the whole article, some snippets:


"Gold’s swift fall, including two days in April when it plunged the most since 1980, has ravaged hopes and livelihoods around the world -- from the 1 million miners in Ghana who scour in the dirt, to thousands of executives and geologists at mining exploration firms that are running out of cash in Vancouver. Gone too are jobs for auditors, bankers and analysts in the finance capitals of Toronto and London. Investors who bet big and lost are shifting assets elsewhere and scaling back retirement plans."

"At the September 2011 peak, the market value of the world’s gold mining companies reached $486 billion, more than the gross domestic product of the United Arab Emirates. Since then, they’ve lost $271 billion, including a 71 percent plunge in U.S. shares of AngloGold Ashanti Ltd., a Johannesburg-based producer held by Paulson."

"Seitz went to London in April to raise money for his newest venture, a developer of Kazakhstan gold assets called IRG Exploration & Mining Inc. He met with eight analysts and bankers. Six weeks later, four of them had lost their jobs, he said. “In my professional career, it’s been the toughest couple years of my life,” Seitz said."


However, despite the rather negative tone in the above article, I am not bearish about either gold or the gold miners, about which I have written before. I think that this kind of article is typically written near the bottom of the market, not the top. Small, inefficient mining companies will not be able to survive at the current low prices, but the larger, better funded ones will.

Barrick Gold made a nice run-up from it's lows (around USD 14). I have not yet sold any of my shares in Barrick or any of the other mining companies that I owe.

Once in a Lifetime Opportunity to Buy Barrick Gold? (2)

I received the following comment on my previous posting "Once in a Lifetime Opportunity to Buy Barrick Gold?"

"Very interesting:

When the original article came out (5 July 2013) the share price dropped, but then when you blogged it (15 July 2013) it went up quite a bit.

Was this your own money? Or do you have many followers?"

I thank "Tony", but the comment is really too flattering for me. My blog did receive almost a quarter of a million hits (about 10,000 to 12,000 hits a month), a pretty unbelievable number for a subject that is perceived to be rather boring by most investors, Corporate Governance. It makes me humble, and despite being very occupied with work lately and not earning once cent through this blog (that is the way I want it), I hope to continue writing in the future.

But I don't think (and actually hope) that the readers of this blog are the people who are looking for a quick punt. I try to stress the virtues of long term investing. I agree, the timing of my posting could have been worse, so far it worked out quite nice.

And yes, I did buy Barrick Gold for my own account, but given the size of Barrick Gold, my purchase would have only caused a small ripple in the ocean. I have not sold my holding, not do I intend to do so in the near future, unless the price really rises fast.

Marc Faber has written a lot about miners in general in the past. I assumed he would be interested at the current prices and was thus not disappointed to read in this August 2013 edition of "The Gloom, Boom & Doom Report":


"Relative to all other assets that I follow, gold mining stocks are inexpensive and should be purchased gradually. Some pundits argue that the Fed manipulated the gold prices lower and that the US doesn't have the gold it officially shows. I [Marc Faber] really hope they are right, because if that were the case, gold prices might explode on the upside".


I did speak recently to someone with deep knowledge in mining companies (he worked before for BHP) and trading in commodities. He told me that there is a lot of stress in the market, many companies are stuck with expensive mining assets that they bought in the last years. Prices of commodities have come down recently, indicating growth in China is slowing down substantially.

Also, although many commodities have risen over say the last 10 years, the cost to mine them has risen more, putting pressure on margins. In other words, short-term results of mining companies might be horrendous, with recently acquired assets being (partially) written down.

I have been very critical about Malaysian SPACs in the past (and will firmly continue to do so, unless I have convincing arguments that they actually might work for the minority investors in the long run), but one of the rare positives is that the ones focusing on mining might be able to buy some assets on the cheap from mining companies with stretched balance sheets.

Investing in Gold

I have written several times about gold.

In The New York Times an article by Harvard professor N. Gregory Mankiw appeared:

"Budging (Just a Little) on Investing in Gold, should gold be a part of my portfolio?”

Here are the main points of the writer:


THERE ISN’T A LOT OF IT
The World Gold Council estimates that all the gold ever mined amounts to 174,100 metric tons. If this supply were divided equally among the world’s population, it would work out to less than one ounce a person.

Warren E. Buffett has a good way to illustrate how little gold there is. He has calculated that if all the gold in the world were made into a cube, its edge would be only 69 feet long. So the cube would fit comfortably within a baseball infield.

ITS REAL RETURN IS SMALL 
Over the long run, gold’s price has outpaced overall prices as measured by the Consumer Price Index — but not by much. In another recent N.B.E.R. paper, the economists Robert J. Barro and Sanjay P. Misra reported that from 1836 to 2011, gold earned an average annual inflation-adjusted return of 1.1 percent. By contrast, they estimated long-term returns to be 1.0 percent for Treasury bills, 2.9 percent for long-term bonds and 7.4 percent for stocks.

Mr. Erb and Mr. Harvey presented a novel way of gauging gold’s return in the very long run: they compared what the Roman emperor Augustus paid his soldiers, measured in units of gold, to what we pay the military today. 
    

They report remarkably little change over 2,000 years. The annual cost of one Roman legionary plus one Roman centurion was 40.9 ounces of gold. The annual cost of one United States Army private plus one Army captain has recently been 38.9 ounces of gold.

ITS PRICE IS HIGHLY VOLATILE
Gold may offer an average return near that of Treasury bills, but its volatility is closer to that of the stock market. That has been especially true since President Richard M. Nixon removed the last vestiges of the gold standard. Mr. Barro and Mr. Misra report that since 1975, the volatility of gold’s return, as measured by standard deviation, has been about 50 percent greater than the volatility of stocks.

IT MARCHES TO A DIFFERENT BEAT A
n important element of an investment portfolio is diversification, and here is where gold really shines — pun intended — because its price is largely uncorrelated with stocks and bonds. Despite gold’s volatility, adding a little to a standard portfolio can reduce its overall risk.


Some comments by me:

• Its return is small: this is measured against the S&P 500 from the US which has performed very well over the long run; however, most other share markets all over the world haven't returned that much, I think only the Australian market has beaten the US over the very long run. One example is the Chinese market, although the economy has boomed tremendously over the last 10-15 years, a foreign investor would not have made much money at all (one possible reason being the low standard of Corporate Governance, capitalism is still too young in China)
• Since abandoning of the gold standard, as could be expected (without the restriction that each USD had to be backed by gold) the US government embarked on a money printing campaign that increased in recent times since the 2008/9 global crisis; we might not yet have seen the end of this, which makes a decent case to hold gold since its supply is limited, while governments ability to print money out of nothing isn't
• The writer recommends to hold 2% of ones assets in gold, Marc Faber recommends a clearly higher percentage, more like 5-10% (possibly in combination with other precious metals)

I think gold (and other precious metals) should be a part of a diversified portfolio which contains (global) stocks, cash, short term and long term bonds and property (or land). At the moment the future returns for long term bonds do not look well, so its allocation should be minimal.

Once in a Lifetime Opportunity to Buy Barrick Gold?

John Dowdee wrote an article "Once in a Lifetime Opportunity to Buy Barrick Gold!" at the website of The Motley Fool, some excerpts:


The all-in costs for the three largest gold mines are projected from their annual reports as:

• Barrick Gold (NYSE: ABX): $950 to $1025 per ounce
• Newmont Mining (NYSE: NEM): $1100 to $1200 per ounce
• Goldcorp (NYSE: GG): $1000 to $1100 per ounce

Gold is searching for a bottom

These all-in costs are important because this week gold dipped below the $1200 per ounce level for the first time since 2009, which is getting very close to the all-in costs. If the price of bullion does not recover, then some of the higher priced mines will become unprofitable and will be taken offline. This will sharply reduce supply and should cause the price of bullion to rebound. So my Foolish belief is that the price of gold bullion is finally bottoming and, if true, this is excellent news for the mining stocks.

Since last October, the price of gold bullion has cratered over 25%. In the same timeframe, both GG and NEM have declined 36% but ABX has crashed by almost 60%! Why did one of the world’s largest gold miners, with the cheapest all-in costs, collapse so much more than the other, more expensive mining companies? The answer is two words: Pascua-Lama.

The reason behind Barrick’s fall

Pascua-Lama is a gold mine in the Andes Mountains on the border of Chile and Argentina. It sits at over 14,000 feet above sea level on top an estimated 17 million ounces of gold and 635 million ounces of silver, with about 75% of the deposits on the Chilean side. When completed this will be one of the world’s cheapest sources of gold but the construction is about 2 years behind schedule (now projecting a 2016 completion) and is substantially over cost (now projected to be $8.5 billion rather than the original estimate of $3 billion).

However, the most pressing issue is that construction has been stopped by the Chilean government due to some environmental issues (the site is near 3 glaciers). It is not clear when these issues will be resolved but this is an important project for Chile as well as Barrick so I expect that an accommodation will be reached later this year. When this stoppage was announced in April, Barrick fell hard from around $30 per share to under $20 in a few days and has yet to recovery (current price is less than $16 per share).

Compelling metrics

In virtually every value metric, Barrick shines when compared with its peers. Barrick’s forward Price-to-Earnings (P/E) ratio is extremely low at 4.9 and is significantly lower than Newmont (9.3) and Goldcorp (12.4). In terms of price-to-book, Barrick comes in at a compelling 0.7 compared with 1.1 for Newmont and 0.9 for Goldcorp. Perhaps one of the best metrics is the dividend yield. Barrick is now paying over 5% which is higher than Newmont and much higher the Goldcorp. So Barrick will pay you to wait for improvement in the Pascua-Lama situation.

Based on the above analysis, I believe the recent decline of Barrick was overdone. Pascua-Lama is important to Barrick’s future, but it is not a make-or-break proposition. Even without Pascua-Lama, Barrick owns over 26 mines that produced over 7 million ounces of gold last year. Barrick also has over 120 million ounces of gold and about a billion ounces of silver in reserves.

Foolish bottom line

When the Pascua-Lama issue is resolved, Barrick should rocket ahead, but until then, the company is one of Wall Street’s most unloved stocks! Thus, based on the old Wall Street adage, it may be time for Foolish investors to back up the truck and load up with this gold stock. If you can handle the volatility, then I believe that long-term investments in Barrick will be well rewarded.


I wrote before about gold miners. I quite like mining companies at the current price, and have started to accumulate a few, including Barrick Gold. However, investors should be ready to stomach potential losses, sentiment is terrible at the moment and the stocks of mining companies can easily fall further. If that happens I will buy some more, I don't think a whole industry can be wiped out. Normally, if shares of companies in a beaten down industry do recover, it will be the blue chips who are leading the charge.

A more negative story, to balance things out, from the same The Motley Fool: "Can Gold Miners Drop Even Further?"

Sarfaraz Khan writes:


"Analysts have also pointed out that some of the leading gold miners are going to write down the value of their assets in the coming quarters. While some believe that the sector has hit rock bottom, I think that it can go down even further."


Note: this is not a recommendation to buy or sell shares. Readers should do their own homework and decide themselves.

(Gold) Miners, a contrarian play?

Most people will know that gold has come down quite a bit lately, about 30% from its top.

But they might not know that the gold miners have come down much more in value.

Below is the chart of Barrick Gold, its share is down 70% since its top of $55 in 2011:

Well known gold funds like the ones from Van Eck and Blackrock have also faired badly, they are about 50% down over the last 2 years.

Is the sell off overdone? The price of gold has come down, which will surely have an effect on the profits. Also, many miners have bought assets in the last years, some of these assets have to be written down in value, giving one-off negative surprises.

However, I think that in the long run there will be inflationary pressures, and that the price of gold (and other precious metals) will rise again. For the blue-chip miners, this sell off might not be all bad news, competitors with insufficient cash might be put out of business.

I have started to pick up some of the miners, both the gold miners and the more general ones (like BHP). Although their share prices might easily fall further, in the long run I expect them to do ok.

Business Insider has an interesting info graphic on their website, explaining the cost of gold mining and why there are not many gold miners in Asia: there are not many mines (some are in Russia), and the cost is relatively high.

"This is going to end badly"

Interesting article from PFP Wealth Management can be found here.

Three interesting charts, two of which are from Dough Wakefield:

This chart looks rather scary. If companies ran into troubles in 2001/01 and 2008/09 but survived, then their valuations should be relatively cheaper now. But if companies did go bankrupt, then value was destroyed permanently for investors in those companies.

I am less negative than the writer of the article, shares are probably in general somewhat expensive, but not overvalued as much as in 2000 or 2007.

The above chart shows that high yield bonds also went up a lot. The article therefore poses the question:

"Straightforward analysis of these two charts happens to fire a torpedo into the current thesis that we should all be preparing for some kind of ‘Great Rotation’ out of bonds and into stocks. What are we all supposed to do if stocks and (in this case, high yield) bonds are both expensive?"

And another, intriguing question:

“Is it possible that the big banks, after never having more than $60 billion in excess reserves between 1957 (oldest date I could find on a Federal Reserve website) and the end of 2008, are sitting on more than $1.5 trillion at the end of 2012 because they are preparing for a massive DEFLATION of asset prices in the future ? What about big corporations, who recently reached their largest amount of cash on record ?”

That sounds indeed puzzling.

Another observation by the writer:

We note that Credit Suisse has now run up the white flag on gold, declaring that the precious metal “appears significantly overvalued”. By comparison to what, exactly ? Or as expressed in what, exactly ? We think Credit Suisse’s gold analysts understand as much about gold as Kermit the Frog or any other of the Muppets. The chart below, for example, shows the extent to which central banks have recently inflated their balance sheets:

Indeed, a remarkable correlation. The kind of chart that reminds me that countries that report extraordinary low inflation of 1% or 2% (Malaysia is one of those, but there are many others) might significantly under-report the real numbers.

And the last observation of Tim Price:

"So while we can state with a high degree of certainty that this mess really will end badly, we can’t state with any certainty over what time period it does so. So we are quite content to shelter in a variety of sensibly selected and genuinely disparate asset classes, and meanwhile pick fights with any and all comers who seem to have grave difficulty in distinguishing between nominal price returns and  substantive, lasting value. Pay your “money”, and take your choice."

Weekly roundup: Country Heights, gold trading, Protasco, CDS information leaked

MSWG has tackled the "Country Heights Grower Scheme", according to this article in The Star:

“Why the rush to terminate when the prevailing average crude palm oil (CPO) price is still hovering around RM2,300 per tonne, which is above the minimum RM800 per metric tonne?”


Rita pointed out that Ferrier Hodgson, the independent adviser, had stated that a shortfall between the grower's fee payable of RM215mil (contributed by the subscribers) and the underlying value of the land at RM129mil cast doubt on the recoverability of the grower's fee.

“Would CHGS be able to refund the capital of about RM215 million in this two years?” questioned Rita.

“If the net yield payments were not made, would it not be deemed as a breach of the terms and conditions of the agreement signed between the subscribers and CHGS?”

“Why is there a difference, ie, RM86mil, ie, RM215mil and the value of the land, ie, RM129mil? Why was there no professional valuation carried out for the said land?”


The first grower scheme in the country will be seeing its general meeting next month on Feb 8.

“In addition, what was the reason for fixing the general meeting date a day before the Chinese New Year's celebration, given the expected long break holiday?”

These seem to be all very valid questions. Although Country Heights is a listed company, the details of this kind of investment scheme can not be found on the website of Bursa Malaysia.

On MSWG's website Rita writes:

"It is time market regulators re-examine all such schemes, its structure and marketing taglines to ensure that subscribers/investors are protected"

This scheme is attracting a lot of attention in the forums, for instance on lowyat.

An old link from a Bloomberg interview with Country Heights's Lee about the Grower scheme:

``It's like money dropping from the tree,'' Lee, managing director of developer Country Heights Holdings Bhd., said July 2. ``I'm a very conservative guy. The only risk they take is the price of the palm oil. 

Bee Garden Holdings Sdn., owned by Lee's wife and which runs the project, has sold 8,000 of the available plots, and expects to sell the rest by the end of the year, said Lee.

"Under the so-called Country Heights Grower Scheme, plot buyers will receive 12 percent each year on the amount invested if palm oil averages above 2,100 ringgit a ton from the fourth year onward, and a further 5 percent depending on the plantation's output. If palm oil prices are lower, the annual return drops on a sliding scale, paying 1 percent if the price of palm oil is between 901 ringgit and 1,100 ringgit a ton. There is no return on a price below 800 ringgit. ``It's very difficult for the price to drop below 800,'' Lee said. ``The potential is so great on palm oil.'' In total, annual returns will probably range from 11 percent to 17 percent from the fourth year onwards, the project's prospectus says."

With palm oil around RM 2,300 per ton, annual returns should be good, so MSWG's concerns regarding the termination of the contract seem to be correct.


A more general article about Malaysian investors hungry for yield and the rise of unregulated investment schemes can be found on Bloomberg.


In Singapore another gold trading company, Gold Guarantee, has apparently run into problems, the newspaper article is mentioned here.


I would caution investors to participate in these kind of schemes. If an investor is bullish about gold, he could invest in one of the large, listed mining companies in the US, Canada or Australia. If an investor is bullish about palm oil, he could consider investing in any of the listed plantation companies. And for property there are the REIT's. Information on these companies is much better and can (for Malaysian companies) easily be found on Bursa Malaysia's excellent announcements website.


On my posting "Protasco's Puzzling Purchase", "anonymous" suggested that the purchase might have to do with the recent change in directors and shareholding. "Ronnie" mentioned that "MSWG is doing a fine job given its limited resources. Hopefully they will do something or raise the alarm.", with which we agree.

The red flags are too numerous to count, and the announcement was of extremely poor quality. Not a single reason (production numbers, proven/probable/possible reserves of oil or gas, large historic profit numbers) was given why PT ASI would be worth that much money. A valuation would be done, but is it not the normal way first to do research before one buys a part of a company?


And then there was the saga of CDS account information possibly having being leaked. The Star's editor Risen Jayaseelan suggests to make the list of the largest 1000 shareholders available,  for a price:

News editor Risen Jayaseelan reckons that if made available, the latest shareholder list of companies like Hong Leong Capital Bhd would be a sought-after item, as it would shed light on who is really buying the shares at prices above the takeover offer.

Bursa Malaysia was initially reluctant to investigate, hiding itself behind the excuse that it had not received any complaint. If information is credible (which it appeared to be, from different sources), then Bursa should just act and not use these kind of excuses, but act pro-actively and fast. Luckily, a few days later did it had indeed started an investigation into this matter, according to The Edge.


Busy days for the regulators.

Warren Buffett: Why stocks beat gold and bonds

In an adaptation from his upcoming shareholder letter, the Oracle of Omaha explains why equities almost always beat the alternatives (bonds, gold, etc) over time.

By Warren Buffett

FORTUNE -- Investing is often described as the process of laying out money now in the expectation of receiving more money in the future. At Berkshire Hathaway (BRKA) we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power -- after taxes have been paid on nominal gains -- in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date.

From our definition there flows an important corollary: The riskiness of an investment is not measured by beta (a Wall Street term encompassing volatility and often used in measuring risk) but rather by the probability -- the reasoned probability -- of that investment causing its owner a loss of purchasing power over his contemplated holding period. Assets can fluctuate greatly in price and not be risky as long as they are reasonably certain to deliver increased purchasing power over their holding period. And as we will see, a nonfluctuating asset can be laden with risk.

Investment possibilities are both many and varied. There are three major categories, however, and it's important to understand the characteristics of each. So let's survey the field.

Investments that are denominated in a given currency include money-market funds, bonds, mortgages, bank deposits, and other instruments. Most of these currency-based investments are thought of as "safe." In truth they are among the most dangerous of assets. Their beta may be zero, but their risk is huge.

Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as these holders continued to receive timely payments of interest and principal. This ugly result, moreover, will forever recur. Governments determine the ultimate value of money, and systemic forces will sometimes cause them to gravitate to policies that produce inflation. From time to time such policies spin out of control.



Even in the U.S., where the wish for a stable currency is strong, the dollar has fallen a staggering 86% in value since 1965, when I took over management of Berkshire. It takes no less than $7 today to buy what $1 did at that time. Consequently, a tax-free institution would have needed 4.3% interest annually from bond investments over that period to simply maintain its purchasing power. Its managers would have been kidding themselves if they thought of any portion of that interest as "income."

For taxpaying investors like you and me, the picture has been far worse. During the same 47-year period, continuous rolling of U.S. Treasury bills produced 5.7% annually. That sounds satisfactory. But if an individual investor paid personal income taxes at a rate averaging 25%, this 5.7% return would have yielded nothing in the way of real income. This investor's visible income tax would have stripped him of 1.4 points of the stated yield, and the invisible inflation tax would have devoured the remaining 4.3 points. It's noteworthy that the implicit inflation "tax" was more than triple the explicit income tax that our investor probably thought of as his main burden. "In God We Trust" may be imprinted on our currency, but the hand that activates our government's printing press has been all too human.

High interest rates, of course, can compensate purchasers for the inflation risk they face with currency-based investments -- and indeed, rates in the early 1980s did that job nicely. Current rates, however, do not come close to offsetting the purchasing-power risk that investors assume. Right now bonds should come with a warning label.

Under today's conditions, therefore, I do not like currency-based investments. Even so, Berkshire holds significant amounts of them, primarily of the short-term variety. At Berkshire the need for ample liquidity occupies center stage and will never be slighted, however inadequate rates may be. Accommodating this need, we primarily hold U.S. Treasury bills, the only investment that can be counted on for liquidity under the most chaotic of economic conditions. Our working level for liquidity is $20 billion; $10 billion is our absolute minimum.

Beyond the requirements that liquidity and regulators impose on us, we will purchase currency-related securities only if they offer the possibility of unusual gain -- either because a particular credit is mispriced, as can occur in periodic junk-bond debacles, or because rates rise to a level that offers the possibility of realizing substantial capital gains on high-grade bonds when rates fall. Though we've exploited both opportunities in the past -- and may do so again -- we are now 180 degrees removed from such prospects. Today, a wry comment that Wall Streeter Shelby Cullom Davis made long ago seems apt: "Bonds promoted as offering risk-free returns are now priced to deliver return-free risk."

The second major category of investments involves assets that will never produce anything, but that are purchased in the buyer's hope that someone else -- who also knows that the assets will be forever unproductive -- will pay more for them in the future. Tulips, of all things, briefly became a favorite of such buyers in the 17th century.

This type of investment requires an expanding pool of buyers, who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce -- it will remain lifeless forever -- but rather by the belief that others will desire it even more avidly in the future.



The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.

What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As "bandwagon" investors join any party, they create their own truth -- for a while.

Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the "proof " delivered by the market, and the pool of buyers -- for a time -- expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: "What the wise man does in the beginning, the fool does in the end."

Today the world's gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce -- gold's price as I write this -- its value would be about $9.6 trillion. Call this cube pile A.

Let's now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world's most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?




Beyond the staggering valuation given the existing stock of gold, current prices make today's annual production of gold command about $160 billion. Buyers -- whether jewelry and industrial users, frightened individuals, or speculators -- must continually absorb this additional supply to merely maintain an equilibrium at present prices.

A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops -- and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil (XOM) will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.
Admittedly, when people a century from now are fearful, it's likely many will still rush to gold. I'm confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B.

Our first two categories enjoy maximum popularity at peaks of fear: Terror over economic collapse drives individuals to currency-based assets, most particularly U.S. obligations, and fear of currency collapse fosters movement to sterile assets such as gold. We heard "cash is king" in late 2008, just when cash should have been deployed rather than held. Similarly, we heard "cash is trash" in the early 1980s just when fixed-dollar investments were at their most attractive level in memory. On those occasions, investors who required a supportive crowd paid dearly for that comfort.





My own preference -- and you knew this was coming -- is our third category: investment in productive assets, whether businesses, farms, or real estate. Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment. Farms, real estate, and many businesses such as Coca-Cola (KO), IBM (IBM), and our own See's Candy meet that double-barreled test. Certain other companies -- think of our regulated utilities, for example -- fail it because inflation places heavy capital requirements on them. To earn more, their owners must invest more. Even so, these investments will remain superior to nonproductive or currency-based assets.

Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today), people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola or some See's peanut brittle. In the future the U.S. population will move more goods, consume more food, and require more living space than it does now. People will forever exchange what they produce for what others produce.

Our country's businesses will continue to efficiently deliver goods and services wanted by our citizens. Metaphorically, these commercial "cows" will live for centuries and give ever greater quantities of "milk" to boot. Their value will be determined not by the medium of exchange but rather by their capacity to deliver milk. Proceeds from the sale of the milk will compound for the owners of the cows, just as they did during the 20th century when the Dow increased from 66 to 11,497 (and paid loads of dividends as well).

Berkshire's goal will be to increase its ownership of first-class businesses. Our first choice will be to own them in their entirety -- but we will also be owners by way of holding sizable amounts of marketable stocks. I believe that over any extended period of time this category of investing will prove to be the runaway winner among the three we've examined. More important, it will be by far the safest.

This article is from the February 27, 2012 issue of Fortune.

http://finance.fortune.cnn.com/2012/02/09/warren-buffett-berkshire-shareholder-letter/

France bans cash sales of Gold & Silver

France Bans Cash Sales Of Gold & Silver Over $600

http://www.infowars.com/france-bans-cash-sales-of-gold-silver-over-600/

Central banks are presumably so frightened that a growing number of citizens are abandoning rapidly devaluing paper currencies and preserving their wealth through precious metals that governments are now cracking down on the anonymous purchase of gold and silver.

"Following the Austrian government’s announcement that it was restricting the sales of precious metals to $20,000 a time, an amount which would purchase just 11 ounces, the French authorities have followed suit with an equally draconian new measure to deter people from buying gold and silver."

"$600 USD isn’t even enough to purchase a half ounce of gold. This guarantees that citizens who are trying to transfer their savings over to precious metals will be known to the authorities, leaving them vulnerable to government confiscation of their gold and silver later on down the line, as happened in 1933 under FDR.

Why are central banks and governments in Europe so eager to make it as difficult as possible for citizens to buy precious metals? It’s largely because unlike every other financial commodity, they don’t have the market completely under their control, and cannot tolerate the idea of people having true power over their own economic destiny."



Outspoken hedgefund manager Hugh Hendry is giving his opinion about the crisis in Europe.

http://www.businessinsider.com/hugh-hendry-critical-debate-eurozone-crisis-2011

"Hedge fund manager Hugh Hendry, whose prediction of the crisis in the Eurozone was spot on, says we're at a rare moment in economic history. "The problem is greater than the ability of the politicians to respond," he says in a radio debate on BBC's Bottom Line. "There is no policy prescription that they can offer that will redeem the situation. The redemption will come through the citizens of Greece and elsewhere throwing the politicians out and rejecting the European ideal." Hendry's view on what the solution should be (a Greek default that doesn't protect the creditors) is quite different than Evan Davis' — the BBC host — and Brent Hobermann's of mydeco.com, another guest on the show."

"Hendry has other ideas about a solution. He says, "Bankruptcy is a solution [because] creditors who extended that debt [to Greece] — that was a folly. All this firefighting is trying to protect the creditors, as opposed to the oppressed person." Hendry's view is that Greece should default and leave the Euro. "Greece needs a real exchange rate," he says. "If you go on a drachma and [a beer in Greece is] .50p, there's a stimulus that's not open to them today [cheaper money]." Hendry says the UK is in depression - not recession - and it will take years to get back to where we were in 2006 and 2007. It's been 5 years since the financial crisis, and it might take another."

The Bernanke Take

http://www.financialarmageddon.com/2011/08/the-bernanke-take.html

"Thanks to policies that have damaged our economy's underpinnings, caused significant hardship to everyone but the rich, and triggered a mad dash for assets that provide some measure of downside protection, we now have what might be described as the "Bernanke Take" (as opposed to the "Bernanke Put") -- that is, a dramatic increase in crimes involving precious metals and other valuables, as the Los Angeles Times reports in "Soaring Gold Prices Trigger Jewelry Robberies, Police Warnings":

As the precious metal has nearly doubled in value from two years ago, gold merchants have boosted security amid a series of brazen store robberies. Police are urging owners of gold jewelry to be discreet about wearing it.

That stunning rise in the price of gold is having a ripple effect: A rash of jewelry store robberies, street muggings and home burglaries. Now, merchants are stepping up security and police are warning everyone against flaunting their bling.

When Capt. Mark Olvera, who runs the LAPD's Newton Division, spotted a beefy man with a gold chain around his neck the other day, he worried the guy might become a victim. "He looked like he could take care of himself," Olvera said. "But that's a couple thousand dollars ... on him."

So far this year, gold chains have been snatched from the necks of at least 110 people during street robberies in Olvera's South Los Angeles division. His officers are circulating fliers and showing up at churches and community centers to warn residents to stop wearing gold in public, or at least to tuck it under their clothes.

"It's easy money. It's easy to get, and it's easy to get that gold fenced. You see all the ads, 'We buy gold,'" Olvera said. "They sell it, melt it down and there's no regulation."

Nice one, Ben. Can't wait to see what you have planned for us next."

I just had to post this photo, I love it! I am not a fan of Bernanke, I am afraid he will feature in many more postings in the future and not in a positive way.

Sold half Gold, Bought Nikkei

Today I sold half of my Gold holding (not my Gold Miners, I still hold on to those), which trades close to its all time high and bought the Nikkei instead, close to the depressed level of March 2011. Since reaching its peak around 40,000 not many people would have made money buying the Nikkei which is in a 22-year bear market. Hopefully things start to improve.

Disclaimer: this is not an investment advice,

always do your own homework and take full responsibility for your own trades.

Gold, Baby, Gold

Gold: a Buy or a Sell?

Gold trades currently above USD 1,600 per ounce. The previous bull run ended in 1980 at around USD 850 per ounce, after which a 26(!) year bear market followed. The following chart is not adjusted for inflation:

There are four people I admire.

Warren Buffett:

“Gold gets dug out of the ground in Africa, or some place. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

“Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money, but the gold itself doesn’t produce anything.”

Charlie Munger:

“I don’t have the slightest interest in gold. I like understanding what works and what doesn’t in human systems. To me that’s not optional; that’s a moral obligation. If you’re capable of understanding the world, you have a moral obligation to become rational. And I don’t see how you become rational hoarding gold. Even if it works, you’re a jerk.”

Jim Rogers:
"I own gold and silver, because paper money all over the world is being debased.  In a few years we will probably all have our money in physical assets, because nearly all paper money is being debased at a rapid rate by politicians who have learned how to buy votes.  It is the wrong thing to do, but they don't care.  They're worried about the next election."

Marc Faber:

“And so the question is, you know, where do you put your money if you and I go away to an island or to jail for ten years and we can’t make any transactions and we come back in ten years’ time? I think if the objective is the maintenance of purchasing power, in other words, you just don’t want to wake up in ten years’ time when you come out of jail and what you have is worthless, then I would say that probably gold is the best alternative. If the question is how do you maximize profit, probably there may be more profit in equities because, you know, we have abysmal performance of equities in the last ten years. And particularly in the US, as a result of the decline in the value of the US dollar, equities would seem to me to be not particularly expensive. I think what would be dangerous for you and me would be to put all our money in US dollar cash and in US government bonds for ten years and then come back and maybe find out that we can buy with a hundred thousand dollars just a cup of coffee — or not even that.”

He said that longer-term gold can only go higher because of negative real interest rates. Even a deflationary collapse is unlikely to hurt gold because the Fed will simply debase the dollar to get nominal prices higher.

"If the Fed gets it right and successfully re-inflates asset prices, then inflation will be in the double-digits, which would be bullish for gold," Faber pointed out.”

Marc Faber argued the following in his "Gloom, Boom and Doom" newsletter:

It took the US government about 80 years (between 1920 and 2000) to devalue the USD by 95%. In other words, it would take $20 in 2000 to buy the same item that cost $1 in 1920. The US government will again devalue the USD by 95%, but this time they will do it much faster. Paper currencies can be printed at will, they don’t even need a physical printer, they can add money electronically. The only money they can’t print at will is money supported by real items, like Gold.

For me, if these clever people have such a different opinion, then what can I add? I simply find it fascinating, such a difference of opinion by such clever people.

For me, I own some gold and some gold miners (through Blackrock World Gold Fund), I don’t intend to buy nor sell at this moment. Other good long-term inflation hedges are land, property and to some extend shares. The best is to spread risk by investing in different asset classes.