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FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Resource Investors – Keep Your Eyes on the Prize

Commodities / Gold & Silver Stocks Aug 29, 2007 - 01:16 PM GMT

By: Dudley_Baker

Commodities

Investors continue to experience losses in their portfolios due to the recent market fears.

We continue to remind ourselves, as should all investors in the natural resource sector, that the big picture has not changed and the reasons and arguments for these investments are as sound today, if not more so. Corrections will come and yes, they will go, leading us to another great rally. But obviously that day not yet arrived. Patience and focus is essential for all of us at this time.


We have shared with readers in the past comments from one of our very savvy and insightful subscribers and would like to present some of his current views on the markets. I will caution you that some of his comments are rather bearish in the short term, but in the end he knows he is correctly positioned with his investments and continues to ‘keep his eyes on the prize'.

He wrote to me last week and followed up on the morning of August 29th : “An article dated August 22, 2007 by Martin Wolf in The Financial Times, “Why The Federal Reserve Has To Keep The Party Going” attempts to explain the macro global economic/financial realities...how we got to where we are now as well as future prospects. 

I really wish this writer and others would deal with the verifiable fact which is that central banks of the major industrial nations have been creating liquidity/facilitating and allowing money to be created at about 4x the rate at which their respective GDP's, adjusted for price inflation, have been growing. 

Why is that so important?  Think of the compounding effects of excessive money creation and what that does in stimulating demand as well as in skewing consumption and investment decisions.  Initially it creates a fool's paradise – a convergence of easy money, little savings, growing and huge, but unsustainable, consumption and lifestyle enhancement which all begin to seem normal.  Of course, ultimately there are consequences and the proverbial pay day of escalating price inflation run amok unless severe policy constraints come to bear, such as much higher interest rates and limited access to credit.  Of course that leads to a severe recession, but a necessary brake on an out of control economy heading on a hyperinflationary spiral.

This is why I continue to be a believer in my kind of investment portfolio...precious metals, energy and commodities generally.  Since it appears there is no political will to rein in the growth of liquidity/money supply/credit for consumption, the result I outline is inevitable.  It is just a matter of when and to what degree.  I say this because governments and their central banks increasingly opt for the politically easy way out of any problem by ignoring the longer term, addressing only the present and immediate future using the same tools that churn the current upheaval in financial markets – greater liquidity and easy credit.

I have studied the political process from the time I was kid and have experienced the process close up throughout my career.  I know the political mindset and the instinctive response of the system makes it absolutely incapable of doing anything substantive requiring thorough thinking and tough decisions which extend beyond the date of the next election.  Unfortunate, but true.  Moreover, this harsh conclusion makes no partisan or ideological distinctions.  Electoral systems holding out the promise of large rewards for the winners do not encourage participants to make those tough decisions requiring long term thinking and requisite public policy.”

___________

“It is Wednesday morning, August 29th following another bad day in the financial markets.  So what, you say?  Nothing much different than the volatility that we've been observing for the past month. 

In terms of my portfolio, I continue to be buffeted, especially on my uranium, but also in the other energy and precious metals.  Do I wish circumstances were different?  Of course.  I said in my last minor missive that in retrospect...just like all Monday morning quarterbacks...one should have liquidated his entire portfolio the day the DOW hit 14,000, placed his money in 30 day TBills and rolled them over as long as was necessary until one found the most desirable time to re-enter the market.  Of course I didn't do that and most everyone else did not sell at that optimal point either. 

I continue to sit with all the investments I had before the tumult comfortable in the knowledge that the components of my portfolio are where I want to be over the longer haul...precious metals and energy, especially uranium and oil, as well as a few other select commodities. Because I am so convinced that I am incapable of being a successful market timer and resist the temptations of trading for fear of being whipsawed, I constructed a portfolio which anticipated the tumult we are experiencing with my eye firmly fixed on the longer term future.  Admittedly I don't enjoy the daily experience of seeing my portfolio losing its value, but I remind myself that most of my investments are still considerably above the price I paid for them.

Because I spend so much time reading a diversity of financial fact and opinion, I had more or less anticipated the roiling of the financial markets we are currently experiencing.  I am increasingly coming to the conclusion that what we are seeing is a financial hurricane approaching in slow motion.  My sense is that the shear magnitude and diversity of the arcane investment products make rescue measures by central banks inadequate and probably ineffective.  So much is beyond their reach, even their understanding of the elephant with which they are dealing.  All they can really hope for is to cause the financial unraveling to be sufficiently opaque and slow in order to maintain some modicum of order and investor confidence.  Maybe better stated, they desperately want to avoid a severe crisis of confidence among the investor class and general public.  Maybe this is the best case scenario? 

The reasons I cite for this gloomy assessment relate primarily to the monetary system.  The routine creation of money by most major nations at a rate averaging more than 4X the growth of their GDP, is the main source of the financial malaise.  Couple this with easy credit, low interest rates and virtually no financial discipline or rigour in the financial services industry and only limited and selective oversight by the likes of the SEC, we end up with what we observe and experience today.  Therefore, if the system doesn't tumble big time today, it will will tomorrow.  Sorry, but I can't find much reason for optimism.”

Our personal comments: We are privileged to have this friend as a subscriber to our service. You can sense that he has a long term view for his investments and has selected the shares in his companies and/or their long term warrants very carefully. Think long term and be confident, for our day will come and we will be rewarded therefore.

For those readers desiring more information on warrants you may wish to visit www.PreciousMetalsWarrants.com where you will find much more information and education on warrants in our new Learning Center . You may also signup for our free weekly email, The Warrant Report.

Dudley Pierce Baker
Guadalajara/Ajijic, México
Email: info@preciousmetalswarrants.com
Website: PreciousMetalsWarrants

Dudley Baker is the owner/editor of Precious Metals Warrants, a market data service which provides you with the details on all mining & energy companies with warrants trading on the U. S. and Canadian Exchanges. As new warrants are listed for trading we alert you via an e-mail blast. You are provided with links to the companies' websites, links to quotes and charts, tips for placing orders and much, much more. We do not make any specific recommendations in our service. We do the work for you and provide you with the knowledge, trading tips and the confidence in placing your orders.

Disclaimer/Disclosure Statement:PreciousMetalsWarrants.com is not an investment advisor and any reference to specific securities does not constitute a recommendation thereof. The opinions expressed herein are the express personal opinions of Dudley Baker. Neither the information, nor the opinions expressed should be construed as a solicitation to buy any securities mentioned in this Service. Examples given are only intended to make investors aware of the potential rewards of investing in Warrants. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions involving stocks or Warrants.

Dudley Pierce Baker Archive

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