04/06/2013
December 3, 2017
03/06/2013
December 3, 2017

03/28/2013

Everyone will from now on have a little less confidence in the banks. Starting with the move on the banks in Argentina 10 yrs ago and the recent fiasco in Cypress, it is hard to trust them and the government.

Agreed. Trust is hard to gain–easy to lose.


I agree with your latest piece of course, but last time we had financial meltdown in 2008, gold went down 30% in 3 months ($1000 to $700). Do you think gold will be under pressure again as Europe explodes, or is it different this time?

It’s a financial market. Anything can happen to prices in the short term. Longer term, this is very bullish for gold.


Would you consider an investment in GLDD here? It just reported a terrible quarter, but seems to fit your concept of buying companies with assets that have a really high replacement value.
Thanks for any thoughts.

I don’t really know the business much. However, I try hard to avoid ‘accounting issues.’ Over time, I’ve found that the cockroach theory tends to apply more often than not when there are issues.


Is platinum a good idea as an investment now? It seems to be much rarer than Gold, the price is off somewhat, and it has industrial uses (not sure if that is good or bad).
Thanks.

I don’t really have an opinion, except to state that I’ve been very bearish on South Africa for a long time on this site and I think that things there are about to go from bad to anarchy–which will put a bid under platinum. Outside of that, I really have no strong opinion.


Don’t forget that a HUGE part of the deposits in Cyprus banks was money from Russian oligarchs trying to evade Russia and life savings of Brits who skipped high-tax Britain to retire to low-tax Cyprus. That doesn’t make the situation good. It just makes it trans-nationally complicated.

Agreed. Complexity is never good in a banking crisis.


Hi Kuppy- It just dawned on me that if they do build the Canadian pipeline it would be boon for EGDFF energy drilling business. Do you concur? Noticed all the Canadian oil trusts have been perking up from recent lows after the State Dept found no envioromental issues with the pipeline.

It will help a lot. I think that their energy business is likely worth almost as much as the hard rock drilling business. People have really lost focus on the various values at Energold–especially as you can buy it for less than book.


Kuppy,
What do you think about russia becoming a member of the WTO? Do you think this is a catalyst for a new trend in russian companies? Similar to what happened when china got in the WTO in 2001?

It’s probably bullish. I’m not a fan of Russian companies, except to own an index of them. I don’t trust them individually.


I have a few questions re the Cyprus bailout: 1) Where does the money flow. If you are a business as opposed to the Russian mob, is it as simple as moving your money to the U.S. sub of a U.S. large cap bank? 2) If you are a large international company, what kind of pressure do you imagine will be put on you to keep your money in country in order not to be lambasted by the press or blamed for a run?

1. The money can go wherever you send it–at least before the currency controls

2. I don’t know what pressure they will use. For now, they simply won’t allow you out.


Nice work on AYR also. Thank you again.

I cannot believe the EMU trapped themselves like they did, unbelievable. Anyway, I wanted to ask you about Energold. Would you recommend averaging down at this point or will the lack of bank financing that you potentially see in the near future affect them as well. I cannot believe it is trading at these levels yet it doesn’t look like there is any support except maybe at $2.17 where it bounced last time. That chart is ugly. Does the CEO of EGD now understand that bought deals (though I’m sure it’s not the only reason for EGD weakness) are not shareholder friendly?

Thanks on AYR. I am not allowed recommend anything for you to do.

I have nibbled a bit more on EGD at these prices, but I’m in no hurry to really do anything sizable yet–even though it’s below book. I think they will have a few weak quarters on the minerals side.


Right on Kuppy re. gold.  Hope now you will buy a few mining cos.  They have been in a much worse bear market than gold.  

Mining has been beat up good, but I still prefer gold. These companies are just such bad capital allocators.


Well thought out, Harris.  I’m noodling the implications as well, but other than establishing some equity hedges, I haven’t done much yet like your sale of Aircastle.  What’s interesting about Mr. Market’s thus far dull reaction is that this news came at a time of almost pure complacency.  Because the affected nation is Cyprus, participants have yet to make the connection you and others have made about lost trust in the banking system in Europe.  What’s so amazingly stupid — aside from the many fine points you’v made — is that the Eurocrats have decided to test the trust of the entire system BEFORE recapping their horrifically weak banks.  Even if the whole concept of taxing depositors is later scuttled, every saver in Europe has just been put on notice that their cash is not safe.  

What they did is tantamount to saying that the Euro project is over and that all banks are going to fail. I don’t understand why they don’t seem to understand it.


Hi Kuppy,
I’m a bit confused by your last Cyprus post. While the exact bailout mechanism is not set wouldn’t you consider that the balances supposedly protected to 100K eur were not affected a good outcome. Also it appears that the Capital structure was maintained in that equity and what little bond holders were apparently wiped out. Shouldn’t then depositors above and beyond the insurance limit be the next hit in an orderly liquidation? It seems to make more sense than bailouts that protect bondholders and depositors at the expense of taxpayers? What would you have preferred be done once the damage was already done and the banks were insolvent? In the end it is all a confidence game but it seems to me there is too much moral hazard in bailouts at taxpayer expense. It just leads to the same problem over and over again.
Regards and thanks for all your insight.

I am all for respecting the capital structure and after the shareholders, the bondholders are next in line for losses, followed by unsecured depositors. If this were the case, banks would have much lower leverage ratios, much better liquidity and you would probably see more prudent banking. Unfortunately, the last century of history has instead seen that governments almost always step in to protect the depositors by printing money, restructuring the bank or taking on the debt. Now a new precedent has been set that hasn’t really been seen in a major currency in a century. The ad hoc nature of the past bank bailouts has given people a false sense of calm. Do you want to earn less than 1% in a bank? or take your capital out and leave it in the mattress and be safe?

The Euro is now done because most of the banks are insolvent (as are the countries). Rumors targeting the various banks will take them down one-by-one. The ECB should have either printed the money to bail out the depositors and zeroed out the bondholders/equityholders or have actually regulated the banks in the first place and closed them down when they gorged on greek debt that the ECB knew would get haircut. It’s too late to fix the problem, but it’s dangerous to say that some bank deposits fail and others survive. The 2008 crisis didn’t snowball any worse than it did, because there were no lines at the banks to take back deposits. The ECB just guaranteed that when the next crisis begins (probably soon), they will not be able to stop bank runs.