04/16/2012
December 3, 2017
03/20/2012
December 3, 2017

04/02/2012

Back in Ulaanbaatar–it’s warming up a bit. Only -5c now.


Kuppy

I’ve been a gold holder for a few years, but I’m always trying to challenge why I hold certain positions. Gold appears cheap when comparing official gold holdings to the monetary base. Debasement of the world’s major currencies is a key reason for me holding gold.

Another way to look at gold is its purchasing power.

With that in mind, I’ve been looking at the ratio of gold to an agriculture index (PowerShares DB Agriculture Fund. Ticker: DBA). Over the last five years, gold has increased c.150% more than this index. Versus other wider defined commodity indices (e.g. Goldman Sachs Commodity Index and Thomson Reuters Equal Weight Continuous Commodity Index), the story is similar, if slightly less pronounced.

So, is gold overpriced? (I don’t think so). Or are agriculture commodities even more under-priced than gold? Clearly agriculture commodities are also a good hedge against inflation / currency debasement.

I think from old posts (Ask Kuppy 02/02/2011) you’re long RJA. Have you changed this position? Does it make sense to be more bullish on agriculture than gold?

Any pointers you can provide will be gratefully received.

I don’t have any position in RJA. Gold has gone up a lot in the past few years, other commodities haven’t gone up as much. I’d cycle into the things that are up less. I just like gold b/c it’s very simple. However, I’m much more bullish on something like NBSK that is the same price as it has been for 30 years, as opposed to gold. In the end, commodities are one big trade. When theyr’e below the cost of production, they stop going down and you buy the ones that are the cheapest compared to production cost b/c there will be shortages. In that thought process, I still think that silver is one of the more expensive commodities out there.


Kuppy, I recently have read about how JPM and GS are holding down the price of silver. Do you know who’s government is behind this? Why do they want to hold it down? Can it ever go up?

If JPM and GS are holding it down, they’re doing a really bad job. I’m up like 8-fold in the last 9 years. It sure seems like a poorly thought out plan… lol

No one is holding silver down. The real issue is that a ton of supply is about to hit the market as a few giant smelters come on line. I’d be out of the way when this happens. Cost of production is around $15 and it trades for more than twice that. There are much better commodities to be long.


Kuppy–Have you considered investing in PM and base metals streaming companies like, say, Sandstorm as a way of avoiding some of the pitfalls of investing in individual companies?

I really like the concept of metal streams. The issue is that a lot of times these streams target byproduct metals and the mines then cut back on their recoveries b/c it’s not economic, so you never get the exact streams that you expected. Also, they never seem to get cheap enough, except in a real collapse like in 2008 when I got to buy some SLW at under 4 (haha).


You are always a source of great info…but wondering if you have any thoughts on what companies he might own especially as it relates to miners?

There are lists on his 13f filings. Look at GBU CN. It’s the chart of guys selling and not waiting for upticks. It’s the stock chart that tempted me to write this piece in the first place (thanks for pointing it out Yoda).


Kuppy,

Your commentary on Miami Real Estate gave me a chuckle. I have a friend who refuses to believe that there is any value in owning Gold, meanwhile he told me he really believes in “Real Estate” as he purchased a high end townhouse recently.

I’m struck that people I know still believe in the value of a dollar and “Real Estate”. Your commentary about Paulson again demonstrates that most people can not see value because value for humans is defined by what the herd likes. I think McKay’s book on Financial Mania’s demonstrated this a long-long time ago.

The herd still loves the dollar, the herd believes Real Estate is the buy of a life time (it probably is in a couple of zip codes), and Gold is something that people who belong to Miltia’s like to own.

Thanks.

Just wait til the mindset swings the other way…. VBG

The funniest part about RE is that guys will bid places like Miami and NYC to 2 caps, but in lots of rapidly growing frontier markets, you can buy top quality real estate at 15 caps and get 20% annual rent increases above inflation.


I’m a simle man. The market goes up everyday. Yet, MERC acts like a gold miner. What is holding this position back?

The company may or may not be buying Fibrek. Every hour, there’s a different court ruling. I’ve litterally taken it off my news alerts b/c I am going dizzy with all the court stuff. No matter what happens, the core business of MERC is solid. I’d prefer if they didn’t win FBK, but paying like 10% of replacement cost in a growing business isn’t too bad either…


I was looking at the VXX, and was wondering what you think about shorting some other more leveraged index to the VIX? For example, the TVIX and the recently conceived UVXY are even worst than the VXX in tracking the VIX. Of course the % increase when VIX raises is a little more, but still over time the decay seems much worst.

There’s lots of ways to make money. I got pretty well shredded last summer trying to be cute in a funny VIX product. I have a very small VXX position and that’s enough for me. Just remember, we’re in a unique period in time when all 3 major world currencies (USD, EUR, JPY) will go defunct. What do you think VIX does when that happens?? Be careful.


Kuppy–I have not until recently looked at MERC that closely. I noticed that the weakening in NBSK pricing in 2006 actually foretold the financial crisis of 2007-08. Maybe that’s a coincidence, but maybe it’s not. Since then there has been only one really good year in 2010. Since then pricing has been weakening again. There are many people who believe the world economy is weakening, not strengthening as government statistics would lead you to believe. Are you not concerned that the recent weakness in prices may be presaging a double dip? NBSK pricing seems to be incredibly sensitive to the state of the economy. I grant you the chart of MERC is suggesting strength rather than weakness. I’m not sure which to believe.

I don’t have a very strong view of what NBSK does in the next year or so. However, longer term, I’m very bullish on the price of NBSK. If there’s an economic dip, a bunch of marginal guys will go out of business, which will only help MERC. They sure aren’t adding capacity to the industry, and demand is growing at a pretty good clip worldwide. At these prices, I think I’ll take my chances.