December 3, 2017
December 3, 2017


Buckle UP!!! There’s a lot of questions…

Hi Kup,

Have you looked at SGQ.TO —  Seems VERY VERY cheap and good spec.   What am I missing? — It also traded 1,000,000 shares yesterday- (a lot for that stock.)

Sorry, I know nothing much about it except that they have a very large coal asset.

We all know that the Fed is flooding the economy with cash. This has been going on for three years now. However we also hear that the banks are extremely reluctant to lend. Does this mean that the banks are taking money from the fed and sitting on it? What is happening to all this cash, and who is paying the (admittedly low) interest on it in an economy that is delevering amid economic stagnation? Thanks for your great website by the way.

I’m not an expert on this stuff, but this is my understanding, the Fed money mostly gets deposited back with the Fed which pays the banks an interest rate. Or it gets invested into government guaranteed paper like fannie mae. It isn’t going into the broader economy b/c the banks are unwilling to lend b/c too many states have made it nearly impossible to reposess assets that are not paying interest. So banks just do the risk free thing and earn tiny spreads and take on huge leverage in order to earn an acceptible ROE. It’s all part of the Fed running amok and destroying the financial system in the name of saving it….

Looking at the speed with which Mongolia is growing; it seems like the old frameworks of business there could be breaking. If hyper-inflation breaks the fundamental workings of an economy, can lightening growth of the non-inflationary (good) kind be as destabilizing. Grateful for any comment.

I’m really not sure if extreme growth can be destabilizing. I have always thought it was a good thing as it lifted the standard of living of the average person–even if it rearranges who is at the top of the pyramid.

Kuppy, Any thoughts on these Q’s? The update from EGD on Monday was great news and the new website is much improved.

Those were some HUGE numbers reported. I’ve always thought the company could earn over $1.00 next year. What if the real number is $1.25/shr? Is this 3-4x earnings? What’s the right multiple for a company that has doubled in size almost roughly ever 18 months? If it were a tech stock, it would be a 50 PE. Is a 20-30 times multiple too crazy? This is by far my largest position (and one of the largest that I’ve ever taken in my career).

How confident are you that EGD will not do another raise (at least at anywhere close to current prices)? Thanks.

Zero confidence of anything.

Hey Kuppy,
Did you notice the unsolicted takeover of Fibrek today? Maybe Mercer is next.

Hope Mercer isn’t next. I have a lot of it. I want to ride the up-cycle.

Just a comment, thank you for the work you’ve done & shared on Energold. just reviewed their #’s for the Q & all I can say is Holy Sh*t. I have never, ever, ever, seen a Co trade this cheap & perform this well across all operating metrics. I’ve just never seen anything like this. Thank you, thank you, thank you.

Lol.. I’ve said the same for 4 years now… Yet the multiple continues to contract. Thank me when we get paid on it… VBG

How much in your estimation do the citizens of Germany and other Northern European countries care about the price of gold?. In the U.S., no one freaks out about it except Ron Paul supporters and Goldline clients. My thought is that if the Germans actually pay attention to it as a sign of impending inflation, that there will be a concerted effort to keep the price from rising while the ECB engages in whatever version of printing money they decide to do. I am not a conspiracy theorist, but it seems that it would be relatively easy to cap the price of gold for a short amount of time. Again, If the German public really looks to the price of gold as a measure of currency debasement, selling some at the right time would leave the Germans more complacent.

Right now, authorities essentially ignore the gold price. If that changes, it will become yet another asset that is manipulated by politicians for their needs. For now, I don’t think there’s a real worry about this.

Where do you see the marginal cost of gold production? I am scared of owning a lot of gold, at least for the short term, because an increase in ECB purchasing is likely to be viewed more a stabilizing force, which would be bad for gold. I would sleep a lot better knowing that I was not buying too much higher than the marginal cost, although I suspect that it is in the $1200 range,. So no sleep for me. Also, are there specific signs you look for that make you pause. As I write this, there is talk of more coordinated action re the Eurozone, and yet the euro is trading higher.

You can’t micro-manage these positions. I’d guess that the marginal cost of gold is in the $1200-$1400 range today, so we’re not that far off the price of production. I have a core position that I keep, and a trading position that I move around from time to time. I had hoped to buy more gold on Monday, but it ran away from me and I don’t generally chase. I had written some gold puts on friday and I’ll just collect my 5% premium for 2 months and move on with life. Not bad income if you can earn it…. Naturally, I’d rather that gold drops and I can buy it instead…

I just read your excellent article on Europe. In one sentence you say that “Now, only shock and awe will save Europe”. Are you saying that only massive printing will save Europe? What action would be defined as shock and awe? It doesn’t seem like anything can be done. Thanks

I’m not really sure what can be done, but massive money printing is the only thing that I can think of.

Hi Kuppy,
Doesn’t MERC have Eurozone exposure? Two of three plants in Germany, their cash in Euros.
FYI – Peter Kellog keeps buying MERC under $6. Now up to 15.3 million shares. He added another 100k shares on 11/14-15/2011.

MERC has eurozone exposure in that their plants are there and so are many of their customers. However, they also have the good type of eurozone exposure as they export a lot of their production and a weaker Euro helps margins as their exports are priced mostly in USD.

I saw that insider buy. Remember, insiders don’t buy if they think it’s going down….

I have noticed that since September, Mongolian stock UHN (Sudut JSC – ag products) has consistently closed at the MSE 15% up limit on very light volume traded (less than a couple hundred USD). This has driven the stock price from under 1000 MNT to over 6000 MNT in a couple months and the total volume during that timeframe would probably amount to less than $2000. There’s certainly not a “big” buyer here, and I can’t imagine individuals paying up for a stock so consistently. This smacks of a couple insiders gunning the stock price way up, perhaps in anticipation of the flood of foreign money coming in to Mongolia.

Have you noticed this behavior (I know you’ve got just a bit on your hands) and is there another valid explanation?

UHN is the only symbol I’ve tracked like this, but I’ve noticed a whole lot more tiny stocks trading up 15% in the last month vs what I saw over the summer after I opened my account. Although MSE stocks are no doubt still cheap, I fear that the locals have broken the code on foreign capital inflows. Seems like a good way for people to get hurt!

I don’t know the particulars on most MSE companies except to say that many are far too cheap and if someone wants a real position in one of them, it may make sense to pay up, even if it’s 5-10x. Be careful on the MSE, the majority of the companies quite illiquid.

How can individually segregated accounts at MF global be accessed for companies own trading. Does this mean no brokerage accounts are safe ie Schwab, TDAmeritrade etc.? What should an individual investor do for risk control? Thanks for your informed insight.

The problem is that most brokers also have in-house prop desks that gamble in a highly leveraged way. The best protection is to keep your funds with brokers that have minimal leverage and no in house trading operations. It’s still too early to say exactly what MF did with customer accounts.

Kuppy–Fracturing horizontal wells in the oil and gas business is one of those trend you speak of that might be good to get behind. It’s revolutionizing the gas business–thus the low prices–and is beginning to be applied in oil shales. Have you looked into?

I haven’t looked into it, but I’m sure that there are some great plays to make for people who are knowlegable about it. I feel silly that I haven’t had the time to learn more about this.

Any thoughts on Burma/Myanmar? There has been some recent news flow about the government becoming more friendly, any insights/thoughts into the opportunities there?

I’m sure there could be something huge to play there. I haven’t had a look yet unfortunately.