The gathering of the clans
Greetings investors!
Some months ago I wrote that we would eventually arrive at a new financial system, with a handful of very stable ´global´ currencies. I don´t see how the world´s banks can survive any other way. Banks with foreign subsidiaries have rules about things like mandatory exposure to local currencies, which can be exceedingly soft in some regions of the world where they have interests. Well how can you plan your business with these weekly - nay, daily - gut wrenching shifts in valuations?
So I think we´re on our way to something drastically new. However, I never thought it would happen fast. I could be wrong.
I’ll get to that in a moment: First, the stock market - do I think we´ve hit a bottom. That´s a tricky proposition. Warren Buffett said he was buying stocks a couple of weeks ago. I haven´t, personally. The charts say we´re still in a bear market, lower lows and lower highs. So if you didn´t buy and sell on the recent volatility I´d hang onto your shekels until we get another dip. If we get a sustained rally (let´s face it: a rally is way overdue), then you´ve missed the bottom.
Another option I sometimes take is spending half what I plan to invest now, with a view to averaging down on the next downturn. If the rally gets legs you´ll make out by half. Of course it all depends on your investment horizon: Long termers buy when they have the money, no matter where prices are. However, market timers should be advised that ‘apparent’ bottoms during bear markets can be extremely treacherous.
Here´s a couple of deals I´m following: Western Geothermal (WGP.TSX-V). They´ve hit steam (is steam a mineral?) at the anticipated 10,000 foot level over in the so-called Geysers project north of San Francisco. They claim to have enough of a zone for three wells and they´ve set about raising the capital to build a $90 million power facility there. It´s scheduled to open in 2010.
They want to finance it with share capital, which in this market is a risky venture. However, they closed a $10 million financing at $0.25 per unit last week (with the market at $0.20!), so somebody´s a believer. The warrants are priced at $0.45 and I believe they´ll try and crank the stock up over coming months to get those in the money. The stock tanked to $0.16 last month but snapped back to its current $0.21 range on good volume.
WGP had a power purchase agreement with power utility PG&E but they cancelled it due to some technicality. I thought that was interesting. Are they going to reprice?
West Timmins (WTM.TSX) I like. Management says it has a new discovery with potential for + 1 million ounces Au at the renowned Timmins camp (they’re claiming better than 1.0 grams per tonne) . They´re also upgrading their porphyry system at Montana in Mexico and have plans to drill at Lluvia de Oro, a very good project which they snagged from the Mexican government at an auction two years ago. The stock is under $0.20.
The gathering of the clans
Back to the banks. I´m very intrigued by the recent rumblings from Europe about a tri-polar global currency system between Asia, Europe and the U.S.
The ECB doesn´t think the U.S. dollar’s centrality can be revived, and now envisions a system with ´more centers of gravity’ (indeed!). I don´t think the U.S. will go gladly into that great good night, but they may not have much choice. In any case, the U.S. has agreed to host a series of summits on the global financial crisis involving world leaders soon after the Nov. 4 presidential election.
The EU is skeptical that the Bretton Woods system of monetary policy, set up after World War II and revised in 1971, can be revived to aid global currency stability. They want to strengthen financial regulation, define bank capital ratios and review the role of debt-rating agencies.
What puzzles me is what the fall-out from 25 years of monetary policy will look like. We had exceptionally high interest rates leading up to the last economic crisis (1982-83), after which the banks of the world determined that inflation was the problem and low interest rates were the solution. I think that has worked very well in recent years, but are we at the end of it now? How low can interest rates go? Will they end up selling dollars for $0.90? At the time I thought low interest rates were a stop-gap solution, like FDR´s New Deal, but the policy sure developed staying power. Is deflation the other end of the spectrum?
These is merely my kitchen sink analysis of the situation. But I don’t know if even that guy who won the Nobel Prize for Economics a few weeks back can say with real certainty what the problem is or how to resolve it. All I´m really interested in is whether interest rates will go up. I think they will, after the passage of time and the election and a lot of big talk about maintaining the integrity of the world´s banking system, etc. We´re already getting the message that growth in ´09 will slow due to the impact of recent events on what the bankers have called ´the real economy´. They might as well try and repair their books by hiking rates and sticking it to whoever still qualifies for lending.
Be careful out there!
The BarkerLetter on October 22nd 2008 in Commodity investing
Take profits on West Timmins, Western Geopower | The BarkerLetter responded on 31 Dec 2008 at 9:02 am #
[...] and Western Geopower, on the TSX and TSX-V respectively (please see our October post called The Gathering of the Clans). Western Geopower was actually a $0.50 [...]