Ron Paul Rising

Does Simon Constable Have A Beef With Gold?

It is often noted by subscribers of Bill Murphy's LeMetropoleCafe.com website that Simon Constable represents the worst in precious metals market news commentary. Constable's main gig is at TheStreet.com, where he offers summary stories on precious metals trading and occasional "investigative" pieces.

Numerous people have complained that Constable presents gold and silver analysis in a consistent negative frame. For example, last May Peter Grandich informed Constable that no further interviews would be granted. Grandich was frustrated by Constable's lack of journalistic integrity. "I believe my original interview was twisted by him to suit a bearishness and/or dislike he has had for gold ever since he started interviewing me some time ago." (see the May 29, 2007 Grandich "alert" published in PDF format - click here.)

Adrian Douglas at LeMetropoleCafe.com often jokes about his "moron of the year" award for worst precious metals market coverage, with Constable frequently the leading candidate. Upon seeing this, our first reaction was to assume this was rather mean spirited. But Constable's consistent use of bearish framing on almost all of his stories in the least makes it fair to question his assumed journalistic objectivity.

Now, we have the latest gem from Constable: a video story mocking Ron Paul and the Liberty Dollar. It was released on December 21st., 2007. Click here for TheStreet.com site and video.

It's not clear when the video was produced. But for many weeks, Ron Paul liberty dollars have been trading on eBay for over $100, the result of the federal government shutting down the offices of the Liberty Dollar. Constable mocks Paul's stance on the Federal Reserve and then proceeds to try to get a shoe shine, hot dog and other goods and services for a Ron Paul $20 silver coin. At no time does Constable explain that silver is trading at almost $15 per ounce. In the least, we assume the hot dog vendor would have taken the coin assuming he was like any other gruff New Yorker with basic knowledge of getting paid more than his asking price. The fact that average people have no idea what an ounce of silver is worth has nothing to do with Ron Paul and everything to do with why the current bull market in precious metals is going to make the last one look tiny in comparison.

Constable makes no effort to tell his man-on-the-street compatriots that the coin is trading on eBay at over $100. Again, perhaps this was recorded well before the coin's value skyrocketed. We simply don't know. But it's clear that the video was released long after the coin skyrocketed in value, and it's clear that Constable is framing the discussion and presentation of this "investigative reporting" piece to purposely cast a negative light on not only Ron Paul, but the idea of questioning the value of the US dollar, and maybe even the value of silver itself.

Members of LeMetropoleCafe.com have been right all along. While it might be harsh to mock Constable, there can be no doubt that Constable consistently elevates bearish points of view on everything gold and silver.

For readers interested in a constantly updated sampling of news and editorials on precious metals and markets in general, we recommend visiting the "dispatches" page at GATA.com. The page is edited by professional newsman Chris Powell, the Secretary/Treasurer of Gold Anti-Trust Action Committee Inc. and the managing editor of the "Journal Inquirer" in Manchester, Connecticut. Mr. Powell does a wonderful job bringing together important stories that often fail to reach mainstream status. Click here to visit the "dispatches" page.

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ADDENDUM: It has come to our attention TheStreet.com published a Simon Constable article today that just so happens to report exclusively on the 2008 projections of gold bulls. While the timing of the latest article is certainly ironic, we stand by our observations in the above essay. We will let the weight of Mr. Constable's past coverage speak for itself. If he's turning over a new page towards greater objectivity, all the better.

Happy Holidays!

To all of our friends celebrating Christmas, we wish you a joyous holiday. Happy holidays and all the best in the coming year to you all!

The updated portfolio table appears below. We've generated a return of 10.85% since the portfolio's November 15th inception - a strong performance given overall market conditions.

This will likely be our last post for 2007. In the first week of January we will present our forecast for the coming year. 2008 should prove to be a challenge. We're looking forward to it! Join us on a profitable adventure.

All the best,

Investor Intelligentsia

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Portfolio Update: Up 9.05% Since Nov. 15th Inception

Well what do you know? That really was Santa darting across the sky. Our missive typed in the wee hours of Friday proved to understate Saint Nick’s jolly mood, what with green splashing across market terminals across the land. This posting will serve as an update to the portfolio. We’ll return with more analysis later. All things considered, we’re pleased with our 9.05% return. Generating that performance level in less than two months is respectable, all the more so given current market conditions. Market volatility has been nothing short of wicked. The last two quarters have marked some of the most challenging markets we’ve seen in a very long time.

Portfolio Accounting Update

Pediment Exploration: On December 19th, our limit order for another 2000 shares at C$2.70 executed. C$2.70 was the low for the previous day, but in the real world it would be rare to get a fill at the bid. The price jump on Friday and return to slightly higher volume suggest that tax loss selling may be over in Pediment. Time will tell. Our point was not to attempt to grab the exact bottom for our additional shares, but merely to add exposure. This time next year, we will not be surprised to see the stock trading at more than twice current levels. Pediment will be recorded in the model portfolio table with a Canadian purchase price of C$2.70 per share, multiplied by 0.9954, which was the opening exchange rate for Canadian/US dollars. Thus, the US basis price is $2.68758.

Agrium, Inc.: 100 shares were purchased at the market open on the NYSE. The portfolio table basis per share will be recorded as $62.55 per share.

Hanfeng Evergreens: 300 shares were purchased at the market open on the Toronto Stock Exchange. Trading opened at C$13.13. We will multiply this Canadian basis by 1.004, which was the opening exchange rate for Canadian/US dollars. Thus, the US basis price is $13.18252

AGCO Corp.: 100 shares were purchased at the market open on the NYSE. The portfolio table basis per share will be recorded as $68.69 per share.

Transocean, Inc.: 100 shares were purchased at the market open on the NYSE. The portfolio table basis per share will be recorded as $137 per share.


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Portfolio Update: Spreading Manure For Growth

Santa Claus Rally?

Was that Santa darting across the sky this early morning? It sure appears global markets have begun to flirt with a better late than never "Santa Claus Rally." We've seen reasonably strong gains across almost the entire world. In fact, trading in the last 24 hours shows the first global embrace of risk and return to equities since the disappointing Fed rate cut announcement and continued conflicting statements by Federal Reserve Board governors. Previously, one region would rally while another spent the follow-up session digesting the latest toxic paper write-off. Odds are, we'll have some carry through for a few days. That should be a refreshing change. Hey, hedge fund managers need to tweak their performance records. It's bonus time.

Global growth in 2008 is an open question. We are in the camp that believes the US will experience a modest recession, and that in fact it probably has already started - certainly the case if one accurately accounts for inflation, unlike the US government. Nevertheless, there are industries that should perform well no matter the 2008 global economic backdrop. Agriculture ranks high on the list, and the closer one gets to the farm as either a producer, input provider or efficiency enhancer the better.


Portfolio Update: Farm Equipment, Fertilizer & Deep Sea Drilling

On the open, we will add the following positions:

• Agrium Inc. (AGU: NYSE): 100 shares, market price
• Hanfeng Evergreen Inc. (HF: Toronto): 300 shares, market price
• AGCO Corp. (AG: NYSE): 100 shares, market price
• Transocean Inc. (RIG: NYSE): 100 shares, market price

Readers have no doubt noticed the relative strength in the fertilizer industry. This will continue throughout the balance of this decade. Global grain inventories are at forty year lows and as developing economies grow, diets trend towards higher protein content - further taxing global grain productive capacity. Analysts are slowly coming around to the realization that there's much more going on than just a biofuels story. The agricultural bull market would merely have been delayed if the biofuels boom didn't exist.

Agrium is a large diversified North American fertilizer company. Its shares reflect a lower relative valuation to industry peers, in part due to its diversified operations and the fact that the company has a lower profile as a Canadian-based company. The stock is attractive at the current quote. Going forward, we expect the shares to close the valuation gap with peers.

Hanfeng Evergreen is one of the largest producers and distributors of fertilizer in China. It has the opportunity to increase market share and sales will likely maintain a compound annual growth rate well in excess of 30% over the next five years. The shares trade at about 21 times 2008 earnings, reflecting a healthy discount for the highly competitive market it serves and favorable taxes. The stock is undervalued and less well known among US institutional investors. It would not be surprising to see the stock turn in at least 50% upside over the course of 2008.

AGCO Corp. is a leading US-based farm equipment manufacturer. Deer & Co. recently reported stellar earnings and we believe AGCO's next earnings report will leave analyst estimates in the dust. AGCO has yet to see the type of multiple expansion investors afford Deer. Simply put, the shares are far from pricing in a multi-year bull market in agriculture. The next earnings report should accelerate the stock's advance.

Transocean Inc. is the world leader in deep ocean drilling. In the years ahead, a greater percentage of global oil production will be sourced from deep sea fields. Transocean trades at about ten times 2008 earnings. To be perfectly blunt, this is an absurd valuation. Institutional investors are terrified the global deep sea drilling market will go soft in 2009 or 2010. Given global decline rates of existing super giant fields and limited ability to increase capacity by conventional means, the world simply has no choice but to make extensive efforts to develop more difficult to obtain oil resources. The phenomena commonly referred to as "Peak Oil" is not a theory. It's a scientific fact, with the only real debate focused on the timing and nature of peak. Deep sea drilling will continue to play a critical role in procuring global energy supply and we believe it's not likely drill ship capacity will become an issue until well after 2012.

We will provide further updates and fundamental analysis on agriculture and the energy sector in the days and weeks ahead.

Portfolio Accounting Note: Pediment Position Doubled

Our order to buy an additional 2000 shares of Pediment Exploration executed this week. All of the above positions will be formally entered into the portfolio table within the next blog posting.

Portfolio Balancing Act: Up 5.66%, S&P 500 Unchanged

It's high time for a portfolio tracking update and more regular posting. The development of the blog and other services planned for the near future will evolve at a much faster rate going forward. Stay tuned. Catching up with some unfinished business, the official accounting entries of established positions appear below. All orders executed exactly as outlined in previous blog postings.

Gold positions have been a bit of a bummer, but overall portfolio performance kicked off a net gain of 5.66% between November 15th and December 14th. During the same period, the S&P 500 opened at 1,468.04 and closed last Friday at 1,467.95, for a rounding error loss of 0.09 points. Let's call it "unchanged" for the period. Market volatility has been absolutely wicked during this period, making the S&P's unchanged status for the period highly ironic.

All things considered, the model portfolio has turned in a satisfactory performance, with a strategic asset allocation creating a balance that has so far managed to weather overall market turmoil. Other than minor losses in China Life and Dianna Shipping, downside has been exclusively seen in precious metals focused positions.


Lesson From Livermore

The legendary speculator Jesse Livermore famously said, "Men who can both be right and sit tight are uncommon." Livermore understood his greatest profits came when he identified a trend and stuck to his convictions. Separating noise from a true change in a long-term trend is often more art than science. Indeed, sitting tight can be excruciatingly painful -- even downright lonely. No one ever said being a contrarian would be easy. But outsized profits are seldom had following the herd. The long-term bull market in gold and bear market in the US Dollar remain in place. Livermore might have "lightened-up" around the edges of trading positions, but we'd be so bold as to suggest he'd see this as but one more time where sitting tight is the most wise disposition.


Gold and Silver: Fundamentals Have Only Grown Stronger

Talk of Russian, Chinese, OPEC and other central bank diversification out of the US Dollar and into gold caught the market's imagination in 2005. Many will recall the famous Putin photo-op signaling the Russian central bank's reserves management shift. Don't believe the theater recently staged by Saudi Arabia for the benefit of providing political cover for the Gulf States. 2008 will see further movement among OPEC countries away from the dollar. The rise of titanic sovereign wealth funds will also serve to channel US dollars into real assets as China and other countries seek to diversify their foreign exchange holdings while securing strategic assets vital to their economic development. Above all else, bailing out the global financial system from the mortgage-backed asset credit crunch will prove to be a highly inflationary process.

In the short-term, we have seen the Canadian and UK central banks lower interest rates at a time when coordinated action to support the US Dollar is most helpful. Central banks have also acted in coordinated fashion to manage the rise of gold. The ECB dumped 42 tonnes of gold on to the market in November; all things considered, the fact that gold barely moved in the face of that onslaught just testifies to the power of the bull trend.

We've also seen the short-term impact of higher CPI and PPI inflation reports motivating currency traders to take the view that the US Fed will be less quick to cut rates going forward - a short-term positive arrow in the dollar bull's quiver. This is nothing but noise. The dollar may very well stage a short-term bounce that lasts for up to three months. That is what happened the last time dollar bearish sentiment became too excessive in the Dec. 2004 period. On balance, during 2008 the US Dollar will likely lose at least 15% vs. major trading currencies. Worse still, almost all major currencies will decline in value vis-a-vis gold as global central banks conduct a coordinated campaign to deal with the credit market crisis.

Anytime one can identify the causal factors behind the decline in a position or sector, it's possible to determine if "sitting tight" remains a fundamentally sound investment decision. At present, gold and silver shares are down for very specific reasons. November marked a near-term speculative peak that was capped by modest excessive bearishness in the dollar bear camp, but importantly, contrary to mainstream media representation we didn't see excessive bullish sentiment directly in gold nor silver.




KITCO.com web traffic statistics clearly demonstrate that the level of relative excitement among the general public investigating gold prices at the internet's leading precious metals quotation site prove in absolute quantitative terms that November's peak in the gold shares came at a time when far fewer investors were participating in the gold move. In fact, the last 18 months have marked a long and painful consolidation period, for the most part, where investors were punished by dreadful performance among "junior" gold and silver shares.

Tax loss selling is now upon us, adding insult to injury. Once again, the shares of "junior" companies are among those getting hit the hardest. This is to be expected given the poor level of investment sentiment throughout the sector and losses sustained in many of these shares earlier in the year. It's impossible to call the exact bottom, but within the next week or two, specific shares reverse and ultimately toss off gains of 30% on average for the entire sector over the coming three months - with many specific companies doubling or better.

We will be adding additional exposure to the junior gold and silver market sector in the days ahead. For now, we will establish an open order to buy an additional 2000 shares of Pediment Exploration at C$2.70. This order will be good until canceled. We will take no action on Carpathian Gold at this time. Tax loss selling in Carpathian has been particularly vicious, and investors are also apparently drawing unjust conclusions on the company's desire to add geographic diversification to it's project profile (e.g., concluding projects in Romania are in trouble when that is not the case).

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On November 23, 2007 the following positions were established:

• E-House (China) Holdings (EJ: NYSE): 100 shares were purchased on the open at $19.65
• San Gold Corp. (SGR.v: Venture Exchange, Canada): 3000 shares were purchased on the open at Canadian $1.30. The exchange rate opened that morning at 1.0145. Thus the position will be established with a US basis share price equivalent per share of US$1.319

On November 20, 2007 the following positions were established:

• China Mobile (CHL: NYSE): 120 shares were purchased on the open at $84.07 per share
• China Life (LFC:NYSE): 120 shares were purchased on the open at $82.00
• National Oilwell Varco: (NOV: NYSE): 150 shares were purchased on the open at $65.67
• EnCana Corp. (ECA: NYSE): 100 shares were purchased on the open at $66.78
• ABB Ltd. (ABB: NYSE): 200 shares were purchased on the open at $27.06
• Diana Shipping (DSX: NYSE): 200 shares were purchased on the open at $31.50
• CF Industries Holdings (CF: NYSE): 100 shares were purchased on the open at $79.76
• Mosaic Co. (MOS: NYSE): 100 shares were purchased on the open at $60.84
• Potash Corp. (POT: NYSE): 50 shares were purchased on the open at $107.50
• Devon Energy Corp. (DVN: NYSE): 80 shares were purchased on the open at $85.95

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