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Global Mining Investing is a reference eBook to teach investors how to think and act as investors with a underlying theme of managing risk. The book touches on a huge amount of content which heavily relies on knowledge that can only be obtained through experience...The text was engaging, as I knew the valuable outcome was to be a better thinker and investor.

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Sunday, October 26, 2008

Investing in Australia

Filipinos and Americans will never have a better time to invest in Australia. Basically there are 3 classes of investment that make particular sense:
1. Gold stocks - of course it depends on which ones. We are looking for big stocks like Lihir Gold.
2. Food stocks - of course it depends on which ones. Food prices are collapsing but that does not change the fundamentals. People still eat in recessions, they though they might change the nature of what they eat. Less food? I think less meat, more fats and carbohydrates.
3. Rural property - of course it depends on where. I suggest rural properties around coal mining areas in the Liverpool Plains of NSW, and the Darling Downs of Queensland (because coal seam gas extraction in this area is going to see an immense increase in investment in future years).
4. Food stocks in NZ: The other alternative is food stocks in New Zealand. But I prefer Australia. NZ has more depth in food though. Mostly Australia is family-owned business, so unless you are looking at acquiring farms, its not the best market. There is a challenge here too with water rights regulation.

The peso and USD have seldom looked as good against the $A, but it wont stay that way, which is more the reason why people should be investing here. The country is in good shape, and it will just get better once the crisis shaking out metal markets achieves some stability. The A$ has fallen from 40 pesos to 30 pesos in recent months. The money should be flowing back the other way now. Too bad if your relatives spent it :)
Andrew Sheldon

The financial crisis in Europe & the Eastern Bloc

Here is a good article for its coverage of the European banking market. Ouch! I had no idea that the Eurozone was so profligate in its lending to the Eastern Bloc. I'd have thought they would have funded there development from petrodollars. But I guess with the collapse in dollars a lot of those loans will turn bad. Having said that. European banks might be expected to end up controlling valuable oilfields in the Eastern Bloc, to the extent that they are funding oilfield development. But no doubt they were also funding non-energy investments as well, which is where the greatest burden will arise.
Well this crisis never ceases to get deeper. This is the problem when you substitute principles for arbitrary laws. This is how governments undermine the market. This is not a failure of capitalism. Its a failure of government. This was destined to happen. It could and was foretold a decade ago.
Andrew Sheldon

Monday, October 13, 2008

Second shortest and best rally in human history

It seems likely that this stockmarket rally will be the 2nd best in human history and the shortest lived if the market behaviour of the early 1930s is anything to go by. Back then the market was extremely volatile. The reason I suspect was the injection of liquidity into the credit market to shore up the banking sector. The reason for the 2nd collapse was likely the resulting inflation. Yes, thats right, the governments and central banks are facilitating another period of debt creation. The difference this time is that there will be less spending, less productive capacity, which meaning a lot more inflation to rebalance markets.
But enjoy the benefits while they last. History has shown that gold prices collapsed 50% in the 1970s before they rallied 800%. I will be watching to see if that happens as it will take a little time for cost-of-living inflation to take off as asset prices (i.e. asset inflation) take off again.
Andrew Sheldon

Sunday, October 12, 2008

The history of the Dow Jones (1898-2008)

The following chart shows the 110-year history of the Dow Jones on a log-linear chart. It will be apparent that any comparison with the 1929 stock market crash is an exaggeration. We are not going to see 20% unemployment in the near term. Why? For several reasons:
1. This crisis is being blamed on the wrong people - the CEOs when the excesses fundamentally are caused by the government and Fed Reserve. The CEOs are just paid to support these monetary policies that stimulate debt creation. The central bankers around the world are also implicated for not speaking out, whether from ignorance or their tacit support. If the wrong people are being blamed the activity can happen again. I still believe we are looking at another rally, though not for another 3 years. Asset deflation will free up capacity and undermine investment and consumption.
2. There was not a huge industrial over-capacity prior to the crash. In fact markets were looking pretty tight. This asset deflation will cause an over-capacity, but a little stimulus from governments, inflation and a little further asset deflation will see the monetary base stabilise over the coming 10 years. In the meantime the market will probably go sideways. But since there is no huge over-capacity, I would expect even better than that. I'm actually expecting the US government to add further stimulus in future years. I think you will see even more abuse of derivatives, so I expect the real depression to be in another 10-15 years.
Andrew Sheldon

Dow Jones still off support - 7480 level

The Dow Jones recovered from 7930s to finish trading last week at 8541 pts. That's a big 600 point recovery - showing just volatile the market is at the moment. All it will take the market to reach a lower level I feel is bad data. We are going through a period of fear, and the only bad figures we have seen so far are bad employment figures, Conference Board Indices, debt, foreclosures. There is still a pile of bad news to come which should depress the markets and confidence.
The implication is that there still seems reason to expect a further 1060 point fall from the Dow Jones. I will attempt to put these numbers in a longer term perspective tomorrow.
Andrew Sheldon

Nikkei-225 looks like going to 7660 pts

The Nikkei 225 has broken support and looks like its heading to its historic support of 7660 points. The Nikkei closed at 8360 points over the weekend, implying that this market still has 700 points to fall before it reaches that level of support. The lack of news by the Japanese central bank might be reason enough for the trepidation, if not the falls on Wall Street. The G7 bank support does not strike me as great news because that was always coming.
There are a lot of commentators talking up the market, but it just keeps breaking important supports. It seems to be going back to long term support levels. Unfortunately I am somewhat limited with this chart because I don't have enough index history on this computer. Sorry my LT data is in Japan. :) For that reason I would look to other markets for guidance.
Andrew Sheldon

Friday, October 10, 2008

The state of the US monetary base

Here is a good essay on the state of US Treasury and Federal Reserve finances.

The concluding remarks of this essay suggest that we are going to move back to a gold standard. He does not say as much, but he implies it, leaving you to fill in the gaps. I actually don't agree with this for several reasons:
1. The gold market is a pretty illiquid one - the size of the gold market is a fraction of the amount of gold available. Why would the government bid up such an illiquid asset to collateralise a new money standard, or to recapitalise the USD.
2. In a monetarised economy there are a plethora of asset classes that can substitute for gold. Might I suggest property as a pretty good alternative in the USA in this time of financial crisis. Already there are signs that the government is planning to do that by taking over the dubious debts of the banks which are backed by property.

I have long followed the arguments of the gold bugs, and as much as I believe in gold, I don't delude myself into thinking its the only asset class. But yes its cheap and its going to do very well, and there is no reason why governments (in addition to private enterprise) won't be buying more of it in future.

Such a strategy could also be used in countries like Australia, not to resolve the debt crisis, but to resolve a housing crisis. Australia has a shortage of property rather than an excess. Might the government acquire foreclosed properties and finance the construction of leaseholds to address a housing shortage, and at the same time use that housing stock as tangible collateral for its money base. Its a possibility. The current shortage of property might however dry up as unemployment increases. Certainly people have to live somewhere, but if they lose their job they just might move in with mom. Overseas students are probably inclined to go back to Korea, etc. This will eliminate at least some part of the shortage. Australia is in a very different situation from other OECD countries. It has a few investment funds which has the capacity to create some demand. i.e. The $20bil infrastructure fund, which on top of a lot of energy and mining investments should see Australia pass through the next 3 years in healthy condition.
Andrew Sheldon

Tuesday, October 07, 2008

Dow surprise - going to 9,000 pts

The Dow Jones was surprisingly weak over night by my estimate because of concerns over the viability of EU banks. The Dow closed at 9447 points, its low for the session. This suggests to me that the market is going lower. In fact, we are on track for good support at 9,000. The reason why are 2-fold. Not only is 9,000 pts a stronger support & resistance level, it also makes a parallel trend line with the upper trend line. Why is this important? I think it suggests that the global economy has been deleveraged to a point which offers good value by historic comparison. That is not to suggest that I am expecting any great rally, but I can see the market going sideways for 3 years in the 9,000 to 11,000 point range. This will be a period of high inflation, so gold stocks will out-perform.
Andrew Sheldon

Monday, October 06, 2008

DJIA at support levels - start buying for trades

Today (Tuesday) is the day to buy. The Dow Jones might have closed down 369 points at 9952 pts, below the 10,000 pt psychological support, but that is still a support based on previous lines of support. More importantly, the market plummeted to 9525 points during the session, so it actually recovered 432 points - that's a significant recovery. Clearly sellers are shocked by what is occurring and jumping ship, but the smart investors should have been buying overnight, or today in Australia. This is the level we have been waiting for.
Andrew Sheldon

Thursday, October 02, 2008

Direction for the DJIA

The chart attached chart shows that the US market is around a support level at current prices. The good news is likely to come out overnight so there is no compelling reason for the Dow Jones to fall to a lower support of 10,000 pts in the near-term. The question is - What factor could stun the market in that fashion? I would think that there are several things:
1. An escalation in aggression by Russia or Iran
2. A recognition of the need for higher (energy) taxes
3. A significant increase in inflation
4. Signs of a slowdown in the EU and China
These are the factors which need to be watched.
Andrew Sheldon

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Investment Strategy

If you are investing for the long term, you still need an investment strategy. Dont be fooled by the rhetoric of fund managers. The reason they advise you to 'buy & hold' is because they dont want to compete with you in sell-offs. Markets and industrial sectors are cyclical, so they demand trading to get the best returns. Fund managers actually cant hope to match the performance of small investors (if you are half good) because they have to manage huge amounts of funds and charge you a fee besides.
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