Global Mining Investing $69.95, 2 Volume e-Book Set. Buy here.
Author, Andrew Sheldon

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.

While some books (such as Coulson’s An Insider’s Guide to the Mining Sector) focus on one particular commodity this book (Global Mining Investing) attempts (and does well) to cover all types of mining and commodities.

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Friday, July 18, 2014

Rebuttal of Krugman's inflation critique

Paul Krugman is an annoying person. He is annoying because his entire modus operandi is attacking neo-conservative idiots on the right, whilst ignoring his own shortcomings. His short comings arise from his:
1. Gross ignorance about economics as a compartmentalised irrelevant economist
2. Engagement in straw arguments, or false dichotomies between left and right when the real game is the ascension of libertarianism.

Liberals love this game because it keeps them 'self-important'. The world will not miss Paul Krugman. He will fade into obscurity. But before he does, lest we be criticised for attacking the man without argument, let us focus on his arguments for asserting that there is no inflation, and that its not coming. Well, in truth, he is 'right'....yes 'right' in a sense, and wrong in a sense. There is bugger all 'cost-of-living' inflation. The problem with his arguments is:

1. Krugman does not understand inflation
Krugman thinks inflation is a 'cost-push' phenomenon caused by excess demand for goods and services. He thus celebrates the lack of demand for goods evident in the absence of evidence for inflation, measured empirically by CPI indices. The problem is that the 'goods and services' measured by the CPI are not exactly a useful basket, as some indices exclude the 'volatile' items in order to give a seasonal account. The greater issue however is the 'qualitative' adjustments governments make to inflation numbers, as they are not always comparing like items, i.e. A 286 computer in the 1980s bears no easy comparison to the modern computer. How do you account for the fact that you no longer need anti-virus software as an bundle of inflation costs. Finally, Krugman ignores the 'asset inflation' that exists in many countries. If these assets were to collapse, thanks to higher interest rates or correction to an impending asset bubble, then you would indeed expect inflation. The problem is 'not that the conservatives are wrong', but that their concerns are misplaced. i.e. Inflation is not in the short term from costs, but in unsustainable asset prices. The problem is that 'the problem' is concealed as a 'benefit' for some, because people in the cities like to see their property prices rise. Those buying late are happy as long as the correction in asset prices doesn't show. i.e. They are not concerned until there is a collapse, and even then they might not care if the collapse does not send them broke, precipitate the loss of their job, or their interest repayments does not exceed what they would otherwise have paid in rent.

2. Krugman cannot forecast inflation
Krugman is akin to the environmentalist who points at 'evidence' and decries how bad or wrong people are. He is a tragic soul who understands nothing. He has no credible analytical proscription for how the world works. This is why he cannot offer an explanation of the world; only criticism when others are wrong. He cannot tell us when inflation will appear; if it ever will, and he cannot offer an explanation of why. Firstly, we need to deal with what inflation is.
Inflation is a broad indicator of price movements relative to purchasing power; which is itself tied to the productive capacity of any economy and the supply and demand for money. 
The Austrian School is correct insofar as they regard there to be a relationship between the supply of money and the productive capacity of the economy. Their failure is to not convey an understanding of the dynamics that actually drive price movements. i.e. There is a tendency to speak 'broadly' (by definition) and not see the differentiated foundation for supply and demand in the economy. They fail to see that there are several pertinent factors, namely:
a. Wage restraint prompting an overweight investment in investments like productive property, productive capacity and securities that help finance that capacity, prompting an excess of savings over consumption, i.e. we see a deferment of spending. They fail to realise that this is caused by the autocrats of developing countries causing a pent up supply of labour, suddenly released in the 1980s. It will take us another 15-20 years to balance this global labour distortion, but the impact will be 'mass stimulus' to the global economy, the persistent of the 'super cycle', and low inflation. There will be no wages spiral, though we might expect some unionisation in Asia. There is however no culture of this, and Asia will need to compete with Africa, South Asia on labour costs.
b. Low interest rates prompting speculation in assets.

For these reasons, we can say that the global market place will be under low inflationary pressures for another 15-odd years. In that time, we can expect corresponding asset price bubbles. Its inflation, but not the type described by Krugman. He, like the Fed Reserve, like Alan Greenspan, are simply not looking at asset prices as a vulnerability. It is the prospect of asset price collapses that will demand further QE programs. These are forms of taxation rather that cost-of-living inflation. They are destined to recapitalise the value of money; but not cause the type of inflation spiral that is associated with cost-of-living inflation. In fact, the dearth of specialisation and economies of scale, along with productivity gains are destined to see costs under control. So that's the explanation and forecast.

3. Krugman offers no clarity over 'excess money'
Concerns about "excess money and a devalued dollar" is not a problem (as Krugman argues) because there is no such thing as excessive money. Even in the context of a 'balanced labour' market, the problem is not wage demands; the problem is that they able to be extorted from business by unionised labour. We are however under the illusion that unions are good, because they lead to better worker conditions. They don't. They take what business would have been forced to give (belatedly) or they extort that which business cannot afford to offer, so being forced to close business and go overseas, or go broke.
Krugman suggests that the USD is not weak, but in fact it is relative to hard currencies in Asia. He does not realise this because he selectively compares USD value with other major currencies, like the Yen and Euro, which are also weak, or those economies whose pricing is tied to the USD, whether its the managed 'mercantilist' currency regimes of Asia, or even the USD-denominated currencies of commodity producers like Australia, South Africa, Canada et al. It does not help that these countries borrow in USD. The implication is that all these currencies become immutably tied to the USD. The fact is that there is no country pursuing a 'productivity' based wealth strategy to prompt higher currencies. They are pursuing an 'economic stimulus' strategy, which attempts to create the illusion of wealth creation. Observe that households are working harder than ever, with two or more contributors to income, and they still struggle to live. Home prices are 10x average earnings in many cities. Unskilled labour is having a harder struggle still. This is the constituency that 'applaudes' Krugman's negativity, but he is unable to offer a solution. He can only knock down straw arguments.

It is true that many free marketers and conservatives have been expecting inflation. His argument is not entirely invalid; but this is not a man with much interest in truth; so much as disparaging counter-thesis to his own delusion.

In conclusion, we can expect more asset bubbles, with the prospect of more bail outs by government of banks or maybe creditors. We can expect no sign of inflation for more than a decade. We can expect those traditional indicators of inflation, the precious metals, like gold, silver, palladium and platinum to rise in price slowly, as they are among the cheapest assets. They will not however do as well as demand-based commodities in the short term, or as well as emerging market property. The reason being of course the low-yield on these asset classes. They will however be helped in time by the low yield on equities and property. This will take time to unfold. This is a don't be tragic. Though it will be harsh times for unskilled workers in the West. They live in an over-priced, high cost markets, and without exployment opportunities in the third world, they are really between a rock and a hard place, with no preparedness to address their problem.

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Wednesday, July 02, 2014

Gold price forecast-outlook 2014

An analyst at the Overseas Chinese Banking Corp has released a subdued outlook statement for gold prices in 2014. The research note highlights the prospects for stronger global growth and sees tapering from 2015 as buoying the USD. These facts are not in despite, however it is worth noting that:
1. Asset prices are a nascent or hidden form of inflation or deflation. i.e. Inflationary if the market needs to be recapitalised in order to refloat under-performing asset prices, or deflationary if asset prices were to collapse. Of course the Fed and no government is going to allow asset prices to collapse terribly, at least not in the property market because that would destroy credit. Credit or derivative transactions in equities are equally split, long and short, so no problem.
2. The threats to the global growth outlook, whether in the form of war or disruptions like oil shocks. We have in recent weeks seen ISIS in Iraq challenging the home security forces of the Iraw government. If these are destined to have the upper hand, we might expect Iraqi oil exports (4% of the export market) to be hit. This is not a huge market, particularly given the soft market conditions, however it will lift prices as a sepculative issue. Would it prompt a re-entry of the US? I suspect it would result simply in air strikes, with drones and targeted missile attacks.

Now, the prospect of cheap credit and an endless pool of super savings going into global markets is destined to lift stocks. Japan is planning to plant some huge some of domestic savings into the global market place to lift earnings. This is destined to lift interest rates in Japan, though given that rates are soft elsewhere, its not going to be excessive. Of course we are going to see higher equity and international bond prices. This is going to drive asset prices higher, and of course, in these conditions, gold will start looking appealing, simply because all other asset prices will be high. Is this reason to hold gold? No, but there will come a point when it wll, and of course there is equity exposure that can make more sense. i.e. Miners who are low-cost producers.
Asset bubbles tend to correct rather quickly; so its not the 'inflation story' which is sustained with a wages spiral (which we are not going to see for over a decade). People will tell me wages are rising quickly in the third world, but this is tied to productivity gains (like in the West). Where you can expect some rallies in gold will be with the expectation of market corrections, when only gold looks cheap. In these times, gold makes sense. Even if it falls off with a crash, its destined to be the sector that recovers first...assuming that its assets offer tangible value. i.e. Not blue sky exploration.

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Profit from mining with Global Mining Investing eBook

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The Philippines property market remains one of the strongest in Asia thanks to rising incomes, rising population and rapid rates of urbanisation. The administrative reforms of the Arroyo government have given way to improved administration under Aquino. ASEAN countries can be expected to achieve even greater price gains than Western markets, demonstrating that this super cycle is far from over.

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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.
MY ADVICE is (i) look at a range of market indices and decide upon what level of correction would give you the justification you need to get in & out of the market. It might be a 5-10% retracement or a break of trend. (ii) Diversify if you dont have an intimate knowledge of the company or management. More than 30% in one company is aggressive.

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The NZ property market is shaping up as one of the most attractive property investment markets for the next few years. High yielding property and the collapse of the NZD make NZ the perfect counter-cyclical investment if you buy right! In addition, there is no capital gains tax, transfer taxes, VAT/GST or wealth taxes in NZ, so rest assured that NZ property is tax-effective! Learn more now!

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