Tony Lepage

UBS shareholders approved a $12 billion bailout from Singapore and the Middle East today. The bailout comes as UBS has stacked up over $13 billion in losses. The CEO, Marcel Ospel, described the current financial crisis as possibly the most difficult since the stock market crash of 1929.

It's becoming clearer to the public that we're entering a recession but I wonder how many will realize that a depression is likely on its way as well. It's time that preparations for a depression are made by us all.

Canada's finance minister, Jim Flaherty, might also see the writing on the wall. Canada is the only country in the G8 nations with a surplus and in 2007 we posted a trade surplus of over $11 billion. In October, Mr. Flaherty estimated that surplus would drop to $4.4 billion. The Harper government must see problems because this number was revised to $3 billion during the past week. Flaherty stated that we need to be careful to protect our surplus from turing into a deficit--the first time in a decade.

Our surplus isn't the only thing to start dropping either. The Canadian housing market is starting to slow and will likely mirror that of our southern neighbor. Prices have begun to decelerate in Calgary and I'm betting the over abundance of housing, as well as rising property taxes, will do the same to Toronto and other cities across the country. It's funny how experts are saying the housing market will cool, when there is a great chance we'll go the same way as the USA, England and other countries with a housing market crash of our own.

Inflation is quickly gaining speed. After years of Bush tax cuts and record breaking federal budgets, the excessive amounts of money around the globe are starting to come back into the US causing quick rising inflation. This inflation was hidden for the past years partly because of the outsourcing of cheap labour around the globe. On Tuesday, the government announced that the producer price index, or PPI, rose 1% and core inflation, as fudged as those numbers are was up 0.4%. Remember that the core inflation numbers do not include food or energy costs (both of which are rising much faster).

Gold has hit another all time high today of $967.70 per ounce. With inflation gaining speed we should see gold continue to rise more over the next couple years. In the short term, the IMF is planning to sell off some of its 3,000 tons of gold reserves. They have not set a date but it looks like they'll sell some 400 tons of gold onto the market. This should give an opportunity to buy some more gold at cheaper prices, but again, no date has been set and demand is obviously high.

It's best to avoid trying to time this gold bull market and just buy on dips. I know of many people who were waiting for gold to drop to lower prices only to see it continue to rise (now they wait for the price it was at).

The most important thing is to start preparing, stop spending and preserve any capital you have against the heavy inflation that could very well destroy your savings.

A humerous explaination of the mortgage crisis.

Cynically fantastic!

I would be lying if I said that the 75 basis point rate cut by the Federal Reserve didn’t catch me by surprise. It's quite obvious I was surprised because I was certain enough to call for a big drop in US stock markets yesterday (see previous post). I figured Q1 would be a negative quarter only to have the markets boosted by rate cuts. I didn’t expect the rate to be dropped to hard and so fast.

I happened to be walking through the PATH (Toronto's underground network of malls and walkways) and stumbled upon Scotia Bank's investment screens. There were people gathering around and the headline described the TSX tumbling 500 points in just 20 minutes into the day. Anyone who knows me can probably imagine how much adrenaline started to pump through me at this point. I figured this was the end game. If there was an olympic speed walking qualifier that day, I might have won.

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I should take some time to briefly outline my investment ideas of 2008.

The year has obviously started out on the wrong foot. The TSX is down over 10% and the DOW is going down just as fast. For you skim readers, watch the Dow Jones tomorrow, it’s going to drop 6-10%. The Dow now sits at 12,099.30.

My bet: January 22, 2008 will end with the Dow (-6-10%) at 11,373 - 10,889.

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Everyone loves an early inflation. The effects at the beginning of inflation are all good. There is steepened money expansion, rising government spending, increased government budget deficits, booming stock markets, and spectacular general prosperity, all in the midst of temporarily stable prices. Everyone benefits, and no one pays. That is the early part of the cycle. In the later inflation, on the other hand, the effects are all bad. The government may steadily increase the money inflation in order to stave off the latter effects, but the latter effects patiently wait. In the terminal inflation, there is faltering prosperity, tightness of money, falling stock markets, rising taxes, still larger government deficits, and still roaring money expansion, now accompanied by soaring prices and ineffectiveness of all traditional remedies. Everyone pays and no one benefits. That is the full cycle of every inflation.

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The federal government has dropped a bomb on the Canadian stock markets today. This bomb may have given us an opportunity to invest in relatively undervalued companies.

Before I get into these opportunities, I’d like to discuss what the conservative government announced.

An investor holding a stock on the market, is taxed (on any gains) when the stock is sold and on any dividend payouts. The earnings of the same corporation are also taxed.

An income trust is a way for a corporation to reduce the taxes it pays while the taxes an investor pays are somewhat increased. While the taxes are slightly higher for investors in income trusts, the net taxes the government will collect are a lot lower than if the company was (or remained) a corporation. The Canadian markets are the home to the most income trusts worldwide.

The problem of income trusts has been identified by both the Conservative and the previous, Liberal governments. However, it is important to note that in 2005, when Minister of Finance, Ralph Goodale reported that income trusts cost the Canadian Government $1 billion a year, the Conservatives were on board to ‘save the trusts.’

Regardless of political tactics, it is clearly evident that trusts do not promote the growth of an economy on either a micro or macro scale. A share is focused on growing revenue. A trust is focused on paying that revenue out. For example, of the top 50 Canadian income trusts, 75% pay out more than they earn.

If a company is going to pay out the majority of its revenues, it is very possible that it stops growing. Trusts are very appealing to individual investors because they have a high payout, usually monthly, and average from 10-20% annually.

I’ll leave the discussion of income trusts at that—for now.

Opportunities Knocks?

Two of the heaviest hit stocks were Bell Canada Enterprises (ticker: BCE) and Telus Inc (ticker: T). Telus and Bell are two corporations that had announced plans to convert to an income trust. Because of the recent announcements, Telus stated that they will not be going forward with the conversion, and I doubt BCE will follow through either.

Below are my evaluations of BCE and T.

Bell Canada (BCE)
[p] 28.10 -11.36%
[s] 927.1 million
[e] 1.8 billion
[eps] 2.04
[a] 53.2 billion
[l] 12.1 billion
[b] 41.1 billion
[d] 1.32
[p/e] 13.70
[p/b] 0.63

Bell has shown consistent earnings for the last five years. They have also shown dividend growth for the last five. They are also on target to reducing spending, as planned. They have been laying people off. They were able to meet their planned cost reductions by reducing the number of consultants and contractors they’ve hired. By doing this have been able to lower the number of layoffs that they had originally planned (from 3000-5000 layoffs to less than 3000).

I am going to closely watch this stock and learn a lot more about them. I will be deciding whether to invest in BCE over the next couple of days. I really like their book value, and their price to earnings ratio.

Telus (T)
[p] $56.15 -13.52%
[s] 341.3 million
[e] 567 million
[eps] 1.63
[a] 16.0 billion
[l] 5.7 billion
[b] 10.3 billion
[d] 0.55
[p/e] 23.49
[p/b] 1.86

Telus has been a very active stock of late. The stock is up significantly from where it was a year ago. The P/E ratio of Telus is too high for me to want a bite and their earnings don’t look as steady as I’d like. There also seems to be a high possibility they won’t see an increase in earnings for 2006. I like the company; they’re growing their subscriber base across Canada. They have a significant subscriber base in the west. They are also the nation’s number two internet provider holding 85% of the internet subscribers from Western Canada.

If Telus’ stock becomes cheaper (ie, lower P/E and P/B), I may decide to buy. However, I don’t think the stock will be heading low enough to become a deal anytime soon.

Five years of Earnings: BCE & T


Legend
Price per share [p]
Total shares including options [s]
Total earnings [e]
Earnings per share (on common shares and after tax, etc) [eps]
Total assets [a]
Total liabilities [l]
Book Value (assets - liabilities) [b]
Dividend [d]
Price to earnings [p/e]
Price to book value [p/b]

There are two reasons for this post. The first: a follow up to the overall economic ideas I wrote about last post. The second: to explore and document new strategies for the stock market.

The Housing Market & the Stock Market

I previously wrote I could foresee home prices increasing because of severe inflation. I wish to further evaluate that statement and form a long term, measurable, prediction.

First off, the S&P is a collection of equities on a combination of US stock markets that is meant to represent the US economy. This is done by averaging the biggest companies that are most watched by investors. We call the top 500 of that list the S&P 500.

A recent commentary highlights the relationship between the housing market and the S&P 500. From the article, you can see how the housing industry could be predicting a decrease of about 30% for the S&P 500 from its current standing.

I will be watching closely to see if this decrease happens. If this decrease does happen I believe the FED will believe this is a far too drastic decrease. It would also signal something the entire nation will not be complacent about—a potential stock market crash.

If investors start taking note of the current housing situation and start adjusting their portfolios we should look to traditional assets for investing safety. I specifically feel big money will end up in the large cap stocks. The current big boys include overpriced stocks like GOOG. If you don’t believe what kind of effect google has on the markets, take a look at the recent price action of EP. El Paso is going to provide solar power to google. They have a P/E of 928. In case you’re unsure what P/E means, it’s the price-to-earnings ratio. In other words, if you bought all of EP right now, it would take you 928 years to earn back what you paid (using their current income rate).

And while commodities get hammered, if we look at one of the biggest old school players, XOM, Exxon Mobil we find a P/E of 11. I can see investors fleeing while they eventually make their way into the old school and traditional companies (many of stocks that Warren Buffett has been holding for a long time). If things are quickly getting more expensive, consumers are spending less, or both, you can expect investors to buy the stocks of companies that produce the things we NEED.

Fear

We could also see a flight from anything that has shown risk, and there is a lot to fear in that arena. I’m consistently shocked that our society is acting so complacent in the face of so much fear that is being fed to us. I wonder when the markets will realize all the things that are going on in the world won’t be good for anyone.

From recent hedge fund busts (a $5 billion loss from one hedge fund in a single week) to the North Korean nuke problems, the markets seem to be acting very irrationally. When we look back in 5 years I think we’ll see a stock market that was pretending and in denial. The emperor has no clothes.

Potential Futures

Considering my thoughts from above, I think we’ll see a decrease around 30%, probably less in the US stock market. This will reverse as the USD begins to decrease by 30% and the stock markets can begin to trade sideways or increase.

This has no guaranteed influence on the price of gold for the near term. Gold could be taken lower if hedge funds and investment banks sell off their commodities. If gold is sold with the commodities the selling will have a negative effect on the spot price. If gold is not sold, or the selling has little effect, I continue to believe the fundamentals of the US economy are driving it towards extinction. That would be positive for gold. It could also end up being very negative for us.

**Brief Disclaimer:
I want to state that I will not be held responsible for any investment actions that are made as a result of anything mentioned in these posts. You are responsible for your own investment future, whether you’re investing or not.

Gold Equities

I’ve recently begun to take on a more risky investment strategy to gain a greater amount of leverage from a positive gold price. To do this I have begun investing in gold exploration companies.

My first purchase in this arena is Radius Gold. Investors were waiting for great news from this company that didn’t come. This is reflected by RDU’s stock price of late. I will hold this stock through the upcoming turbulence that will lead to gold’s resumption of a strong uptrend. When gold moves closer to being priced appropriately, I will re evaluate the holdings of this company.

My idea is to choose mining exploration companies that are cheap but not on the verge of extinction. They need money in the bank and a plan to generate excitement, be it exploration or acquisitions.

I plan to add to my holdings sometime over the next few days. I have my eye on a few more stocks priced around 1.50 as I try to look for companies that have an established track record.

Ultimately, I think history will prove that great investments aren’t that hard to find in this industry. As you would learn from my previous posts, I’m very confident that the gold price will end up a lot higher over the coming years.

That leads me to a key point I try to implement in my investment strategy: I must be selling my holdings when this market gains more investors and before it becomes over invested. This is a serious concern because the market is so small; these investments will be highly volatile as gold prices edge higher.

In order to re-evaluate my stance on gold, I reviewed the reasons I decided to enter the market.

Dollar Debasing

If you aren’t aware of the current problems with the US debt burden, you’ve been living a sheltered life under a television. I am not the only person who thinks that the USD needs to fall significantly. The Organization for Economic Co-operation and Development has stated that the USD needs to fall 35-50% from its current value ($1.12 CAD). Even the US Government wants the dollar to fall, they want China to revalue the Renminbi upwards!

Housing Market

Although I don’t believe housing prices will drop over the next few years, I am afraid this market was allowed to become far too hot. It is extremely rare that a bubble results in a soft landing—in fact, I can’t even think of a bubble that did deflate softly. This does not mean that the average Joe will not be fooled. The resulting inflation caused by trying to prevent the market from collapsing will spark hyperinflation. This will confuse consumers and the markets.

Many investors, including myself, find it easy to confuse the consequences of a hyperinflation. A hyperinflation will cause the stock markets to rise. It will also cause home prices to rise. The more we see these assets rise, the greater the chance our currencies are being heavily debased. This can continue to go on for a long time. However, this does not mean you’ll be able to cash out that equity and enjoy it to its fullest. It really means everyone will be living with less. If the buying power of the dollar decreases, an increase in home prices or stock markets will not mean more money in our pockets. Remember how our grandparents told us they could purchase a loaf of bread for 5 cents and still get some change back? Just as the price of bread has risen about 25-fold, I’m sure that their home values have risen just the same. Are they any richer?

I’ve heard many say the US markets are going to rally and I agree that this is very likely. If I chose to invest in any market within the USA, it would be traditional large cap companies that provide essential products to consumers (Johnson & Johnson, etc).

However, I will be avoiding the US stock markets completely.

If I am correct, I will be accused of missing a major bull market in the US stock markets. If the USD drops 30% you can expect an equal gain in the stock markets themselves. This would negate any profits I could have made. As far as I’m concerned, the US market is a very risky investment.

Commodities

Commodities have been in a bull market until this past June. Investors have started to realize that a slowing economy means less demand for commodities and they have sold them heavily. This has dragged gold down but it will get to a price when it is so cheap it will break free of the commodity sell-off and become completely free moving.

If commodity prices continue to fall, this can signal deflation to the FED, who, under the leadership of Ben Bernanke, will flood the market with US dollars to keep prices from falling.

Entitlements

Entitlements are a $57, 000, 000, 000, 000 ticking time bomb.

Oil

Just looking at the energy sector will prove that investors aren’t living in a real world. Today Exxon-Mobil trades at a price-to-earnings ratio of 10. In 2003 Exxon-Mobil, Chevron-Texaco and Conoco-Phillips earned $33 billion combined. In 2004 those profits rose to $47 billion and in 2005 they made $64 billion. Those are stunning profits and even more astonishing earnings growth.

Look at the Exxon-Mobil homepage and you’ll see a ticker that says “Energy is Essential to Economic Progress All over the World.” They are 100% correct and as our economies continue to grow we’ll continue to need more and more energy. With the kind of profits they make off of oil, they won’t be promoting an alternative until they’ve made every last cent. If we were to assume there are 1 trillion barrels of oil remaining on earth (A figure many of the peak-oil-critics use. In reality I think there is a lot less.) with an expected price of $100 a barrel, do you think the oil companies would promote alternatives to oil if it’s going to cut into their in-the-bank profits? Based on these estimates, the industry is believed to be worth $100 trillion! Why scare us away when they’re earning more than they ever have.

Geo Politics

From Japan ending their role in the carry trade to continued tensions in the Middle East, it appears the “terror premium” will be here for many months, if not years, to come. War is not a pretty thing. The Iraq war only seems to be dragging on and on, keeping the USA spread thin while highlighting their foreign policy objectives and pissing many, many nations off.

Common Opinion

Sometimes I have to check whether common opinion agrees with me to make sure I’m not following a popular trend that would cause me to lose my shirt. If everyone was thinking like me, it would be impossible to sell my holdings when the market tops because everyone would be trying to do the same. Currently, I don’t have to worry about this. I have many reasons to remain confident in my opinions. The fundamentals that brought me into the gold market have not changed over the last year.

Conclusion

I am very happy with my current allocation and I feel that I’m well hedged against fiat currency devaluations. This protection has brought me a gain of 30% each of the last two years. While this is nowhere near modest, I plan a more aggressive set of holdings. I will be acquiring holdings in a set of gold and silver exploration companies over the coming weeks.

I have not determined my full distribution plan but I will be focusing on the following list of companies:

• MAD
• TNP.UN
• QC
• MMM
• ESI
• N
• WDO
• GPR
• FRA
• XAU

I won’t say that I will be investing in ANY of these stocks. They are a definite on my radar but I need to create a case for investing in them and plan a full strategy. I will be sure to list my selections here and I will explain the reasons behind any investments as well as price targets. I currently have no problem with divulging all holdings as long as I can continue to spread knowledge to those who wish to learn. This is how I learn.

Things are starting to get really exciting.

Side Notes:: If you are trying to solicit funds from me for your idea, hedge fund, or barber shop quartette, be sure to avoid insulting my intelligence. While I have frequently stated that I have no formal education in economics or investing, likening my trading skills to that of “George W. Bush using a computer to write software” will get you nothing. I may not have formal training, but I do have the motivation to heavily research any positions I take. I refuse to day trade and I will continue to invest for myself only. Who cares for your money more? You yourself, or some stranger? Additionally, I’ve made it personal rule to be weary of people who use the term “trust me.”

Does it really matter if the dot-com ‘geniuses’ made 200-2000% per year during the years leading up to the dot-com bust if they ended up losing it all when it collapsed?

As bullish as I am on Gold, I am a little more than hesitant on where the price will go over the next few months. I‘ll be completely re-examining my stance on the gold price over the next two weeks . This is due to two major changes that I did not expect: Japan raising interest rates and the drastic escalation of the Middle East wars.

Looking back at May, the price of gold dropped nearly 40% over the course of 2 weeks. The question is whether gold has the ability to launch past the 26 year highs of May or if gold will get slammed once again. We are approaching a very important price level that can bring back the confidence that was lost during the drop. If gold can fly past the $760.00 level, we can be sure it’s headed for $800.00 and possibly $900.00 into the fall.

Point 1

There is a huge mess in the Middle East. I’m going to have to start researching deeply into this war—I am afraid that we may have entered world war three. Any form of war, especially one that seems to keep getting bigger, is bad for economic growth.

Generally, wars destroy everything from lives, dreams, and homes to economies, liberties, and growth. If this violence continues much longer you can be sure the economies of the world will slow to a halt. Usually, when the interest rate goes up, this is enough to slow the economy on its own. If you’re a reader of my previous posts, you will know that I believe the Federal Reserve is stimulating the economy with easy money to offset the effects of a rising interest rate. This means a slowdown may be delayed until the wheels fall off the wagon completely.

If the economies of the world begin to slow down, you can be sure demand for base metals like copper, zinc and steel will also decrease. Gold has broken away from its relationship with the USD (when the USD goes up gold used to go down). However, gold has not been able to break free of its relationship with the base metals (They go up, so does gold).

Point 2

Japan is slowly ending its role in the ‘carry trade.’ The carry trade is when an investor secures a loan at a very low rate and locks it into a guaranteed return at a higher rate.

An example: Obtain a $1 000 000 loan with an interest rate below 1% from Japan, convert it into the US Dollar (or, USD) and invest it for 5%. You can keep the 4% of $1 million!

This has been a strong stimulant in the US economy. With the carry trade ending and deflating the USD, investors will fear a demise of dollar strength and flee to a safe haven like gold.

The current action in the Gold price suggests that investors fear the drop of the dollar more than fearing the current war. If they haven’t thought about what the war means to metals demand, expect a harsh correction in the gold price. If this is the event that breaks the relationship between gold and base metals, expect gold to continue well higher into the $1000 range within the next year.

Furthermore, perhaps investors are starting to see that the USD is going to fall and are looking to ALL metals as a safe haven. Don’t get me wrong, I am still bullish on the price of gold because the demise of the USD is almost inevitable; I’m simply not sure that this is the end of the beating for gold. Adding to my hesitation is the length and strength of the spreading war.

Please offer your thoughts on this, I’m openly inviting them.

One of my favorite activities is calculating compounding returns. I find that it helps stimulate my imagination and think up ways to generate different rates of return. If you’re ever bored I suggest grabbing a piece of paper and compounding your own numbers. Think of what you can afford to invest each month and calculate your return over the first year, second year, and so forth. It gets really exciting around the 8th or 9th year when you generate a larger return than you add to the investment.

Show me some sample numbers!
(Click the image to see more details)

The above image assumes you have an investment strategy of investing 15% of your gross annual earnings. It also assumes you can generate 15% return. Further, it assumes you are able to grow your earnings by 4% a year (ie, get a raise).

Over the course of the 31 years (above), a total of $143 861.41 was invested but in the end you have nearly $3 000 000!

I’ve made this excel spreadsheet available here. Simply substitute your own values into the maroon fields (Salary, Invested, Return) and see how you can customize your own plan!

Remember, you don’t need to invest into a stock market to get returns. In fact, one of the best ways to generate a 15% return is to invest in a side business. Not only will doing something you enjoy help you attain a 15% return with a lot more ease, it can also supplement your annual earnings—the beauty is you can start small. With the chart above, you need to attain 15% on $4.5k. That is, you need to make $675.00 and you have $4500 to help you do it.

The most important part of compounding money is TIME. It is essential that you begin today because in later years your money will grow very rapidly. Don’t wait till you’re 60 to enjoy it. Start an aggressive plan when you’re in your 20s and you can retire rich in your 40s.

This strategy holds true even if you have debt. Again, time is on your side, but only if you take advantage of it and compound those dollars. I like to use the following strategy for putting money away and investing:

1. Pay your rent/mortage. This needs to be paid first or else you won’t have a roof over your head. Enough said.
2. Pay yourself next. This is done by investing for your future. Paying yourself second leaves no excuse to not invest.
3. Pay your debts. By paying your debts right before your spending, you’ll want to reduce the debt more by reducing the spending. Investing stays out of the picture and you will grow to despise debt even more.
4. Pay for the present, fun, shopping, etc.

You must begin investing now. It is essential to begin building the habit of investing.

Of course, this was a very simple post but I hope that you are convinced that saving a measly amount of money every month is a great idea. The benefits far outweigh the ability to immediately consume. If you haven’t started an investment plan, I hope you’re motivated now and will begin with the very next paycheck.

After 16 consecutive rate hikes, the Fed Funds rate sits at 5%. Before this rate increase cycle began, the Fed Funds rate was below 2% for 4 years and for most of that period it sat at 1%. Now that the rate is at 5% watchers are calling for the rate increases to stop.

Throughout history this has been part of the business cycle. Easy money is provided to stimulate the economy and then the money supply is tightened to prevent things from getting out of control. Tightening money prevents bubbles from forming within sectors of the economy. Bubbles grossly misallocate investment and cause severe, harmful corrections.

Nope, no housing bubble here. Dumbass.


Those calling for the rate hikes to stop are doing so because they feel that if the rates are increasing, the cost to borrow goes up and this will slow the economy. This is an incorrect belief and I’ll explain why.

The Fed Funds rate is still lower than inflation and this means it makes sense to continue to borrow money if you are going to invest it to for an average return. If the interest rate is lower than the inflation rate, you simply have to invest into something that returns at a rate greater than (or even equal to) the inflation rate.

This means the current Fed Funds rate is NEGATIVE.

How could this happen? What does this mean? I don’t want to be a dumbass, teach me.

Okay, so when I read that the CPI is 2.1% in news media this means the ‘consumer-price-index’ correct? Wrong! The consumer price index is meant to reflect the change in costs that consumers are paying for items they require everyday. CPI now stands for ‘core-price-index’ and there are not very many people who noticed the switch. Why was this done?

You may have heard me blast arguments about the U.S. government deficits being lower during the Clinton administration. Here is why: the Clinton administration simply took all payments to social services and used them to pay for other government services. In effect, this increased the funds the government had to work with, balanced their books and made it appear the government was running a surplus. The only losers are the baby boomers who will need every cent of social services because they have been brought up to trust these implied benefits will be available for them too. They wont be, and for a long period of time, us 20-somethings will have to pay a large sum to fund this notion until it all completely faulters.

Anyways, the Clinton administration did some magic in that they wanted to decrease the inflation rate by 1.1% so that they could reduce the amount of payments being given out as cost of living supplements to their current social services users. This is an example of CPI manipulation

Since this time, the Bush administration has taken the inflation numbers and added their own twist. They have decided that the cost of transportation, energy and food does not reflect the costs of the average consumer. They think that gas prices are high because of the war and this doesn’t equate higher prices to you and I. This is no joke. If you were to calculate the inflation rate the way it was calculated during the Clinton years ago you would come up with an inflation rate of about 6.5%. The last I read, they were telling us that inflation was 2.1%. However, if you calculated inflation based upon the real cost to consumers, I am sure you would discover inflation is running at about 8%. If you’ve made it this far, I hope you can understand my concern—if the inflation rate is 8% my wages should be rising at this rate too, otherwise I’m getting poorer year over year.

While the Federal Reserve may have most people tricked into thinking that they have been harnessing inflation, they have not fooled me. I’ve created a spreadsheet that I will be using to record the prices of things I purchase most often. I am going to do this monthly and across competitors. Then I will start to publish this data as my own index of inflation.

My message to you: Inflation is higher than you think. Just take a look at all the things that cost you more each day. You shouldn’t be able to notice a 2% annual rise in prices but we’re able to see that things are getting costlier. Just how much costlier remains to be seen. My biggest concern is that if inflation is running at 6-8% (and it more than likely is) no one seems to care. When will we start to care? All of my peers go to school, take on debt, and will eventually (or have already) graduate to work 40 hours a week for a paycheck that they need to live. If they only understood how the money system is currently working against them, then they could perhaps get some real value for those dollars.

Note: I hope that YOU find value in the new type of posts I will be making to this blog. I don’t see any value in creating simple, mindless, and vain attempts to document my day-to-day life highlighted with small snippets of humor (even if I remain “nameless”). Although I could go on and on about my work, party or personal life, I have no intent on publishing that kind of crap on the web. If you really need this kind of stuff wait 10 years and buy my memoirs. If you don’t like this, obviously this isn’t the place for you. It’s actually quite amazing how much heat I’m taking for my $708 post from 2 weeks ago. This will only inspire me to write more. I understand that it is hard to adapt to change.

If you don’t like what I’m saying: don’t read this blog!

The window is here, but for how long and what price range will it present us? Let’s make things fun. I’m going to stick my neck out here, and make some real predictions.

Motivation: One of today’s headlines reads: Gold sinks more than $36 to end at a one-month low.

A word of caution: while specific targets are shown in the charts below, one should only watch for long term trends and not exact numbers. If gold goes to $1500 an ounce, does it really matter if you bought at $600 or $700 an ounce?

Examining this first chart you can appreciate how most of those involved in the gold markets up to May 2002 became disheartened by the turn in price action. For a short while, it appeared that the bull market had become a bear market. Six months later a new high is hit and gold begins the next up swing.

Continuing up that swing gold reaches a new high only to have it taken away. This time gold hits a new high of around $386 and dives south of 330; a 15% drop. Sentiment is worse—just when things were starting to look good the “gold bull” bucks some more riders.

Notice the classic flag formation. While price action is between the flag boundaries (no new lows or highs), a break north or south of it can indicate the direction of a major pending move.

This brings us to the point when mainstream media begins to talk about gold. However, gold is still moving in relation to the US dollar: when the USD$ goes down, gold goes up. This relation is soon left behind during November of 2005 when gold finally breaks free of this tie and makes some serious moves upward.

In fact, these moves are so seriously quick and fast a lot more people are paying attention. This is why the current correction on gold has to be fierce. It has to last a (relatively) long time and it has to force the average investor to say “Gold is over.”

What would make anyone say such awful things? Perhaps the commodities bull market will begin to end and prices for other metals will stabilize. A lot of investors can’t see the difference between gold and other metals. Gold is a currency and this will cause the gold price to continue to rise, regardless of what other metals do. Maybe the USD will start to stablize, form a base and slowly move higher. Remember, November 2005 marked the end of that relation. The USD is doomed, it is the end goal of the Federal Reserve: devalue the USD and inflate the money supply. The problem lies in creating so much money and not causing stagflation (0% economic growth relative to true, hidden inflation). Nearly impossible.

For the short term, this bull has to buck some riders. This may be the last chance for you to join in on the action or maybe this cycle of two-steps-forward-one-step-back isn’t over and will continue a few more times. For now, here are my predictions till year end:

Also, the longer gold is slammed and prevented from making new highs, the better it will be for anyone involved in the next up-leg. If gold doesn’t hit a new high until the New Year, expect the upswing to be fierce… think $900-$1000.

I’ve been doing a lot of research about our economy and that of our southern neighbor, the good old u. s. of a. In fact, I’ve learnt a lot more since the last time we spoke. I’ve researched both sides of my arguments and I’ve taken a few steps backwards to evaluate my positions. I’ve done it a lot of times.

You may notice that I got rid of that slogan that used to be listed above under my name… you know, the one about “Silently posted vs. publicly ranted.” I have decided that the economic theories that I like to share with friends are not rants. I have decided that I am not eccentric about these investment philosophies. They are warnings and it would be wise to take heed. Don’t take my word alone, do some fact checking of your own and see what is really going on.

It may be fun to laugh when I start talking about Gold or Silver. It may be fun to pretend like I rant about this all the time. But where does this reaction come from? Is it a resistance to think that everything isn’t as peachy as you’d like to believe? Perhaps you’re in denial, or perhaps you think someone will come and save you if anything bad happens. Oh sure, it could never happen. You’re right in a way, it can be stopped from happening, but only if you (and everyone you’re conforming with) wake up and realize that it has to be a group effort and it needs to happen fast.

Right before us, right now and over the next few months, there is a window of opportunity. We must, as a civilization, not just you and me; we must fix what is wrong before it blows up in our faces. What will blow up? Aren’t you being a little dramatic? Perhaps, but before you judge, don’t you think you need to read up on the matter yourself? Oh, that’s right… you haven’t.

We must be far sighted. We must take preventative action. There is no action with inaction. If everyone believed what I am saying (or for that matter, if they cared) then we would take (and thus, the market would take) preventative measures and a severe crisis would be averted. I will save the details for another post (in the very near future)—but for now, I need to articulate my frustration. Perhaps I will delete this post in a couple days, or maybe I won’t.

Although I said I won’t go into specifics, the details are many and are not exclusively limited to swelling government deficits, lack of real job creation, ballooning markets teetering on popping, growing international conflicts, and our ALWAYS increasing reliance on oil.

Iran is the #2 producer of oil within the OPEC nations and they are telling the world that within the next ten years, they will become an IMPORTER of energy. This is why they want to enrich uranium—yeah they really do want nuclear reactors for energy. What does this say for the price of oil? What does this say for an oil economy? An economy that has a rate of consumption that continues to increase dramatically in the face of $70 oil?

Over the next few years the following may occur. Generally, this is what I’m planning for. As the Federal Reserve breaks the American economy by increasing the interest rate too much, expect them to react by pumping the economy with money. This will prevent a complete collapse of their economy but it will significantly decrease the value of paper currency.

Hopefully, you have reformed your denial and are able to see this happening. Sure, when I spell it out like this it can’t be hard, but remember, if the dollar is decreasing, then everything else will be increasing… salaries, the stock market, home prices, etc. This will make it hard to see the real information, the real facts. TV is a powerful tool of mass persuasion. Remember to take a step back and look in all directions, not just the shortsighted direction in which all the lemmings are running.

On a final note: think of all the times that I “ranted” and think of all the different people I have ranted to. If any of them had listened to me, they’d have enjoyed an increase of over 200% in 1 year. Gold closed today at $708.00 an ounce, or $780.00 Canadian. The USD tanked a lot today. Expect a drop in gold and silver, stop consuming and save some cash. Then when an entry point opens up for you, jump in. Remember, it is still cash. And most importantly, if you buy into gold or silver, make sure I’m not selling to you—that would mean you’re still a lemming.