E-mails and Commenting on Raw Greed

I’ve received a number of e-mails with questions or requests to add outbound links from Raw Greed. Unfortunately many of these e-mails have gotten mixed in with the overwhelming amount of spam mail I’ve received. I will be cycling the public e-mail address on Raw Greed from time to time in order to combat spam.

The commenting system is also temporarily disabled until I find a simple Word Press plugin with automatic random word generation as a password for posting comments.

China and The SSE’s Great Bull Run

Mention China along with the Shanghai Stock Exchange (SSE) and you will often get gasps at the staggering rise of the market. The recent bull run has many investors comparing Shanghai’s market with that of the .com bull run of the late 90’s. I believe many of the comparisons are valid. It took the Shanghai Composite Index roughly two years to rise from 1000 to 2000, yet only a few months to rise from 3000 to 4000. Clearly market sentitment in Shanghai is bullish. Local newspapers in China are constantly reporting that new daily records are being set for the number of brokerage accounts being opened by individual investors.

All of the bullish news being released from China about its GDP growth, foreign investment and private equity markets has me asking how much longer can the SSE continue to rise? This question has me revisiting the three typical stages of a bull run. Here is a summary the three stages, without going into great depth:

Stage 1 typically finds contrarian investors entering the market as it hits a bottom
Stage 2 is typically when institutional investors enter the market and the media picks up coverage of the bull run
Stage 3 is typically when the individual investor catches wind of the investment opportunity

In Shanghai I believe we are definately at the markets last legs. I expect to see another 10-25% upside in the market over the next 6 months to 1 year. The momentum in the press is strong in China. There is a common belief shared in the housing and the stock market in China, that the central goverment in Beijing will do its best to avert any major economic downswings prior to the olympics in 2008. Hot stocks like Baidu.com Inc. (Nasdaq: BIDU), Ctrip.com International, Ltd. (Nasdaq: CTRP) and China Petroleum & Chemical Corporation (NYSE: SNP) have become watercooler and cocktail party chat.

If I compare the .com bull cycle to that of the SSE, I believe we are in early 1999 instead of early 2000. The hot money from the individual investor in China is beginning to flood the market, IPO’s are still heavily sought after and institutional investment has yet to exit the market. There is still room for the number of brokerage accounts in China to continue growing.

Those seeking to take advantage of the final portion of the SSE’s current bull run would be well advised to pick their positions carefully. As always, the best way to invest is to buy good companies with strong long-term prospects. Investing in stocks is always about investing in expectations. Real investing is about investing in business and that translates into strong earnings and dividends.

Disclaimer: I am currently short 150 shares of BIDU at $132.25.

Robert McEwen’s, US Gold Corporation

I’ve been watching US Gold Corporation (AMEX: UXG) and I believe it might be time to start building a small conservative position in the company. UXG is run by Robert McEwen, the highly regarded former CEO of GoldCorp (NYSE: GG) . UXG has 50.06 Million shares outstanding. Mr. McEwen owns 11,100,000 shares or a little over 22% of all the shares outstanding. This is something I really like to see. Mr. Mc Ewen has a high incentive to create shareholder value. His fortune in UXG isn’t pegged to a salary, but rather the performance of the company’s shares. This is outstanding news for shareholders betting on Mr. McEwen’s leadership abilities. Other positive statistics about the company include nearly $51 Million in cash and almost no debt. UXG’s cash position amounts to a little over $1 a share.

If investors look at UXG, what are they really buying? UXG is still a Micro Cap company that is a speculative play. From my brief initial research the company is still in exploration mode. This is the riskiest part of the mining cycle, but also rewards investors with the highest returns. UXG will be on my shortlist of stocks to consider adding a decent sized position in, once the company starts announcing drilling results from the properties it controls. A small conservative position may offer some tremendous upside using a low percentage allocation of your gold equities portfolio.

Purchasing IAMGOLD Corporation

Today, I purchased 1000 shares of IAMGOLD Corporation, (NYSE: IAG) at $7.19. IAG has hit a new 52-week low of $7.15 in current intraday trading. The company announced that it has missed Q1 2007 earnings expectations by a penny.

Here is a synopsis of the earnings results taken from Yahoo! Finance:

8:48AM IAMGOLD misses by a penny (IAG) 7.29 : Reports Q1 (Mar) earnings of $0.04 per share, $0.01 worse than the Reuters Estimates consensus of $0.05; revenues rose 114.6% year/year to $148.7 mln vs the $146.5 mln consensus.

I added IAG to my watchlist of gold stocks on May 12th, 2007.

New gold stocks added to my watchlist

I have three new gold stocks that I have added to my watchlist, Eldorado Gold Corporation (AMEX: EGO), IAMGOLD Corporation (NYSE: IAG) and Meridian Gold, Inc. (NYSE: MDG).

EGO appears to be a decent growth play with exposure to Turkish and Chinese gold mines. Quarterly revenue growth year over year is 383.60%. EGO has cash of 61.18M and debt of 66.36M. A high debt to equity ratio is something I don’t like to see.

IAG has a low debt to equity ratio. In the case of Meridian Gold they have no debt. A strong cash position and low debt normally means a company is in no interim danger of going out of business. Should the spot price of gold head southward IAG and MDG should be able to whether a downturn. Capital preservation should be an important focus of any investor. I build the majority of my watchlist’s with a medium-term 1-3 year focus in mind.

All three companies have positive ROA and ROE statistics. All three companies are trading below their 52-week highs. I am looking at the 52-week change in price to gauge the potential percentage gains an investor may see if the spot price of gold reaches a new high. At the time of writing this article:

EGO is off 10.84%
IAG is off 36.6%
MDG is off 29.6%

A cursory look at all three companies show them to be decent investments if you are bullish on the price of gold in the medium to long-term. As always it appears the market places an emphasis on growth versus value. EGO is off the lowest percentage from its previous 52-week high. The prices of all three stocks look attractive to me given gold’s current spot price of approximately $670 per ounce.

Silver to Soar?

I caught an interesting Money Week article that echoes many of my own sentiments toward the price of silver rising. I found a few interesting points in the article that I would like to quote.

Taken from the article:

the US consumer is more indebted now since 1933 with little or no savings whatsoever. The Comptroller Auditor General of the US, David Walker stated “last year (2006) was the first year since 1933 that Americans spent more money than they took home and, as you probably recall, 1933 was not a good year for the United States.”

The US’ national gross debt is $8,883,212,488,519 trillion ($8.8 trillion) and growing. When George Bush came to power US’ national gross debt was $5.7 trillion. Even the most sanguine, tunnel-visioned bull would have to admit that the fundamentals of the US economy are bad and deteriorating.

The above quote certainly doesn’t bode well for the dollar. The declining value of the dollar is probably the current largest impetus behind the rising price of gold and silver.

Taken from farther down in the article:

In 1900 there were 12 billion oz of silver in the world. By 1990, the internationally respected commodities-research firm CPM Group say that figure had been reduced to around 2.2 billion ounces of silver. Today, that figure has fallen to about 300 million ounces in above ground refined silver. It is estimated that 95% of the silver ever mined has been consumed by the global photography, technology, medical, defence and electronic industries. This silver is gone forever.

CBS Marketwatch published an article in March 2007 entitled ‘Silver may shine brightest among metals’, in which Kevin Kerr wrote that “Due to current supply/demand trends, the amount of silver above ground is projected to shrink to a critically low level in 2010. As supply shrinks, prices will keep rising steadily to new highs. Many in the investment world are unaware of this part of silver’s story. Industrial demand has been outstripping mining supply for the past 15 years, driving above ground supply to historically low levels.”

Assuming the figures in the article behind declining supply are correct, any combination of events to trigger investors seeking silver as an alternative currency will lead toward massive gains in the price of the metal.

At the moment there is a cesspool of potential reasons behind a rise in gold and silver:

Declining value of the U.S. dollar

Impending problems with sub-prime mortgage markets

Implosion of the property bubble

Implosion of global stock markets

Japanese yen carry trade

War in Iraq

Terrorism

Avian flu

Natural disasters

The institutions simply need a reason, any reason really, to begin accumulating and strongly recommending the metals as an alternative currency. It’s difficult to go against the trend when you work for any major investment fund. Job security, bonuses and commissions are the major concerns behind any investment recommendation. When buying or profit taking starts it triggers a wave from multiple institutions. There is an overwhelming herd mentality in the gold and silver market. The fear from investment managers getting left behind and looking doe-eyed as other investors pile in, pile out or short positions, compromises the fundamental reasoning behind seeking gold and silver as a medium to long-term alternative currency.

I’ve written multiple times now that given the overall small size of the gold and silver markets, that major investment fund influence is evident from the increasing volatility and daily price swings in the metals. Investors should consider that a few large hedge funds exceed the entire size of the gold and silver market combined.

I suggest that if any of the events in the above list are of concern to you as an investor to build a physical position in silver or silver equities as a hedge. I am suggesting silver over gold due to the larger upside potential I see in silver.

A few silver miners on my watchlist include:

Coeur d’Alene Mines Corporation (CDE), Silver Wheaton Corp. (SLW), Hecla Mining Company (HL) and Pan American Silver Corp. (PAAS). I believe the first half of 2007 to be an ideal time as prices are stagnant for silver miners to being acquiring a stake in a few of your own favorite companies.

*Disclaimer: I currently own 15,000 shares of CDE purchased at an average price of $4.24