What about M1 and M2?
by Shelby Moore, January 27, 2008
Most of us analysts correctly predicted that the US Fed would accelerate the growth of M3, in response to a deflating credit bubble. We correctly predicted that gold and silver would benefit. In my current opinion, we were too bullish on mining stocks near-term, because we ignored the definitions of M1 and M2.
Speculation in all things in America has been declining since mid-2006, because M1 has been declining since mid-2006 bounce, both on it's own and even more so if relative to accelerating M3 (divide M1 & M2 by M3 in your mind to get plunging M1 and M2 curves).
Understand from the following definitions of M1, M2, and M3, that Americans for the most part only speculate with M1 and margin credit (with M1 needed to service margin speculation), in large part Americans invest for perceived "safety", the portion of M2 not in M1, and of course Americans have no accounts with access to the portion of M3 not in M2:
http://rs6.net/tn.jsp?e=001t2GoaiZt_ygQtasvdvlJ0XM9yEcoH1LUfcB27ti5NXz25yZ6atKkKaMHJKhmBZ7FO-VxX2VhzcJzHjeqZemMh3ywoum8CQhwp__MAhXfpJAkqYGsYA6BV-BAULq9rDquf1sslQKZ6GpR-XhoBkoP6_9qNi94H47i
Although the US and EU central banks are providing increased liquidity, it is mostly ending up in M3, not in M2 or M1. The fact of many defaults and writedowns is indicative of a deflation of M2 and M1 relative to the long-term buying power of the dollar (long-term buying power driven by M3). So we have a deflation of actual spendable/investable value, simultaneous with an accelerating dilution of the value of the dollar via M3. In short, the government must be the borrower for the people and dole it out via stimulus and government spending, and the largest Fed member banks (the owners of the Fed) are being given liquidity to buy up the distressed assets in the economy for pennies on the dollar. The US government's TBill rates are declining as Fed cuts rates, while Libor and consumer credit rates go higher because private enterprise has declining real M1 and M2. I had described in the past this mechanism of how the masses use of fiat insures an ever increasing socialism, where financial power becomes concentrated:
http://rs6.net/tn.jsp?e=001t2GoaiZt_yizX0uk5eTOAj6BJH5Ey23wVAqDkFbZuEKgQNfCQBaDPdw-6RzmuwDTtFcJzWSVxAHHV1wc0kriuktrTbWHPPbxRdzGp26xUK7Dy_ENRmjnuwWJWEit63LDkKxzG_Q8Ep7oP__J8y7K5l0EtLhhztj_52P3jZAq-c8=
Most of the domestic US economy (M1 and M2) is being deflated. And we are only at the tip of the iceberg of the deflation of the $600 trillion in credit derivatives.
Boomers have (in their ignorance of M3 dilution and real inflation rates) moved their M2 to perceived "safety" of fixed interest (and to a small extent precious metals):
http://rs6.net/tn.jsp?e=001t2GoaiZt_yidGM_qifvNo-krq3C5hLMFupamJE_w3q1b47ciXOvXLJGz2cyi_PMi_wlqUtoWVae2nOa4cElNrp2y14N-PmrcfjP55bwZQFcCYjHxiJekSR8xcjUb8XLZvT_On6PzjkW-i7_bPRfB0SaK0fqazdC8
Because the total value of the precious metals markets are so small relative to the bond markets, it only takes a very miniscule percentage of the M2 moving to true safety, to get the gold and silver price action over the past several months. This is nothing compared to what we will see in gold and silver ongoing, as the public slowly awakens from their ignorance. We are only at the tip of the iceberg.
To get an outlook for mining stocks, I first note that the odds of a small decrease in the rate of growth for the world economy is very probable for 2008. Gary North explains this well, although I think he is a bit too pessimistic on globalization long-term for reasons I will explain:
http://rs6.net/tn.jsp?e=001t2GoaiZt_ygyLP-ijsKgy7tEFIbCZGirTduyLe6Qb6Qlfzql4RGzQNMLvIU7CWAC1Y8oVl_xlcL6EcjWTnOeJj-mN2gTG8lEgkqwXRuSPRnTbyKqG5yS2GEkRptDTxdB5-1HWJQOtkNZ3cSReInCKA==
The declining real rates (even if only accessible to the government and large Fed member banks) means a movement of capital to emerging markets where real returns are still possible:
http://rs6.net/tn.jsp?e=001t2GoaiZt_yjm2gYw6f3JvnO23nmCQo786PtMODTv3Ki23oshjvCN_0__HGO2NCYieu1iTufbaYtw0XUYkk3plL7lTvVYclA51fl0UCGxajbRnTZn25CZq4oa84Sy-QBTPPTswGqjgmDcA2zT3iGRaSCgJmy9Bpag
However, I am pondering that this dollar-carry trade effect will be on a lag, with the near-term 2008 result to be a slight global slowdown-- more severe in the USA. Maund pointed out that gold and silver also become more attractive with declining real interest rates:
http://rs6.net/tn.jsp?e=001t2GoaiZt_yhX8TiLxwQkWFimcjVwj5106S_EkWLN_r6w_hWta2T3IhtpDL7E5qWf3NUVzrghqmkfHDVlgiJ01RyB_i5A0vEkx7BOVMN6KzGVfjzmG30drCuDvz_4GPaMfxFv9ZCed60L2_B6VFSXs1KDw4v0FexZ
Given the relative sizes of the total value of the gold and silver markets, versus the total GDP of emerging nations, I don't have to tell you which has more leverage to declining real interest rates and the awakening from ignorance of the masses as their buying power dries up. Metaphorically, globalization and emerging markets are already more than a sapling oak tree compared to the acorn of the silver market.
So I think this is definitely not the time to buy base metal juniors which have forward p/e ratios which are not that much better than precious metal juniors. Given I am the programmer of Miningpedia.com, I have access to data on 700+ juniors, and I have not found any base metal junior with a lower forward p/e of about 1-- meaning one year's forward production will equal the current fully diluted market cap. Whereas, there are a few precious metal juniors lised at the top of Miningpedia with forward p/e of less than 2.
Due to the money aggregates realities I explained, I see gold and silver continuing to rocket up in 2008. I don't want to project prices, because the situation is an ongoing firecracker that could fathomably send gold north of $1500 and silver north of $30. No one knows, but prices are going up.
Thus at some point, the producing gold and silver miners will start to spend their excess cash flow hoards to acquire near-term gold and silver producers that are extremely undervalued. I think they will buying these for cheap and fast expansion of their production. This will re-ignite the speculation into precious metal juniors. Mainstream investors of major gold producers will take note that their company just bought a junior that they could have bought prior, and greed will return to the precious metals junior market. With base metal juniors, the outlook is more murky for the reasons I enumerated above, so I think "safefy" mentality will override greed for some time.
by Shelby Moore, January 27, 2008
Most of us analysts correctly predicted that the US Fed would accelerate the growth of M3, in response to a deflating credit bubble. We correctly predicted that gold and silver would benefit. In my current opinion, we were too bullish on mining stocks near-term, because we ignored the definitions of M1 and M2.
Speculation in all things in America has been declining since mid-2006, because M1 has been declining since mid-2006 bounce, both on it's own and even more so if relative to accelerating M3 (divide M1 & M2 by M3 in your mind to get plunging M1 and M2 curves).
Understand from the following definitions of M1, M2, and M3, that Americans for the most part only speculate with M1 and margin credit (with M1 needed to service margin speculation), in large part Americans invest for perceived "safety", the portion of M2 not in M1, and of course Americans have no accounts with access to the portion of M3 not in M2:
http://rs6.net/tn.jsp?e=001t2GoaiZt_ygQtasvdvlJ0XM9yEcoH1LUfcB27ti5NXz25yZ6atKkKaMHJKhmBZ7FO-VxX2VhzcJzHjeqZemMh3ywoum8CQhwp__MAhXfpJAkqYGsYA6BV-BAULq9rDquf1sslQKZ6GpR-XhoBkoP6_9qNi94H47i
Although the US and EU central banks are providing increased liquidity, it is mostly ending up in M3, not in M2 or M1. The fact of many defaults and writedowns is indicative of a deflation of M2 and M1 relative to the long-term buying power of the dollar (long-term buying power driven by M3). So we have a deflation of actual spendable/investable value, simultaneous with an accelerating dilution of the value of the dollar via M3. In short, the government must be the borrower for the people and dole it out via stimulus and government spending, and the largest Fed member banks (the owners of the Fed) are being given liquidity to buy up the distressed assets in the economy for pennies on the dollar. The US government's TBill rates are declining as Fed cuts rates, while Libor and consumer credit rates go higher because private enterprise has declining real M1 and M2. I had described in the past this mechanism of how the masses use of fiat insures an ever increasing socialism, where financial power becomes concentrated:
http://rs6.net/tn.jsp?e=001t2GoaiZt_yizX0uk5eTOAj6BJH5Ey23wVAqDkFbZuEKgQNfCQBaDPdw-6RzmuwDTtFcJzWSVxAHHV1wc0kriuktrTbWHPPbxRdzGp26xUK7Dy_ENRmjnuwWJWEit63LDkKxzG_Q8Ep7oP__J8y7K5l0EtLhhztj_52P3jZAq-c8=
Most of the domestic US economy (M1 and M2) is being deflated. And we are only at the tip of the iceberg of the deflation of the $600 trillion in credit derivatives.
Boomers have (in their ignorance of M3 dilution and real inflation rates) moved their M2 to perceived "safety" of fixed interest (and to a small extent precious metals):
http://rs6.net/tn.jsp?e=001t2GoaiZt_yidGM_qifvNo-krq3C5hLMFupamJE_w3q1b47ciXOvXLJGz2cyi_PMi_wlqUtoWVae2nOa4cElNrp2y14N-PmrcfjP55bwZQFcCYjHxiJekSR8xcjUb8XLZvT_On6PzjkW-i7_bPRfB0SaK0fqazdC8
Because the total value of the precious metals markets are so small relative to the bond markets, it only takes a very miniscule percentage of the M2 moving to true safety, to get the gold and silver price action over the past several months. This is nothing compared to what we will see in gold and silver ongoing, as the public slowly awakens from their ignorance. We are only at the tip of the iceberg.
To get an outlook for mining stocks, I first note that the odds of a small decrease in the rate of growth for the world economy is very probable for 2008. Gary North explains this well, although I think he is a bit too pessimistic on globalization long-term for reasons I will explain:
http://rs6.net/tn.jsp?e=001t2GoaiZt_ygyLP-ijsKgy7tEFIbCZGirTduyLe6Qb6Qlfzql4RGzQNMLvIU7CWAC1Y8oVl_xlcL6EcjWTnOeJj-mN2gTG8lEgkqwXRuSPRnTbyKqG5yS2GEkRptDTxdB5-1HWJQOtkNZ3cSReInCKA==
The declining real rates (even if only accessible to the government and large Fed member banks) means a movement of capital to emerging markets where real returns are still possible:
http://rs6.net/tn.jsp?e=001t2GoaiZt_yjm2gYw6f3JvnO23nmCQo786PtMODTv3Ki23oshjvCN_0__HGO2NCYieu1iTufbaYtw0XUYkk3plL7lTvVYclA51fl0UCGxajbRnTZn25CZq4oa84Sy-QBTPPTswGqjgmDcA2zT3iGRaSCgJmy9Bpag
However, I am pondering that this dollar-carry trade effect will be on a lag, with the near-term 2008 result to be a slight global slowdown-- more severe in the USA. Maund pointed out that gold and silver also become more attractive with declining real interest rates:
http://rs6.net/tn.jsp?e=001t2GoaiZt_yhX8TiLxwQkWFimcjVwj5106S_EkWLN_r6w_hWta2T3IhtpDL7E5qWf3NUVzrghqmkfHDVlgiJ01RyB_i5A0vEkx7BOVMN6KzGVfjzmG30drCuDvz_4GPaMfxFv9ZCed60L2_B6VFSXs1KDw4v0FexZ
Given the relative sizes of the total value of the gold and silver markets, versus the total GDP of emerging nations, I don't have to tell you which has more leverage to declining real interest rates and the awakening from ignorance of the masses as their buying power dries up. Metaphorically, globalization and emerging markets are already more than a sapling oak tree compared to the acorn of the silver market.
So I think this is definitely not the time to buy base metal juniors which have forward p/e ratios which are not that much better than precious metal juniors. Given I am the programmer of Miningpedia.com, I have access to data on 700+ juniors, and I have not found any base metal junior with a lower forward p/e of about 1-- meaning one year's forward production will equal the current fully diluted market cap. Whereas, there are a few precious metal juniors lised at the top of Miningpedia with forward p/e of less than 2.
Due to the money aggregates realities I explained, I see gold and silver continuing to rocket up in 2008. I don't want to project prices, because the situation is an ongoing firecracker that could fathomably send gold north of $1500 and silver north of $30. No one knows, but prices are going up.
Thus at some point, the producing gold and silver miners will start to spend their excess cash flow hoards to acquire near-term gold and silver producers that are extremely undervalued. I think they will buying these for cheap and fast expansion of their production. This will re-ignite the speculation into precious metal juniors. Mainstream investors of major gold producers will take note that their company just bought a junior that they could have bought prior, and greed will return to the precious metals junior market. With base metal juniors, the outlook is more murky for the reasons I enumerated above, so I think "safefy" mentality will override greed for some time.
5 comments:
This really is impressive. We absolutely agree with the matters you've penned here.
Thank you for this kind of useful article! Make sure you continue to keep it on its way. Cheers.
This is remarkable. We entirely agree with those items that you have written on this page.
bape outlet
supreme
curry 7
yeezy 700
air jordan
jordan 6
pandora charms
yeezy boost 350 v2
jordan shoes
birkin bag
more information get redirected here news browse around here useful site basics
Post a Comment