Valuations in the Mining Sector Without Precedent

Valuations in the Mining SectorSomething a little different for my readers today…

As you know, we have been big believers in gold bullion since before the Credit Crisis even started. In fact, we turned bullish on gold bullion back when it was trading under $300.00 an ounce. And we’ve been bullish ever since.

But gold bullion prices have been stuck in a narrow trading range for months now and gold investors are getting nervous. While some are saying the bull market in gold bullion is over, we think a base (often referred to as “support”) is being put in for gold’s next big advance upward in price.

We asked our in-house gold bug Robert Appel, BA, BBL, LLB, for his current thoughts on what investors should do if they are in the gold market or thinking about getting in. And we got a lot more than just gold bullion advice from Robert. A must-read for my readers follows:

“What is happening right now is unprecedented. Unprecedented to a degree that is almost impossible to conceive, yet alone explain.

“It is like talking on the phone to someone in the eye of a hurricane. The ‘wide shot’ shows death, destruction and devastation all around. But the person on the other end of the phone, the person actually in the ‘eye’ of the disaster, sees calm all around and does not fully understand why everyone else is so concerned.

“For the last half-century the Western nations have lived beyond their means and solved any short-term problems that popped up by printing more money. The debt currently owed by many Western nations can never be repaid fully. That is not a misprint.

“Repayment under a fractional reserve system is now a mathematical and theoretical impossibility. All they can hope to do is manage the interest.

“When YOU do this on your credit card, it is called irresponsible fiscal management, and they send you to counseling or try to put you in jail. When politicians do it, remarkably, it is ‘business as usual.’ And we reward them by re-electing them, increasing their salaries, and giving them a pension plan that even an auto worker would die for.

“This mess almost blew up in the 1990s. Then it almost blew up in the 2000 crash. And then it finally (seemingly) blew up in 2008. At which stage these same brilliant politicians, working in tandem with their hired-gun central banks (again, their privately owned central banks, allegedly under ‘government control’ by directorship) decided to completely rewrite the laws of economics.

“Everything you learned in ‘Economics 101’ when you were in school no longer applies. Now it is somehow possible to be both creditor and debtor of the same amount at the same time.

“Moreover, it is possible to use this ‘trick of mirrors’ to fool everyone else into believing you are a wonderful credit risk (even though you are both lender and debtor of your own credit) and therefore should pay virtually no interest to anyone desiring the ‘privilege’ of lending you money.

“These are indeed remarkable times.

‘The natural enemy of central banks is gold bullion; much like the natural enemy of lies is the truth. In 2013, these same Western powers have had more success at holding gold bullion back than at any other time in the last decade.

“Emboldened by this, and understanding how small the mining sector is, a small group of traders, working together, have launched an assault on the mining sector to a degree never before seen, and brought the sector to valuations never before seen.

“We are no longer talking valuations seen only a few times a century. We are talking valuations in the mining sector without precedent.

“Some people merely get to read history. You, right now, are living it.

“The bottom line is that gold bullion is still in a bull market. Unless gold bullion returns to the $1,000 an ounce level (or less), the mining sector must at some point recover.

“If you believe that politicians and third-party banks really do have the ability to bend the markets to their will indefinitely, you should not be in the gold sector. It’s that simple. Otherwise, stay the course. There is a payday down the road.”

Michael’s Personal Notes:

Until the U.S. jobs market is fixed, economic growth in the United States is simply a farfetched idea.

It’s common sense. If the jobs market is healthy, it means people have jobs, and they have income coming in. Once that happens, Americans pay their bills more easily and spend more money on goods. And that’s how we get growth.

But right now, economic growth is in jeopardy, because the jobs market in the U.S. economy is sluggish to say the least. Politicians and some mainstream media are reporting that we are experiencing job creation; I obviously disagree with them. Employment created in the U.S. jobs market since the credit crisis in 2008 is unequal, as many more retail and low-paying service jobs are being created, versus white collar and manufacturing jobs.

Janet Yellen, Vice Chairwoman of the Federal Reserve, recently said, “It will be a long road back to a healthy job market. It will be years before many workers feel like they have regained the ground lost since 2007.”(Source: CNN Money, ‘Fed official: Fixing the job market could take years,’ February 11, 2013.)

According to a recent New York Times article, of older workers who lost their jobs in the midst of recession, only one in six were able to find another job. In addition, half of those who found jobs took pay cuts and 14% of them said their earnings were less than half of what they earned before. (Source: Rampell, C., “In Hard Economy for All Ages, Older Isn’t Better … It’s Brutal,” The New York Times, February 2, 2013.)

According to Sentier Research, Americans in their 50s and 60s have lost a significant portion of their earnings. They are now earning 10% less than they did back in 2009—just after the financial crisis ended. (Source: Ibid.)

There are troubling trends forming in the U.S. jobs market. Consider long-term unemployed individuals. The longer this group stays unemployed, the more difficult it becomes for them to get a job.

To see U.S. economic growth, there needs to be fundamental steps taken to make sure the jobs market grows proportionally. The fact of the matter is that the wounds in the jobs market run much deeper than they appear. The longer the jobs market stays anemic, the longer economic growth stalls.

We already have a significant portion of the U.S. population on food stamps and an increasing number of families falling below the poverty line. The low-wage-paying jobs created in the jobs market are going to make the long-term statistics on consumer confidence and spending worse, not better.

What He Said:

“Home sales down 8.4%, could be the bottom,” read the headline in last Friday’s USA Today. What do they know that I don’t? They know what realtors and their associations tell them and that’s about it. Unfortunately, the real estate news is predominately written by reporters—not real estate investors with years of experience to share. The hard facts about the real estate market in the U.S. are truly scary. How can the U.S. economy escape the hard landing in U.S. home prices? As we’ll soon find out, it simply can’t!” Michael Lombardi in Profit Confidential, January 31, 2007. While the popular media was predicting a bottoming of the real estate market in 2007, Michael was preparing his readers for the worst of times ahead.