The concept of a ‘jobless (economic) recovery’ having any long-term ‘legs’ makes absolutely no sense to me.  The economic and potential social ramifications of having a large percentage of an employable population out of work, out of social benefits, and with nothing but time on their hands has to result (or so I believe) in reduced retail sales, reduced domestic production of goods still manufactured in the U.S., reduced government revenues, increased U.S. National Debt, and ultimately the potential of serious social disruption.  In my view there should be far less rhetoric about ‘theoretical economic recovery’, and far more meaningful discussion about how the currently U.S. unemployed can be put back to work.  I think the consequences of continued high levels of U.S. unemployed for any length of time going forward may be brutal.

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It strikes me this finding about (at least Canadian) investors is indicative of a real issue around ‘investors reliance’ on their investment advisors, and indirectly firms they work with.  I consider the apparent willingness of many investors to delegate responsibility for their investments to others wrong-headed and financially dangerous for them – particularly going forward in the current and prospective economic environment.  I strongly believe investors ought to assume far more responsibility for researching and selecting equity investments based on their own analysis than they have in the past.  I also strongly believe that investors who take the time and effort necessary to do meaningful equities research and make (or seriously contribute to) decisions as to which stocks their ‘precious capital’ are invested in will have far more investment success going forward than those who simply take the easy route, deal with an Investment Advisor to some large degree because of an interpersonal relationship, and don’t take responsibility for their own investment decisions.  As an investor remember that no one likely cares as much about your ‘precious capital’ as you do.

It is this very view of mine that causes me to spend all the time I do developing StockResearchPortal.com.  I plan to continue doing just that.  Over the course of the next few months we will be introducing many new features to StockResearchPortal.com that we believe will better enable investors interested in the Resources Sectors to make, and/or contribute to, making better Resource related investment decisions than they otherwise will be able to.

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In a second article yesterday titled ‘U.S. recession over, unemployment seen at 10 percent’ reports a survey of 44 professional forecasters says “the worst U.S. recession since the Great Depression has ended, but weak household spending as the labor market struggles to create jobs will slow the pace of the economy’s recovery, according to a survey released on Monday”, but that “While the economy is believed to have rebounded in the third quarter, analysts believe that ordinary Americans will probably not see much difference as unemployment will remain high well into 2010, restraining consumption”.

Given that a return to growth in GDP (Gross Domestic Product) is the technical ‘economist speak’ for what constitutes recovery, the U.S. indeed may technically now be in economic recovery – at least for the time being.  That said, if 1/3 of U.S. households are limited in, or unable to get, credit it seems highly unlikely that said recovery will be strong, or perhaps even sustainable in forthcoming fiscal quarters.  The U.S. consumer juggernaut, which is what I think supported world economic growth through the 1999 – 2007 period is, at least in my view, unlikely to return to its former levels of spending any time soon.

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I see the article as being a useful read, but don’t see things quite the way Dr. Morici does.  After reading the article I added the following comment to it:

I found this article to be a well written and thoughtful commentary on how things have gotten to where they are. The question I have of Dr. Morici is: Exactly what U.S. goods and services does he see ‘China and others’ purchasing that would allow the ‘U.S. economy to grow robustly’? It seems to me that U.S. manufacturing jobs lost are unlikely to be recovered given the ‘country comparative’ wage discrepancies, and ’service offerings’ are unlikely to be exportable over time as exportable services are based on knowledge offerings that can be replicated in developing countries.

This comment captures my concerns with Dr. Morici’s conclusion that “If China and others want that problem (holding dollars that chronically fall in value against other currencies) fixed, they need to abandon currency manipulation and let their populations purchase more U.S. goods and services.  The U.S. economy would grow robustly, federal borrowing would subside and the threat of too many dollars compromising the dollar’s role in international finance would vanish”.  I see this conclusion as inconsistent with what I see as:

•    the reality that past U.S. Administration policies and decisions have resulted in a significant continuing erosion of U.S. economic power vis a vis the developing countries, particularly after the turn of this century; and,

•    U.S. economic power inevitably further eroding over time given ongoing geo-economic realignment, and the different underlying ideologies of its principle trading partners.

Comments on this post, particularly disagreements with my views, will be appreciated.

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Interesting times!  A Bloomberg article today titled ‘Gold, ‘Off The Charts’, May Target $1,500: Technical Analysis’ says that “Investors should hold onto long positions in gold as bullion has “significant upside potential” to reach as high as $1,500 an ounce, Barclays Capital said, citing trading patterns”.  The article quotes Jordan Kotick, global head of technical analysis at Barclays Capital, as saying “Channel resistance currently is at $1,370; history suggests a run at $1,500” and “Taking it a step at a time, in the coming weeks, we view consolidation above $1,020 as extremely positive, targeting $1,050 initially, and $1,120”.

Notwithstanding I have been on holiday, over the past 3 weeks I have been saying to people I expected gold to move up significantly in price in a short period after holding around $1,000 for a while.  Yesterday gold did just that, and it appears this morning there may be more price increase to come in the near term.  I don’t know how much of this is ‘herd mentality’ getting the price ahead of itself, and how much is the result of serious ‘safe-haven’ concerns by investors.  I will be looking closely at this over the next few days and weeks and will comment when I ‘get back into the detail and know more’.  For now, it strikes me as oxymoronic that the Dow continues to go up in the face of the rise in gold prices, but perhaps I am missing something that people smarter than I see.

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Think of it in absolute numbers.  Suppose GDP is 100 units, but a serious economic downturn takes it down to 75.  It then increases to 76, a 1.3% increase over 75, but still a 24% decrease from 100.  Economists say ‘hurrah’, economic recovery is upon us, and the media picks up this mantra.  It is hardly likely such ‘good news’ is seen as such by Main Streeters.  I recommend you not get confused by ‘the facts’, and think for yourself what the absolute numbers mean.  To me, they mean a long protacted period of economic times in the U.S. that may not approach the economic buoyance of the 2003 - 2007 period in that country (measured by consumer spending power) for many years, if it ever does.

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First, in separate Press Releases on September 8 Barrick and Silver Wheaton announced a transaction pursuant to which Silver Wheaton acquired 25% of ‘life of mine’ silver production from Barrick’s Pascua-Lama project for U.S.$625 million.  You can find the Press Release on the Silver Wheaton Company Page on StockResearchPortal.com, along with a 2nd Press Release issued by Silver Wheaton that same day announcing a U.S.$250 million bought deal financing.  An article dated September 8 titled ‘Barrick Gold sells mines to Silver Wheaton’ provides more detail on the transaction with Barrick.  For those of you interesting in researching Silver Wheaton its stock price increased by Sept 11’s close by about 6.5% from its mid-point price on Sept 8.  At the same time its average daily trading volume was approximately 4.6 million shares in the 4 day period ended Sept 11, when its average daily volume for the 3 months ended September 11 has been (rounded) 1.6 million.  That said, the focus this past week has been far more on Barrick than on Silver Wheaton.

An article Thursday titled ‘Why Barrick reversed its gold-hedging strategy’ says the Barrick equity offering will dilute existing Barrick shareholders by over 12%.  The article can be read to in part imply that investor (and perhaps investment banker) pressure played an important role in Barrick raising this money to eliminate a large part of its hedge book.  Based on my many experiences advising Multi-Nationals and major Public and Private companies on valuation matters, for what it is worth here is my take on at least some of the things that may have contributed to the Barrick Board approving the Barrick equity offering - as well as the transaction with Silver Wheaton.  When making the following observations I want it clearly understood that I have not discussed any of this with Barrick Board members or employees.  I have known one of the Barrick Board members for over 35 years, and know him to be very sophisticated and to have a clear understanding of fiduciary responsibility.  I would be surprised if all members of Barrick’s Board do not share those same two attributes.  Things I think may have contributed to the Barrick Board’s decisions on both the Silver Wheaton deal and Barrick’s equity raise include:

•    first and by way of background, it is trite law that Directors of a company have a fiduciary responsibility to the stakeholders of that company and the company itself.  The company’s shareholders viewed as a group and individually are stakeholder(s), but they are only one of a number of stakeholders.  For those of you who are not familiar with the term ‘fiduciary responsibility’, in a ‘Director context’ it simply means that each Director of a company has an obligation at law to make objective decisions he/she believes are in the best balanced interest of the company and its stakeholders;

•    second, while to me it follows that while the Barrick Board undoubtedly would have been cognizant of the views of investors and those representing investors as they made the decision they did, pressure from such individuals and groups by itself would be more a catalyst to the discussion than it would be a fulcrum factor in the Board’s decision making;

•    third, it seems to me the Barrick Board would have addressed all the factors, business risks and opportunities known to it that it thought related to what has ended up being a very large and dilutive equity issue.  I think it virtually certain that one of these factors would have been the Barrick current and prospective share price.  However, other factors almost certainly would have included (or so I think) the Board’s collective view:

-  on the prospective price of gold over both the near and long term,

-  on market timing in the context of new equity that may have been available last week may or may not be available on the same terms (if at all) in the coming months and years depending on how the current volatile economic condition unfolds,

-  whether the elimination of its hedge book might contribute at some future date to a change in Barrick’s dividend rate, thereby perhaps then contributing to an increase in its fully diluted share price,

-  whether in the current economic environment eliminating its hedge book might result in an increase in its fully diluted share price which in turn might result in an opportunity to raise even further capital for acquisitions where the Board thought it might need to augment Barrick’s prospective ‘free cash flow’ to balance future ‘acquisition opportunities’ with ‘acquisition risks’.  I think my reference to the ‘current economic environment’ is important here given what I think will be increasing opportunities for well-funded Resource Sector acquirers going forward, and

-  that under any circumstance a higher prospective share price in the current economic environment will result in greater flexibility to take advantages of possible near-term or longer-term opportunities.

All in all, I would put some weight on investor and investment bankers views being a contributing catalyst to the Barrick Board electing to consider the equity raise it did.  That said, I would be very surprised if the Barrick Board didn’t balance all the information it had at the time it made its decision on gold price forecasts, prospective business opportunities known and currently unknown to it, and other things it thought relevant to its decision prior to making it.  In the end the Barrick Board must have concluded the equity raise and resultant share dilution on balance must have been in the best interests of Barrick and all Barrick’s stakeholders – that’s what good Boards do.

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Aside from my view that ‘one swallow doesn’t make a summer’ and that in any event the July U.S. trade deficit number is a meaningful litmus test on world economic recovery is a ‘stretch’ readers of this post may find some historic data useful.  The U.S. had neither a cumulative net trade deficit or surplus in 1971 when then President Nixon’s administration took the U.S. off the gold standard and the U.S.$ became the world’s reserve fiat currency.  28 years later (by 1999) the U.S. had accumulated an aggregate net trade deficit of just under $2 trillion.  Here’s where I think it gets really interesting.  By December 31, 2008, only 9 years after 1999, the U.S. cumulative net trade deficit stood at just over $7 trillion (3.5X what it was in 1999) and has continued to grow by between $25 - $30 billion each month since then.  You can see the build-up of these numbers by visiting StockResearchPortal.com, clicking on Economic Research in the Main Navigation Bar, and clicking on U.S. Trade Deficits near the bottom of the left Navigation Bar of the webpage you are then on.

From my perspective the U.S. through loss of manufacturing jobs after the year 2000 has escalated its dependence on its trading partners and that dependence increases each month.  Without question the U.S. is the #1 military power in the world, and currently continues to be the world’s largest individual country economy.  That said, I don’t think one has to look beyond the U.S. trade deficit accumulation and current position to see that we are well on our way to a ‘new world order’ – and one in which not all countries share the U.S.’s ideology.  Where this ultimately leads is anyone’s guess, but my guess is that it leads over time to continued weakening of the U.S. through ever more dependence on its trading partners – and to a much reduced standard of living for U.S. residents from their current average standard of living.

There is a second article that I recommend readers of this post take the time to read carefully.  Titled ‘Americans are getting poorer, and it’s going to get worse’ it reports “The early impact of the worst recession since the 1930s pushed median incomes down, forced millions more people into poverty and left more Americans without health care in 2008, according to new annual survey data from the U.S. Census Bureau” and for reasons spelled out in the article “the worst is yet to come”.  I have never understood why people broadly don’t observe the simple things that surround them, think about those things, and act accordingly.  Ask any person on the street in the U.S., Canada or any other developed country about the behavior of squirrels, and my guess is to a person they would know and say that squirrels don’t eat all the nuts they find in the fall - rather they store nuts away to enable them to survive the winter.  The average U.S. resident (and to a lesser degree Canadian resident) has eaten all the nuts available to them as they have found them – retaining no nuts for bad times.  One shameful conclusion that could be drawn from this is that the average citizen knows how squirrels behave and knows why they behave that way, but just maybe squirrels are smarter than the average citizen – come on, that can’t be true.

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The article reports President Obama’s new “Middle Class Task Force” sees the reinvigoration of the “flagging” U.S. manufacturing sector as critical if average Americans - whose after-inflation incomes have stagnated for years - are to achieve real wage gains in coming years.  Apparently Mr. Obama imagines the U.S. factories of tomorrow producing high-tech electric cars, silicon chips and solar panels.

In my view, the only way that the developed countries will retain a meaningful manufacturing base going forward is by generating manufactured products in capital-intensive, low labour requirement, manufacturing plants.  The labour rates in the developed countries simply are not, and will not be, competitive without a major reduction in the expectations and standards of living of residents of the developed countries.  Anyone who thinks that production workers – be they Chinese, Tiawanese, etc. – are not capable of producing high quality products needs to give their head a shake.  They can and they are doing that.  So think about it, is the worker who makes or made $60 - $70 per hour at a car assembly plant in Michigan going to be willing to work for (say) $10 - $15 per hour in order to compete with developing country labour rates plus the attendant incremental transportation costs related to making a car in China and selling it in Michigan?  It doesn’t take rocket science to answer that one!  Either the worker in Michigan will unhappily ride a bicycle to work and eat pork and beans instead of steak, or be unemployed and be even less happy with his/her lot in life.

I believe the developed countries by giving up their manufacturing jobs – particularly in the past 10 years – to maintain and even increase the standard of living for their residents have played the old ‘short-term gain for long-term pain’ game.  This seems obvious to me, and I can’t see how others don’t think and write extensively about this.  In prior posts I have invited readers who disagree with me on this and other topics - and to comment on my blog posts and tell me why I am wrong.  As a Canadian living in Southern Ontario I assure you I very much want to be wrong on this ‘loss of manufacturing jobs’ issue.  To date, no reader has taken me up on ‘straightening my thinking out’.  When I receive no comments when I invite them there are three obvious conclusions:  (1) no one reads my blog posts – and I know that is not true from by Blog visit statistics; (2) no one disagrees with me, which I seriously doubt; or (3) some readers do disagree with me but simply can’t be bothered to respond or are reluctant to say what they think in a Blog comment.  I encourage the latter group to come out of the woodwork.

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