Fleckenstein escrevendo sobre o ouro
Enviado: 15/3/2003 5:24"Bank of Yellow Dog Holds Open House"
By Bill Fleckenstein
Special to RealMoney.com
03/14/2003 05:24 PM EST
"In a simply breathtaking move, Europe was up last night another 5%, plus or minus, on the back of our rally yesterday. On the other hand, on the back of this morning's unremarkable economic data, our market was up just 0.5% a couple of hours into the day. I saw nothing particularly earthshaking to report. Today was just a giant flop-and-chop across the upside and downside of the day's range, with little progress made in either direction. People can see from the box scores that the SOX gave back a couple percent, but that's nothing after the size move it had yesterday. It will be interesting to learn how the market behaves next week, as we get more war-related information.
Away from stocks, there was a fair amount of motion once again. The dollar and bonds were slightly weaker. The oil market saw a big move to the downside, with oil at one point down $2, before closing down $0.63. Both gold and silver alternated red and green on the day, before finishing essentially flat. Today I finally pulled the trigger and added to my Newmont Mining (NEM:NYSE - news - commentary - research - analysis) position.
Abstract on the Extract: For readers who are considering purchasing gold stocks, I thought I might take a moment to explain how I approach the subject of valuation. To begin with, I don't think price-to-earnings ratios are particularly meaningful, which is also often the case with cyclical stocks. (Though gold stocks aren't cyclical, they do share some of the same characteristics.) The important thing to focus on is that when you buy shares of a gold company, what you are buying is gold in the ground. You have to ask yourself, do I want to buy gold bullion, or do I want to buy gold in the ground via a gold stock?
We know what the price of gold bullion is. It's quoted on a regular basis. But determining the value of a mining company's gold in the ground is, at any moment in time, not so clear. Proven and probable reserves are pretty good estimates that also are a function of the price of gold. Often, a mine will see its proven and probable reserves go up as the price of the commodity goes up. That is because there is a cost associated with yanking this stuff out of the ground, and the higher the gold price, the more "higher-cost" ore can be mined. When the gold price drops, this process works in reverse.
Plus-and-Minus Mining: With Newmont trading at a price of $25, you're paying just under $120 an ounce for its proven and probable reserves. The estimated cash cost for Newmont's gold production is around $195 an ounce, meaning that when you "buy" the reserves and combine that with the cash costs to mine the metal, you're basically paying something on the order of $305, plus or minus, for an ounce of gold. However, the analysis cannot stop there, because in fact, cash costs are not the only costs associated with mining. There are exploration costs, the costs for amortizing equipment, not the least of which is the mill, etc.
But on the other hand, you have a land package. Each mine and its adjacent land package are different. One has to make a mental trade-off between those noncash costs, and the value of the land package and whatever exploration may go on. This is something of an oversimplification, but that's how I look at it. So, the choice today is, do you want to buy Newmont at an imputed price of say $305 an ounce, plus or minus, or do you want to buy gold at $336 an ounce?
The Gilt Pre-Catapult: Now, there is no point in acting as though these estimates for Newmont or any other company are precise, because they are not. Also, there is no rule that says you need to insist that the imputed per-ounce price be less than the spot price of gold, though obviously, things are more compelling when it is.
However, doing the math can provide a framework for further analysis, and it can help you to get a better sense of which companies look cheap and which look expensive vs. each other. I would just note that with respect to smaller companies or exploration plays, in particular, the estimates obviously go out the window, since you can't know what you're going to get. Those companies can be wildly overvalued and attract a lot of hype, sort of like we saw with Internet stocks.
In any case, I have settled on Newmont as my gold pick to click, in large part because of its top-notch management team that came over in the acquisition of Franco-Nevada. Most people who run gold businesses do not focus on return on capital. They're more engineers than capitalists. Throughout the 1990s, most of them just chewed up capital. (During that time, Barrick Gold (ABX:NYSE - news - commentary - research - analysis) did not, but I don't like this company due to its hedging program.) Meanwhile, for folks who want some able assistance in beginning their own research, I recommend the work of John Doody, who in my opinion is the best gold analyst. His service, found at www.goldstockanalyst.com, is $350 a year, which is a small price to pay for high-quality research. So, for what it's worth, that's my quick and dirty on how to look at gold companies.
Bubble Kryptonite Fells Fed: Segueing to the still-worshipping-golden-calves department, I'd like to share a few thoughts on monetary policy. I continue to see people (Larry Kudlow probably being the worst offender in these matters) chirp about how if only the Fed had eased faster, or if only it had not tightened in 2000, everything would be fine now. I myself am sympathetic to the monetarist view, but it should be noted that just as conventional physics breaks down near black holes, monetary policy breaks down around bubbles. When a bubble is in force, as we saw in the late 1990s, higher interest rates are powerless to stop it. Likewise, when we are in the aftermath of a bubble, monetary policy cannot reverse the damage. That's why the Fed has been 0 for 12 thus far. That's why the Fed is going to go 0 for 13, 0 for 14, and 0 for 15. The Fed precipitated, aided, and abetted the problem by easing too much, and more of the same won't fix it.
I bring this up not because it matters now, but because after the war commences, there will be all kinds of stories about how with war uncertainty resolved, we can rock and roll again. We'll hear the proverbial second-half storytelling about how everything will soon be better, which we get nearly every year. But please remember that when we get there, all the pundits who see prosperity just around the corner -- thanks to what the Fed is going to do or what the government's going to do -- will be as dead wrong as they have been for the past three years. The only thing that can fix the excess capacity and overconsumption created by the bubble is time. Artificial intervention by the Fed in what needs to be a natural healing process only will prolong the damaging aftermath. "
(in www.realmoney.com)
By Bill Fleckenstein
Special to RealMoney.com
03/14/2003 05:24 PM EST
"In a simply breathtaking move, Europe was up last night another 5%, plus or minus, on the back of our rally yesterday. On the other hand, on the back of this morning's unremarkable economic data, our market was up just 0.5% a couple of hours into the day. I saw nothing particularly earthshaking to report. Today was just a giant flop-and-chop across the upside and downside of the day's range, with little progress made in either direction. People can see from the box scores that the SOX gave back a couple percent, but that's nothing after the size move it had yesterday. It will be interesting to learn how the market behaves next week, as we get more war-related information.
Away from stocks, there was a fair amount of motion once again. The dollar and bonds were slightly weaker. The oil market saw a big move to the downside, with oil at one point down $2, before closing down $0.63. Both gold and silver alternated red and green on the day, before finishing essentially flat. Today I finally pulled the trigger and added to my Newmont Mining (NEM:NYSE - news - commentary - research - analysis) position.
Abstract on the Extract: For readers who are considering purchasing gold stocks, I thought I might take a moment to explain how I approach the subject of valuation. To begin with, I don't think price-to-earnings ratios are particularly meaningful, which is also often the case with cyclical stocks. (Though gold stocks aren't cyclical, they do share some of the same characteristics.) The important thing to focus on is that when you buy shares of a gold company, what you are buying is gold in the ground. You have to ask yourself, do I want to buy gold bullion, or do I want to buy gold in the ground via a gold stock?
We know what the price of gold bullion is. It's quoted on a regular basis. But determining the value of a mining company's gold in the ground is, at any moment in time, not so clear. Proven and probable reserves are pretty good estimates that also are a function of the price of gold. Often, a mine will see its proven and probable reserves go up as the price of the commodity goes up. That is because there is a cost associated with yanking this stuff out of the ground, and the higher the gold price, the more "higher-cost" ore can be mined. When the gold price drops, this process works in reverse.
Plus-and-Minus Mining: With Newmont trading at a price of $25, you're paying just under $120 an ounce for its proven and probable reserves. The estimated cash cost for Newmont's gold production is around $195 an ounce, meaning that when you "buy" the reserves and combine that with the cash costs to mine the metal, you're basically paying something on the order of $305, plus or minus, for an ounce of gold. However, the analysis cannot stop there, because in fact, cash costs are not the only costs associated with mining. There are exploration costs, the costs for amortizing equipment, not the least of which is the mill, etc.
But on the other hand, you have a land package. Each mine and its adjacent land package are different. One has to make a mental trade-off between those noncash costs, and the value of the land package and whatever exploration may go on. This is something of an oversimplification, but that's how I look at it. So, the choice today is, do you want to buy Newmont at an imputed price of say $305 an ounce, plus or minus, or do you want to buy gold at $336 an ounce?
The Gilt Pre-Catapult: Now, there is no point in acting as though these estimates for Newmont or any other company are precise, because they are not. Also, there is no rule that says you need to insist that the imputed per-ounce price be less than the spot price of gold, though obviously, things are more compelling when it is.
However, doing the math can provide a framework for further analysis, and it can help you to get a better sense of which companies look cheap and which look expensive vs. each other. I would just note that with respect to smaller companies or exploration plays, in particular, the estimates obviously go out the window, since you can't know what you're going to get. Those companies can be wildly overvalued and attract a lot of hype, sort of like we saw with Internet stocks.
In any case, I have settled on Newmont as my gold pick to click, in large part because of its top-notch management team that came over in the acquisition of Franco-Nevada. Most people who run gold businesses do not focus on return on capital. They're more engineers than capitalists. Throughout the 1990s, most of them just chewed up capital. (During that time, Barrick Gold (ABX:NYSE - news - commentary - research - analysis) did not, but I don't like this company due to its hedging program.) Meanwhile, for folks who want some able assistance in beginning their own research, I recommend the work of John Doody, who in my opinion is the best gold analyst. His service, found at www.goldstockanalyst.com, is $350 a year, which is a small price to pay for high-quality research. So, for what it's worth, that's my quick and dirty on how to look at gold companies.
Bubble Kryptonite Fells Fed: Segueing to the still-worshipping-golden-calves department, I'd like to share a few thoughts on monetary policy. I continue to see people (Larry Kudlow probably being the worst offender in these matters) chirp about how if only the Fed had eased faster, or if only it had not tightened in 2000, everything would be fine now. I myself am sympathetic to the monetarist view, but it should be noted that just as conventional physics breaks down near black holes, monetary policy breaks down around bubbles. When a bubble is in force, as we saw in the late 1990s, higher interest rates are powerless to stop it. Likewise, when we are in the aftermath of a bubble, monetary policy cannot reverse the damage. That's why the Fed has been 0 for 12 thus far. That's why the Fed is going to go 0 for 13, 0 for 14, and 0 for 15. The Fed precipitated, aided, and abetted the problem by easing too much, and more of the same won't fix it.
I bring this up not because it matters now, but because after the war commences, there will be all kinds of stories about how with war uncertainty resolved, we can rock and roll again. We'll hear the proverbial second-half storytelling about how everything will soon be better, which we get nearly every year. But please remember that when we get there, all the pundits who see prosperity just around the corner -- thanks to what the Fed is going to do or what the government's going to do -- will be as dead wrong as they have been for the past three years. The only thing that can fix the excess capacity and overconsumption created by the bubble is time. Artificial intervention by the Fed in what needs to be a natural healing process only will prolong the damaging aftermath. "
(in www.realmoney.com)