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After a well-deserved break, the markets are back and in full swing action. Our recently featured gold company, Trueclaim Exploration (TSX-V: TRM) just announced visible gold mineralization and resource stocks are continuing to fly.
We couldn't be more excited
With the uncertainties of 2009 behind us, the start of 2010 has been nothing short of amazing. Just last month, we had analysts on opposite sides of the table arguing and debating the sustainability of the economic turnaround. But with the New Year in full effect, the analysts and economic forecasters have changed their tune and are now singing the same song. The majority of them now believe that our markets will not only sustain this growth, but continue to climb slowly throughout the year.
Here at Equedia, we certainly believe ourselves to be optimists and love hearing the positive outlook given by these analysts and forecasters.
But not for the reasons you may believe
You see, we have continually tracked the numbers and the predictions of these economic analysts and forecasters. Whenever they make a prediction, we listen very closely. But that's where it gets interesting. If they predict one thing, we place bets in the opposite direction. Let's give you a few examples of why we do this.
Remember when oil was gaining strength in 2008? Analysts, including Goldman Sachs, were calling for oil to hit $200/bbl. That's when we went short. Shortly after the highs of near $150/bbl, oil began its plunge. Then analysts once again changed their views and called for $25 oil:
"With demand vanishing across all key oil consuming regions, benchmark crude oil prices continue to plummet," Merrill said in a research note. "A temporary drop below $25 a barrel is possible if the global recession extends to China."
The global recession did extend to China. That's when we went long. Since then, oil has never looked back and now trades at over $80/bbl.
What about when they told everyone to horde and hang on to their cash in March of 2009 when the market crashed to its lowest point in years? That was our signal to empty our pockets and invest in mining and resource stocks (see Playing Ball with Resources by clicking here.)
Since then, the TSX Venture (an exchange weighted heavily in mining and resource) has gained more than any other exchange (see Where the Billionaires Invest by clicking here.)
So now that analysts are calling for a continuance of growth and a strong performing 2010, we are making bets in preparation of the opposite. Now we are not saying that 2010 could not be a great year for the markets, but we have to remain ahead of the herd by making bets that can help protect us from what is ultimately going to happen.
Inflation
One of the biggest problem our economy now faces is the uncertainty of how strong inflation will hit and how soon. The governments (both in the US and Canada) will undoubtedly have to raise interest rates which cannot remain at these levels.
Now the fear arises when you combine the amount of money that is being printed (see The Impressive News Release by clicking here) with how low current interest rates are.
As many of you already know and have experienced not too long ago, raising interest rates is the prime combatant of inflationary pressures. In the United States, interest rates are decided by the Federal Reserve (see What the Fed Doesn't Want You to Know by clicking here.)
As explained by Investopedia, interest rates directly affect the credit market (loans) because higher interest rates make borrowing more costly. By changing interest rates, the Fed tries to achieve maximum employment, stable prices and a good level growth. As interest rates drop, consumer spending increases, and this in turn stimulates economic growth.
Contrary to popular belief, excessive economic growth can in fact be very detrimental. At one extreme, an economy that is growing too fast can experience hyperinflation, resulting in major problems.
Keep in mind that while inflation is a major issue, it is not the only factor informing the Fed's decisions on interest rates. For example, the Fed might ease interest rates during a financial crisis to provide liquidity (flexibility to get out of investments) to U.S. financial markets, thus preventing a market meltdown. This has been the clear goal of the our recent economic crisis.
The amount of borrowing already achieved is still not yet enough to get our economies back to where they were just a few years ago. Combine that with the growth our economies need to achieve to replace all the lost jobs, plus the amount of borrowing that's being done at current interest rates, and we end up with a serious problem.
How does that relate to your portfolio?
The impact of inflation on your portfolio depends on the type of securities you hold. If you invest only in stocks, worrying about inflation shouldn't keep you up at night. Over the long run, a company's revenue and earnings should increase at the same pace as inflation.
The exception to this is stagflation.
The combination of a bad economy with an increase in costs is bad for stocks (which is what is happening as we speak.) Also, a company is in the same situation as a normal consumer - the more cash it carries, the more its purchasing power decreases with increases in inflation.
The main problem with stocks and inflation is that a company's returns tend to be overstated. In times of high inflation, a company may look like it's prospering, when really inflation is the reason behind the growth. When analyzing financial statements, it's also important to remember that inflation can wreak havoc on earnings depending on what technique the company is using to value inventory.
Fixed-income investors are the hardest hit by inflation. Suppose that a year ago you invested $1,000 in a Treasury bill with a 10% yield. Now that you are about to collect the $1,100 owed to you, is your $100 (10%) return real? Of course not! Assuming inflation was positive for the year, your purchasing power has fallen and, therefore, so has your real return. We have to take into account the chunk inflation has taken out of your return. If inflation was 4%, then your return is really 6%.
This example highlights the difference between nominal interest rates and real interest rates. The nominal interest rate is the growth rate of your money, while the real interest rate is the growth of your purchasing power. In other words, the real rate of interest is the nominal rate reduced by the rate of inflation. In our example, the nominal rate is 10% and the real rate is 6% (10% - 4% = 6%).
As an investor, you must look at your real rate of return.
Unfortunately, investors often look only at the nominal return and forget about their purchasing power altogether. (credit Investopedia)
The best way to combat this scenario is to invest in inflation-hedging bets while maintaining your diversity in stocks. This means putting your money in hard assets like real estate or precious metals such as silver and gold while adding stock positions tied to the mining and resource sectors.
As mentioned in the above scenario, If you invest only in stocks, worrying about inflation shouldn't keep you up at night as a company's revenue and earnings should increase at the same pace as inflation.
But if you factor in mining and resource based investments into the equation, there is an opportunity to not only beat inflation, but also protect yourself against stagflation.
That is why to this day we can continue to remain bullish in the resource sector. Every day the resource and miners are continuing their climb and this is clearly evident in the market performance of the Canadian miners. Positive news announcements from precious metals juniors have helped many of them achieve new 52-week highs.
This lead us to our next story and update on one of our featured gold companies, Trueclaim Exploration (TSX-V: TRM).
Trueclaim (TSX-V: TRM) has climbed strongly from a low of $0.12 in mid December to the closing price this Friday of $0.24. That's a 100% percent increase in share price in less than one month.
Based on our emails and the chatter on the boards, many shareholders believe the recent run in share price may be attributed to the anticipation of the preliminary results from their Phase I drill program.
The wait is over.
After the market close this Friday, Trueclaim (TSX-V: TRM) announced their preliminary results from their Phase I drill program at their Scadding Gold property.
In three of the first four holes evaluated to date by the geologic team, visible gold mineralization was identified with highlights including the intersection of 47.59 grams per tonne of gold over one metre in hole TRM-09-13.
In outlining the results, John Carter, the President of Trueclaim (TSX-V: TRM), began by noting, "The Phase I program was designed to accomplish three main goals: to confirm the presence of historical non-compliant NI 43-101 gold occurrences as reported in previous reports of drill programs undertaken by others; outline the mineralized zones suggested in previous non-compliant NI 43-101 reports; and develop a better understanding of this mineralization. In multiple areas the results exceeded our expectations."
What stands out in the news release is not just the confirmation of visible gold mineralization, but the confirmation that the results to date suggests that the mineralization may have continuity between all five zones drilled.
More results from their Phase I drill program are expected soon which will help lead Trueclaim (TSX-V: TRM) into their Phase II program to determine their open-at-depth potential and confirm the zone to zone continuity of mineralization.
A new full report on Trueclaim (TSX-V: TRM) will be released in the near future.
We`re looking forward to 2010.
Until next week,
Questions?
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Disclaimer and Disclosure
Regarding Historical Data: All resource estimates presented in this report are historical and were prepared before the introduction of National Instrument 43-101 - Standards of Disclosure for Mineral Projects ("NI 43-101").
These resource estimates may not be relied upon until they are confirmed using methods and standards that comply with those required by NI 43-101. The potential for the exploration target to replicate the historical resource, or to reach the indicated range of tonnages, is conceptual and is based on historical reports, which cite approximately lengths, widths, depths, grades and projections of the historical resource. Readers are cautioned that a qualified person has not completed sufficient exploration, test work or examination of past work to define a resource that is currently compliant with NI 43-101. The Company further cautions that there is a risk that exploration and test work will not result in the delineation of such a currently compliant resource. Neither the Company nor its personnel treat the historical resource estimate or the historical data as defining a current mineral resource, as defined under NI 43-101, nor do they rely upon the estimate or the data for evaluation purposes; however, these data are considered relevant and will be used to guide exploration as the Company develops new data to support a current mineral/resource estimate in accordance with the requirements of NI 43-101.
For more information on Trueclaim Exploration, investors should review the Company's registered filings that are available at www,sedar.com.
Equedia.com & Equedia Network Corporation bears no liability for losses and/or damages arising from the use of this newsletter or any third party content provided herein. Equedia.com is an online financial newsletter owned by Equedia Network Corporation We are focused on researching small-cap and large-cap public companies. Our past performance does not guarantee future results. Information in this report has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete. This material is not an offer to sell or a solicitation of an offer to buy any securities or commodities.
Equedia.com has been compensated to perform research on specific companies and therefore information should not be construed as unbiased. Each contract varies in duration, services performed and compensation received. Equedia.com is not responsible for any claims made by any of the mentioned companies or third party content providers. You should independently investigate and fully understand all risks before investing. We are not a registered broker-dealer or financial advisor. Before investing in any securities, you should consult with your financial advisor and a registered broker-dealer. The information and data in this report were obtained from sources considered reliable. Their accuracy or completeness is not guaranteed and the giving of the same is not to be deemed as an offer or solicitation on our part with respect to the sale or purchase of any securities or commodities. Any decision to purchase or sell as a result of the opinions expressed in this report OR ON Equedia.com will be the full responsibility of the person authorizing such transaction.
Please view our privacy policy and disclaimer to view our full disclosure at http://equedia.com/cms.php/termsr. Our views and opinions regarding the companies within Equedia.com are our own views and are based on information that we have received, which we assumed to be reliable. We do not guarantee that any of the companies will perform as we expect, and any comparisons we have made to other companies may not be valid or come into effect. Equedia.com is paid editorial fees for its writing and the dissemination of material and the companies featured do not have to meet any specific financial criteria. Equedia Network Corporation., owner of Equedia.com has been paid $7,500 Canadian dollars plus gst for 3 months of advertisement coverage on Trueclaim Exploration Inc. We have been paid by the company. We have also been compensated 30,000 shares of Trueclaim Exploration by a third party for other marketing services. These services includes but is not limited to the creation and distribution of reports such as this one written by Equedia.com. Equedia.com and its affiliates own shares in Trueclaim Exploration at the time this report was released and we may purchase more shares in the company and sell them for our own profit, without notice to our subscribers. The companies represented by Equedia.com are typically development-stage companies that pose a much higher risk to investors. When investing in speculative stocks of this nature, it is possible to lose your entire investment over time. Statements included in this newsletter may contain forward looking statements, including the Company's intentions, forecasts, plans or other matters that haven't yet occurred. Such statements involve a number of risks and uncertainties. Further information on potential factors that may affect, delay or prevent such forward looking statements from coming to fruition can be found in their specific Financial reports. Equedia Network Corporation is a distributor (and not a publisher) of content supplied by third parties and Subscribers. Accordingly, Equedia Network Corporation has no more editorial control over such content than does a public library, bookstore, or newsstand. Any opinions, advice, statements, services, offers, or other information or content expressed or made available by third parties, including information providers, Subscribers or any other user of the Equedia Network Corporation Network of Sites, are those of the respective author(s) or distributor(s) and not of Equedia Network Corporation. Neither Equedia Network Corporation nor any third-party provider of information guarantees the accuracy, completeness, or usefulness of any content, nor its merchantability or fitness for any particular purpose.
