Comstock Partners Commentary

[Parsad]

Here's a pretty bleak forecast by Comstock Partners.  I don't think we will see Japan.  I'm more inclined to believe we will see 1974-1982.  They have some pretty good points though and some good slides.  Cheers!

 

http://www.comstockfunds.com/default.aspx?act=Newsletter.aspx&category=SpecialReport&newsletterid=1473&menugroup=Home&AspxAutoDetectCookieSupport=1

 

http://www.bloomberg.com/apps/news?pid=20601109&sid=aX39_VW6pf3U

[finetrader]

Isn' it Warren who said he does'nt believe we're gonna experience a deflation like Japan did, simply because, contrary to Japan in the 90s, there is demographical growth in the US?

 

 

 

 

 

 

 

 

[ERICOPOLY]

Housing construction is important in the US and it is down temporarily.  But in two years time the demographics (rising population) will support new construction.

 

This is not Japan for at least that very reason.  That was Warren's point.

 

[link01]

i remember reading comstocks commentaries frequently years ago, much of it via barrons. then they kind of disappeared off the radar. tho many of their bearish pieces proved precient my sense is that they have been generally too bearish (almost congenitally so?), & have therefore under-performed over full cycles encompassing both bull & bear markets. but they've been right at a few well timed inflection points where they essentially made their reputations. be that as it may their writings have always been thought provoking. 

[Guest kawikaho]

We will see GDP growth in the States by the end of the year. 

 

I'm not sure, but I think Japan experienced deflation on so many fronts because of the really high price inflation they've had.  I remember 20-25 years ago, people were saying watermelons in Japan costed $20 USD, and you could spend $10 on a Big Mac at McDonalds.  I think even till this day, the cost of living in Japan is exorbitant.  I highly doubt the US will see deflation.  Infact, I think there will be serious inflation problems.  You can see it right now.  Just go to the average fast food joint, and it has gotten alot more expensive in the past 4 years.  I remember in 2003, you could get value meals for 3-4 bucks.  Now, it's almost 5-6 bucks.  And premiums for insurance haven't gotten any cheaper.  Gas is helluva lot more expensive than what it was in 2000, and so are utilities.  The only thing I've seen dropping in price is rent, and houses.  I can't see anything getting cheaper.

 

We are no way going to have deflation.  I would make a leveraged bet against deflation if I could.

[Cardboard]

"I would make a leveraged bet against deflation if I could."

 

What you can do is buying GLD calls. If there is any sign of inflation or if the dollar breaks down, gold will surge past 1,000 to probably reach $1,300 to 1,500 an ounce. If you are worried about the economy and carry a substantial amount of your portfolio in cash, putting 5% in GLD calls could be a good idea. It protects against inflation and calamity while cash right now earns nothing. Then if you get deflation, your big pile of cash will gain in value since it can buy more or offsetting the loss of your GLD calls.

 

The fundamentals for gold are pretty good currently with good risk/reward. It is not a total speculation. GFMS announced last week that supply from gold scrap is down over 40% and that Central Banks are likely to sell the least amount of gold since 1994. These two elements are key to keep supply in line with demand since supply from gold mines is around 2,500 tonnes a year while demand is around 4,000. Demand has been growing steadily while supply from gold mines is on the decline.

 

Some say that you can't value gold. I think that you can value it pretty much like any other commodity. It is just supply and demand. Remember also that these folks who tell you that, have probably never bought any other commodity for that matter, but they will not hesitate to buy a nickel or copper producer since it pays a dividend!!! How can you buy a producer, if you can't make a solid investment case for the commodity itself?

 

I will admit that demand is a little tougher to estimate since most gold does not disappear like other commodities, but is hoarded. IMO, hoarding can be estimated too. It is based on global population growth and the fact that always a tiny portion of that population will never trust fiat currencies and will save in gold. This hoarding will never go back to supply unless prices go crazy high or if they needed it to survive. I don't belong to that group, but it is just a reality that they exist so let's not dismiss their importance in the thesis.

 

So scrap, central banks and gold ETF's are likely the drivers for now since most other items of supply and demand are quite stable. Despite higher prices, jewelry and industrial demand have been quite stable over time. Also despite higher prices, mine supply has not increased, but decreased. So it would take much higher prices to bring more mine supply. It is there, it would just take more incentives for miners to develop these new higher cost resources.

 

Cardboard