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Archive for March, 2011

Part II – The Art of Making Money

Governments have been printing sovereign currency for over 500 years. The Knights Templar were the Bankers (ATM’s) for all those going to and from Jerusalem for 200 years. Gold and $ilver coins were the currency of the Ancient world. Today they are all a part of our lives. Any effort to copy or re-print currency is called counterfeiting and punishable by law to years in prison. Three free rounds (food), free rent ( a cell), free utilities (prison) and free cloths (FED>Designer).

However Capitalistic Free Enterprise Governments provide a privilege to their citizens to print Stock Certificates for Private and Public Companies. In either case, if the owner or owners of these companies can show value to others and sell them shares in these companies for cash or other goods and valuables, that’s called Good Business.

Hence, the difference between Governments and Enterprises – Currency and Stock. In both cases history has proven that either can scam the public. From Great Depressions to Financial Balloons investors have always suffered the extreme downside to the free enterprise system. Yet the rewards and benefits are immense, 5 Star meals, Large homes, toys, and fashion from couturier Houses or name brand products.

The remarkable thing is that less than 4% of the world population (260 million) play the game. In fact in 1980 only 9% of  US people in were invested in the Capital Markets. The IT (intellectual technology) Revolution and the PC (personal computer) development of the 1980’s changed the entire world, for ever. By 2000 46% of Americans were indirectly in the market, with 6% directly invested or 52% in less than 20 years. The Soviet Union, Eastern Europe, Communist Asia and India or 4 BILLION people then followed suite (from 1990 to 2010) head over heels into capitalism and the free market system.

In the short span of 30 plus years the world has learned how to invest. Investing means someone wins and someone looses every day with every trade that’s made. Ergo the quotes, ” your first loss is your best loss” vs. “one only makes money selling on the way up”.

The fact is there is no value to any stock one owns until it is sold. Until then it is an INTRINSIC VALUE and clearly stated on every stock certificate, ” FULLY-PAID AND NON-ASSESSABLE COMMON SHARES WITH OUT PAR VALUE ” or in layman’s terms WORTH LESS!  So the dirty little secret in owning stock in private or public companies is to sell, GREEDY will leave you NEEDY!

Making money is a leverage risk reward concept, buy low sell high. Both are required to MAKE money. The difference is, your profit is equivalent to the loss suffered by the other person. When the market value of any given stock, market or currency drops significantly below anyone’s margin of profit or value we all suffer an intrinsic loss. It is that severe experience that makes market corrections and stock losses so severe. Were did all that dollar value go, well it was never there. It is a perception of value until one sells and converts that perceived value into a cash value. Ask those who held ENRON, WORLDCOM or  Lehman Brothers until the end. My MOTTO: “YOU WANT TO BUY – BUY/YOU WANT TO SELL BY-BY”! So that is it, How $$$$ is lost- YOU DIDN’T SELL!!!!!!

Let’s Make Money:

The rare earth metals are a good prospect because of Supply&Demand-MOLYCORP (MCP)  is huge, big potential gain to $80.00 from here.

Oil is holding the trading range we called 45 days ago. $85 – $115. This will continue until the traders get slammed (NOT), people quite buying gas to drive the over all oil price down (we will write about this later), China’s inflation rate does hit 20% ( with-in six months) or the middle east calms down (not for a generation). If none of these happen by May 2011 the trading range will shift to $100.00 – $120.00. Natural Gas BABY, the $ilver of energy investment. Always buy at the bottom and Natural Gas is at the bottom and going higher. Again, a return of over 100% is worth holding for a year and that 100% + is in Natural Gas over then next 12 months.

Gold is holding our value set 30 days ago. It hit $1,450.00 as we suggested. We still hold to the correction called of $1,405.00 by the end of March and then Gold will head to a new high $1,465.00 by June. $ilver- it does not matter, up, down or side ways it is a buy. Accumulate as much as you can afford. First, buy coins then $ilver stocks, cheap because it is still the best leverage play for another 12 months.

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Part One – Capitalism as it was meant to be – a Democracy

To buy a share of a public company is the single greatest capitalistic choice of  your life. Public companies, with all things being honest and sincere is an impressive example of democracy. Each shareholder has the right each and every trading day to vote as to the management of the Public Company they own stock in. Not happy – they Sell!

More than one share, fine, a vote for every share owned. If you choose to remain a shareholder then management is required to summon all shareholders to attend or by absentee ballot vote once a year for management, the financial statements, accountants, lawyers and any matters management proposes to the shareholder meeting. Any shareholder holding one share who is recognized during the meeting may make a motion before the entire group of shareholders that are gathered. If that motion is seconded by another shareholder then the motion is debated and put to a vote.

The meeting  has to be called by notice well in advance for if a quorum does not form, no meeting. With out an annual meeting the company can not elect a new BOARD of DIRECTORS  who in turn can not re-elect Management to sit for another year. The financial statements must be approved along with the re-appointment of sub-contractors like law firms, accountants and marketing companies. As well as budgets and salary increases and bonuses. So there is a remarkable attraction for one to look at owning a public company.

The Governance is by Federal and State Fiat and by internal overview by the Independent Board of Directors who remain independent of management (act as out side Board Members) and finally by a code of ethics that management establishes. In a perfect world what could be better, but alas there are devious individuals that ‘get rich at the expense of others’. The transparency of the Public company helps to restrain, limit and prosecute those who abuse the opportunity. The whole concept is to provide an environment of risk to the investor who shares equally on the operating news of the company with those who run and control the company. This limits if not removes fraud, graft, bribes and theft from those managing the company. In most cases Federal and State Laws allow for prosecution of those who abuse the system. In any event problems never prevent you as the shareholder from selling your stock and taking your money elsewhere to invest.

The key to a successful Public company is the number of shareholders. The more shareholders the more oversight in the market, the annual review and value created by the distribution of the Public companies common shares. All the value talked about in regard to the companies assets, cash flow or management can’t compare to the number of shareholders. Ask a shareholder of Berkshire Hathaway Inc., average shareholder holds one share. The perfect 21st Century Democracy.

Lets make money:

Currency is a fickle thing because it to is traded like stock. A lot of people make fortunes trading it because the market is cyclical. Meaning it fluctuates in price, there by creating a spread from which one can make money. The ability to be at the beginning of the cycle and out at the high or low point allows profits to be taken. In the 20th Century that spread was small and so one had to risk large amounts of money or stock to participate. To lower the risks and create more involvement (distribution) smaller contracts were created for more to trade. In the last fifteen years the trade has changed.  In the 21st Century Sovereign currencies have been over printed and government debt, lending and spending has resulted in larger spreads in the highs and lows. So go look at graphs of the EURO, US Dollar and the Yen and you will find just how perfect the market is to profit. ENJOY.

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