Money Supply Still in the Banks

No doubt you've been asking yourselves, "How's that money supply doing?" Well, it's not doing much.



Recall that there isn't just one measure of how much money is in the country. The Fed uses two measures (and used to use three). M1 is currency in circulation plus money in the banks. It is the most liquid measure of money. M2 is M1 plus savings, CDs, and money market funds. That is money not quite as liquid.

This graph of the money supply over the last 9 years is a logarithmic plot, which means a straight line represents constant growth, say 2% per year, and a big jump is a big deal. Note the increase in M1 toward the end of last year and note the slight increase in M2.

That increase in M1 was the Fed loaning money to the banks and buying up treasury securities while various organs of government doled out rescue money. Most of it has stayed in the banks (M1 rather than M2).

In fact, here's a look at the components of M2 that are not in M1 (savings, CDs, and money funds):

Certificates of deposit and money funds can be considered short-term investments. They have fluctuated in size over the years and have, in fact, decreased in the last 12 months along with many other forms of investment. Any increase in M2 has been in pure savings accounts.

For the last year, M2 has been flat. M1 is still rising, and the Fed is still distributing money, though not like the panic infusion of a year ago. Sooner or later, more of the money supply will make its way into consumer hands and M2. Ben Bernanke, Chairman of the Fed, knows this and says that the Fed will begin reducing the money supply at the right time. Else we get inflation, and lots of it. Let us hope that Chairman Bernanke knows when to begin turning around this money machine he has been driving.



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Taste-Testing President Obama's Un-COLA

Seven-Up for a while used an ad campaign in which it marketed itself as the "un-cola" alternative to cola drinks. In personal finance, COLA is a cost-of-living adjustment written into labor contracts to offset inflation. Social security also has an upwards COLA at the end of each year –



– except maybe this year. Why? Well, inflation has been negative. The consumer price index year-over-year has gone down:

As you can see, in the past 20 years, the cpi has usually gone up 2% to 4% per year, but the last data point is below the zero mark.

In a country of rules, that would be that, and social security payments in 2010 would be the same as in 2009. Yet, President Obama is proposing a $250 adjustment such as would have happened in a year withf inflation. This is pure pandering and bad economics.

Both individuals and businesses depend on predictable laws in order to make informed decisions. That's why one-time stimulus payments (such as President Bush distributed in 2008) have minimal effect – knowledgeable people are not going to change their lifestyle on the basis of a one-time windfall. Likewise, Congress each year delays the Medicare "sustainable growth rate" cuts that would reduce doctors' reimbursements. A rational policy would settle on a fixed long-term payment plan.

So, President Obama's COLA that is not a COLA is bad economic policy for reasons unrelated to the federal deficit. This un-COLA does not pass the taste test.




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Confidence in the Dow

The return of the Dow Industrial Average to 10,000 is a good excuse to resume blogging.



The Dow and other stock indices are, of course, forward-looking indicators of the economy.

No doubt, you've watched with greater or lesser interest as the stock market climbs back from its Feb-Mar lows. Investors are anticipating greater spending, as reflected in another measure of the economy, consumer confidence.


Consumer confidence was at an all-time low in February and March. (The actual numbers were 25.3 and 26.9, but as the Conference Board uses an arbitrary scale, that's not directly meaningful.) We see that confidence has climbed back to a still-low (preliminary) value of 53.
The DJIA has also had better days:

People who feel confident about their future are more likely to make big purchases. I don't want to make very much of the relationship, though. The actual correlation, if we overlay the two time series, is not that high:




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World Commodities

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Energy Commodities

Energy Commodities

We at Empire are primarily concerned with metals, but we also keep an eye on Earth=s other limited resources, including energy commodities. Energy commodities are almost synonymous with fossil fuels, mined and sold on global commodities markets.

Fossil fuels are believed to be the remains of ancient plant and animal matter, buried and then transformed by geologic processes. Fossil fuels are carbon or carbon compounds that can be burned as fuel after they are located and mined.

The world=s supply of fossil fuels is large but limited. Using reported (by British Petroleum) values for known reserves and consumption, the supply of the main fossil fuels is as follows:

In other words, the known coal reserves at current mining rate will be depleted in 132 years. If we convert all our energy use to coal, the supply will only last 38 years.

Fossil fuels are burned to generate heat, to propel vehicles, and to create electricity (from steam turbines). Because burning is never perfect, this burning creates carbon monoxide, nitrous oxides, and other pollutants. Because the input fuel may not be pure, this burning can create compounds of sulfur, mercury, and other toxins.

Fossil fuels have been known for decades to be major contributors of pollution. These fuels are more abundant (for now) and cheaper than alternatives, but are being gradually replaced where possible in the developed world. Replacement being not always possible or desirable, we will actually be using fossil fuels right up until they run out.

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Coal

Coal

Description and History
Coal, which is deposits of carbon, has been known since antiquity. Coal is a dark rock of varying hardness, formed from plant remains buried in sediment. Much of this coal formed during the plant-rich Carboniferous Period of around 300 million years ago. Although quite abundant, the coal being mined now will eventually be depleted.

Coal is burned as a fossil fuel. Although some coal was no doubt recovered and burned in prehistoric times, wood is more convenient as a low-temperature fuel. Coal only became necessary for Iron Age furnaces that burn much hotter. Formal surface mining of the mineral picked up during medieval times as ironworks increased substantially.

Large-scale coal extraction is a signature of the Industrial Revolution starting in the 18th Century. Coal fueled boilers for the steam engine; soot from coal fires blackened England; coal miners now working underground organized into unions. The steam engine made deep underground mining possible by pumping out water and pumping in air. Consequently, many of the negative aspects of the Industrial Revolution relate to coal mining, including exploitive work conditions, lung diseases, mine collapses, and fires.


Coal is held in mixed regard in modern politics and society. On the one hand, coal is the most abundant fossil fuel and therefore a source of future energy and jobs. On the other hand, coal is considered dirty, an irredeemable polluter, and a source of greenhouse gas. Expect much more discussion and activity about coal.

Mining and Production
Great quantities of coal are mined in comparison to any other mineral. From the US Geologic Survey report for 2008:

The major coal-producing countries are China (40%) and the United States (16%).

Coal mining is the canonical example of strip mining, even to the point of leveling and eliminating hills. Surface mines often cover several square miles. In modern practice, the overburden (rock other than coal) is set aside during mining, then replaced in such a way as to minimize erosion.


Purely underground mines become, in some cases, vast caverns interrupted by occasional support pillars. Underground mining is heavily automated these days, often with remotely controlled equipment, which minimizes the danger.

Extracted coal is usually washed and crushed to a powder before being shipped to its destination, often a smelter or furnace. The coal may also be treated to remove noxious pollutants such as sulfur and mercury; otherwise, these elements must be scrubbed from the products of burning.

Coke is coal treated by baking to drive off volatile contaminants. Coke is almost pure carbon; it is introduced into iron smelting to create steel.
Properties and Uses
Coal is a black mineral rock found in a range of hardnesses. The hardest coal is referred to as anthracite in the United States and is used for residential and commercial purposes. Softer coal, bituminous, is used for industrial and manufacturing purposes. There is also a range of softer rocks (Alignite@) from bituminous all the way to peat. Peat is compressed plant matter formed in swamps, not yet a mineral.

Most coal is used as a fuel, either for space heating or for driving steam turbines for electricity. Coal is the world=s biggest (40%) source of electricity.

Coal gasification turns coal into a fuel gas by reacting it with oxygen and water to produce a mixture of carbon monoxide and hydrogen. This synthetic fuel mix can be burned for power or it can be further converted into gasoline or diesel fuel.

A relatively small amount of coal is used in the chemicals industry. Coal is essentially the element carbon and can be converted to methane or coal tar (a mixture of organic molecules). Coal tar is the starting point for many synthetic dyes. Methane is a starting point for much organic chemistry.

Outlook
Of the several energy sources that are in limited supply, coal is the least limited.

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Natural Gas

Properties and Uses
Methane is a very clean-burning fuel, though found in shorter supply than either oil or coal. As a gas, it is also more difficult to transport. Natural gas therefore tends to be more expensive than other fossil fuels.
Description and History
Natural gas is a fossil fuel consisting primarily of methane, a colorless, odorless gas that is burned for electricity or heat. Although natural gas often occurs with petroleum, it has not been used commercially nearly as long as petroleum.

It is inherently more difficult to recover an underground gas vs. liquid. Thus, records of natural gas usage are very sparse before the 19th century. Gas encountered while mining other fossil fuels was either vented or burned in place for safety. In that century, though, a few gas companies emerged in in Europe and North America to tap wells and pipe natural gas short distances for lighting.

With electric lighting spreading at the beginning of the 20th century, the use of natural gas again diminished. Piping technology improved in the 1920s and especially during World War II. Networks of gas pipes spread after the war within cities and across longer distances. Natural gas began to be a practical energy source for heating and manufacturing.

Mining and Production
Natural gas occurs in pockets above underground oil fields, dissolved within coal seams, and occasionally by itself. In many parts of the world, gas is still simply burned off at the tops of oil derricks. Elsewhere, though, it is immediately separated from any other fossil fuels and treated like the valuable commodity it is.

Natural gas, as recovered, is a mixture. It must be dried, filtered, and separated into components B not just methane, but ethane, propane, and a few heavier organics. Each of these can be sold separately. The methane is also odorized for safety to make gas leaks detectable.


















Fueled by LNG
Nevertheless, in regions with well-developed piping systems, gas is the preferred choice for heating and various home appliances. It can be compressed and cooled into a liquid, making its transfer by tanker truck or ship over greater distances. Liquid natural gas (LNG) also powers vehicles such as buses.

Gas can also be used to drive steam turbines for generating electricity. This is relatively more expensive than other methods, so it tends to be put on standby for meeting peak power needs.


Methane is a useful building block of organic chemistry. As the smallest hydrocarbon, it is the input to much of the plastics industry. It is also important in making hydrogen and ammonia, which lead to further chemistry.

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OIL

Oil

Description and History
No fossil fuel commands more headlines than oil, petroleum. Petroleum is a fossil fuel consisting of a mixture of carbon compounds (hydrocarbons). Components vary by location and range from very lightweight (including natural gas) to heavy (such as tar).

Petroleum seeps up from the ground in places. These natural oil wells were used in ancient times as fuel sources and otherwise. For example, tar is useful for coating wood and rope. Medieval distillation in the early days of chemistry produced kerosene, a favorite lamp fuel for centuries thereafter.

Better oil distillation in the 19th century made possible splitting petroleum into a wider variety of more pure components. Oil wells began to be commercially viable, particularly after the development of the internal combustion engine. Petroleum is the source of gasoline and diesel fuel, now in great demand.

Petroleum reserves are distributed very unevenly, which has resulted in great wealth flowing to just a few countries, Saudi Arabia in particular. As these reserves are consumed, wealth will shift again. Petroleum will continue to command political attention and headlines.


Mining and Production
Petroleum is a liquid usually found by geological investigation to occur in pockets within layers of rock. Petroleum is typically under pressure; drilling a vertical hole for a pipe causes the petroleum to emerge naturally. Pumping and water injection are required for further extraction as the pressure eases.

Crude petroleum is sent by pipeline or tanker to a refinery, where it is separated by distillation into its various hydrocarbon components. Petroleum from each oil field has a different composition, which may include linear hydrocarbons, aromatics, and more complex molecules containing nitrogen, sulfur, and almost anything else.

This petroleum content is a great deal more varied than what is commercially interesting. Thus, refineries do some significant organic chemistry to process various distillation fractions into octane gasoline, jet fuel, and other interesting final products.

Properties and Uses

Since petroleum is a mixture of substances, it has a mixture of uses. The largest category of resulting product is the fuels that power vehicles and furnaces. Other organics from petroleum are the inputs for industries that produce solvents, synthetic fabrics, plastics, lubricants, and many, if not most, modern organic products.

Some of these products can also be produced from another input such as coal, but petroleum is generally the cheapest abundant source.

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Alternative Energy

Alternative Energy

Alternative energy is a very general term referring to nontraditional sources of electricity. Those traditional sources are out of favor with some political groups because they use exhaustible fuels, they pollute, or both.

Alternative sources of energy are often referred to as renewable or sustainable. A renewable source will replenish itself without effort. Examples include sunlight and wind. A sustainable source has to be actively managed or rationed, but with care, its use can be sustained. Examples include crops and wood.

Ideal alternative energy sources cause little or no pollution. Traditional sources require mining or other environmental disruption to acquire, and create noxious fumes, toxic waste, and other side effects in use. The division is not always clear. Nuclear power, for example, causes little or no traditional pollution, but is typically opposed by environmental factions because of its own unique problem with waste disposal.

In the end, alternative energy is usually Aalternative@ because it is less economical or less well-developed than traditional energy sources. Most electricity is, after all, produced by commercial interests or at least by public utilities with some limitations on available resources. For these decision-makers, other choices of technology usually require some kind of government mandate or subsidy to be attractive.

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Biofuels

Biofuel

Description and Purpose
Biofuel is dead plant or (sometimes) animal matter processed into a more efficient or convenient fuel. Biofuels are produced either from waste, such as plant trimmings, or from deliberately cultivated crops. The most common end products are ethanol, vegetable oil, and what can be called mixed refuse.

Biofuels are meant to be an economical and sustainable substitute for fossil fuels. As compared to petroleum, for example, solar cells and nuclear power are completely different technologies. The right liquid biofuel, though, can be used in combustion engines in place of petroleum products with little or no modifications. Similarly, coal as a fuel source can be replaced with an appropriate solid biofuel.

Additionally, the right biofuels pollute less than fossil fuels they replace. Biofuels reclaimed from waste also reduce landfill and other garbage disposal problems. To some extent, these two benefits are a tradeoff, for reclaimed biowaste tends to burn dirtier than fuels grown for the job.

Kinds of Biofuel

One of the most common biofuels is ethanol, ethyl alcohol. Ethanol is a liquid fuel with about 65% of the energy content of gasoline by volume. It can be added to gasoline in small amounts and used in automobile engines with only minor modifications. Pure ethanol is a viable fuel in areas where gasoline is expensive or ethanol manufacture is cheap. Brazil uses large amounts of ethanol as an automobile fuel in engines that are suitably designed.

Ethanol manufacture is a variation on the ancient craft of fermentation. Yeast converts glucose sugar from plants such as sugar cane to alcohol. Since starch is just a string of glucose molecules, starch from corn or other sources can also be converted to ethanol. Extracting and purifying the ethanol requires distillation, which requires heat. This is a major cost at the moment B producing energy requires energy.

A variety of vegetable oils are used as biofuels. Peanut oil is one choice; canola oil is another. These vegetable oils can be extracted from plants grown for the purpose, or they can be waste cooking oil from restaurants and food processing industries. Waste oil must be filtered before use.

Biofuel vegetable oils have two common uses. They can be burned in furnaces for heating or industrial applications. They are also suitable for diesel truck engines with slight retrofitting. (Vehicles running on peanut oil have a distinctive smell.) One administrative obstacle to using vegetable oils for this purpose is that gasoline taxes fund roads in many jurisdictions. Vegetable oil as fuel can be seen as circumventing the tax, and it may be illegal or taxed out of the realm of profitability.

Solid biofuels are yet another category. Solids tend to be mixtures of wood chips, lawn cuttings, and other combustible waste. Such waste is normally dried, mixed, and formed into relatively uniform pellets for burning. These pellets likely still contain dirt, trace toxins, and other problematic contaminants, limiting their use. Furnaces that use pellet fuel should be well vented or scrub their emissions of pollution, or both.

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Wind Power

Wind Power

Description
Wind power refers to the use of wind to drive a turbine, generally to create electricity. The wind turbine is the descendent of the windmill looking either like a giant propeller in the air or an eggbeater standing on its head. A row of wind turbines can be hypnotic as they turn slowly together.

The usefulness of wind turbines depends a great deal on location. Strong winds are obviously desirable, and gusts of higher speed produce most of the power. (Available power goes as the cube of wind speed.) Open areas where the wind flows smoothly are best, but the traditional Dutch image of a windmill on top of a house is still ok. Rows of wind turbines will capture a cross section of wind. Downwind rows should be set well back so as not to interfere with each other. This can be a problem when the wind direction varies. One solution is to put the turbines closer together and accept some inefficiency.

Engineering
A wind turbine is a basically a propeller on a pole, turning in a vertical plane. The whole rig will swivel like a weather vane to follow the wind. A brake prevents damage if the wind gets too strong. The spinning part is connected by gears to a generator and inverter (for AC current).

A field of wind turbines will be hooked together and into the local power grid B running power lines to the wind turbine farm can be a major expense. The coupling into the power grid has to be carefully regulated, for power companies like constant and controllable sources. Irregular inputs, such as from wind, can drive dangerous oscillations in the power grid and cause blackouts.

Some property owners run a single wind turbine for supplemental power. (It can=t provide all the power; wind speed isn=t constant.) When the wind drops, the property draws power from the local grid. When the wind generates more power than needed, in many jurisdictions the turbine feeds power back into the grid, earning a credit for the owner.

As wind turbines are usually well separated and elevated, the land dedicated to wind power can often be used for other purposes as well, for example, agriculture.

Outlook
Year
World Wind Power Capacity
(GWatt)
2005 59.1
2006 74.2
2007 93.8
2008 121.2

Wind energy is a small but growing fraction of the world=s total power generation. Usage as a percent of total energy needs is highest in Germany at around 6%. Total wind energy generated and maximum power capacity are similar for Germany and the United States, the two largest generators. Maximum capacity (shown in the table) is what could be generated with sustained high winds; actual power generation averaged over the year tends to be around 20% of that number.

Wind energy is nonpolluting and sustainable. Operating costs and maintenance tend to be very small. The installation costs can be high, particularly as the best locations are far from population centers, sometimes even offshore. Government subsidies of Agreen@ energy make the up-front costs more attractive to private investors.

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Solar Power

Solar Power

Description
Solar energy refers to using sunlight to generate energy in the form of electricity or heat. Green plants do something like this, turning sunlight and air into sugar. The technology approach is to use large flat panels filled with solar cells, which are silicon wafers (or other semiconductor).

Solar cells work because sunlight knocks loose electrons in the material. The semiconductor material is biased so electrons can only flow one direction, hence, electricity. Solar cells work on a small scale (hand-held calculator) or large (acres of panels). Large-scale arrangements are connected together in series and by an inverter to the local power grid.

Solar heating can be done with flat panels that absorb heat, backed by circulating hot water to transfer the heat. Solar heating is usually local. It can provide hot water, heat a building, or (through thermal transfer) cool the building. Here, solar panels heat a swimming pool. A heat reservoir, such as a pit full of hot rocks, can store heat during daytime for use at night.

Engineering and Economics
To date, solar power generation is not as economical as traditional energy sources. The usefulness is strongly dependent on location, with low latitudes and clear skies being preferred. Installation costs are significant. Solar power is quite attractive for isolated locations such as roadside signs, assuming that the intermittent flow of power is tolerable (no solar power at night).

Tracking panels
Most solar cells only convert 10-20% of the light energy falling on them. Tricks to up the yield include magnifying lenses, panels that track the sun (as in the image), and simply using more area. In other words, higher yields cost more. Meanwhile, significantly more efficient cells are being worked on.

The investment in solar cells pays back in 10 to 20 years depending on location, technology, and other factors. That can be good enough for governments and large businesses, but is marginal for residences and small businesses. But, solar energy is politically popular as a sustainable source with no pollution after the manufacturing stage. Consequently, tax credits and other subsidies encourage solar energy in many jurisdictions.

Solar Energy and Metals
Solar cells make use of metals and near-metals that are interesting to Empire. Germanium, a semiconductor, is a common replacement for silicon, especially in the recent past when pure silicon crystals were in short supply. Gallium arsenide and indium gallium arsenide are two other material choices. The new copper indium gallium diselenide is the material for solar thin films (see image).

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Geothermal Power

Description
Geothermal power is electricity generated from heat extracted from the earth. Geothermal power is possible in locations with volcanos, hot springs, or magma hot spots. This amounts to regions with tectonic activity, such as the Pacific rim, Africa=s Great Rift Valley, and Iceland.

Geothermal power can also be used directly for heating. Hot springs and thermal vents have heated baths and homes since ancient times. For example, the springs at Bath, England, have been in use since Roman times. This is a conceptually simple process, possibly after drilling to gain access to hot water. Underground water is pumped out and used to heat steam pipes. These pipes run to spas, greenhouses, local residences, and the like.

Geothermal electrical generation, by contrast, is only about 50 years old. The power source is underground steam or hot water under pressure that expands to form steam. Steam turbines then run generators. The efficiency of this process depends on the temperature of the input. Because underground steam is at a much lower temperature than, say, burning coal in a coal power plant, geothermal power is much less efficient. The operating costs are much lower, however.

Advantages and Disadvantages
Geothermal power has the advantage of being consistent, unlike other alternative sources such as solar and wind. Operating costs are low, as mentioned, although the initial exploration and drilling may be expensive.

In the way of disadvantages, pollution considerations are small but not zero B underground water may contain sulfur and other undesirable trace elements. These elements must be scrubbed from the steam or hot water before it is disposed of. Extraction of underground water can cause land to settle and can trigger minor quakes.

Because of the limited geographic availability, low efficiency, and other factors, geothermal electrical generation accounts for less than 1% of the world=s power use

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Water Power

Description
Water power is a category that encompasses several methods of generating electricity from the movement of water. Hydroelectric power from dams is the most important method, but other sources include tides, waves, and miscellaneous less common sources. Water power is sustainable because it comes ultimately from the sun=s energy driving the water cycle of rain and evaporation.

Hydroelectric power comes from the energy of falling water turning a turbine, and thus a generator. Hydroelectric power is almost always produced by a dam and reservoir on a river. The reservoir raises the level of the river (increasing available power) and evens out annual flow. Gates and spillways in the dam regulate water outflow to meet electrical demands.

Although dams are built in part to control flooding and manage water supplies, the world=s major dams B Grand Coolee on the Columbia, Three-Gorges on the Yangtse, and many others B all supply critical amounts of electricity. Hydroelectric power supplies about 20% of the world=s energy.

Tidal power is a much more modestly important source of energy. Oceanic tides follow an approximate 12 hour cycle based on the apparent movement of the moon around the earth. Strong tides are most promising for extracting power from places such as long thin bays and narrow straits between large bodies of water.

Tidal power is extracted most commonly by immersing water turbines in the tidal current to drive generators. This is conceptually much like using wind turbines, except that the much denser water produces more energy, and tides are more predictable than wind.

A much less common approach to exploiting tidal energy takes advantage of the change in ocean level from low to high tide. The incoming tide is allowed to fill a basin, either a natural lagoon that is dammed off or an artificial tidal basin constructed for the purpose. The basin drains again as the tide ebbs. Turbines drive generators during the filling, the emptying, or both.


Wave action can also generate power. This is mainly a theoretical source, being used in few locations on a small scale. A buoy on the ocean surface will bob up and down with the waves. This vertical motion can drive a generator. Wave motion is far from an ideal source, however. It is slow and irregular, usually small in amplitude, and diffused over a range of directions.

Environmental Concerns
Although the various water power technologies are sustainable and nonpolluting, they are not without environmental impact. Hydroelectric dams in particular are big, expensive projects that change the landscape forever. The reservoir behind the dam floods large amounts of land. The building of the Aswan Dam on the Nile, for example, threatened archaeological sites that had to be moved.

Dams and turbines interrupt water flow, which will deposit suspended sediment in new locations. Thus, erosion and deposition patterns will change. River deltas may shrink when not renewed from upstream silt.

Turbines in the water flow can also kill fish and marine mammals. Larger mammals such as dolphins can be screened out. Also, water turbines turn more slowly than wind turbines. Some fish die, but others survive. Dams are known to interfere with fish life cycles. Most famously, dams on the west coast of North America block salmon migration. This has been mitigated with water ramps that permit fish movement around the dams.

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Our team is feeling the econ and stock market recovery - and we are getting charged up to start putting out more content. Stay tuned! The Virtual Wall Street Team


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VWS Post #1- In The Beginning

As promised- the content will begin now. I thought about starting the blog from about 50 years ago and then working my way forward- but then I thought - why not just add three zeros and start at around 50,000. BC (give or take a couple of millenia). You may think this odd coming from an investment blog- but as you will see if you follow through until post 37 or so- priorities are actually coming full circle as time passes.......... Early man was quite primitive (sort of like a modern day Mets fan). Their needs were very basic and included food, water, shelter, 'clothing', and survival. Although we have many of the same basic needs today the average person doesn't need to spend nearly as much time gathering food or concerning themselves with survival. Now in the developing world, and even though 50 centuries have passed (during our blog's time frame) that is not the case and life for those poor soles is in many ways worse than that of their ancient ancestors. Basics were essential and as man learned how to harness the power of elements life began to progress. Fire allowed for heat and a well cooked meal. Skins and pelts provided warmth and the ability to venture into different climates and provided survival from harsh weather. Rocks and wood provided the weaponry to hunt, to dig, and to eventually plant crops. Evolution continued and as we were better able to make use of our resources we were able build better structures, support larger 'tribes', and provide comfort for our early family units. As time progressed we were able to use our resources to assist us in migrating to far flung corners of the globe where we continued to find, and to utilize new tools and new methods of advancement. Eventually we were able to plant and harvest our own crops, organize teams of hunters, and develop cohesive family and tribal units. And although the methods of survival and advancement continued to improve our basic needs remained the same. Life began to really advance when we were able to spend more time living and less time protecting life. In other words, in ancient times man and beast were more fairly matched. Through trial and error we learned to construct barriers and defenses to protect ourselves from predators. We then became more proficient in hunting in teams and developing better trapping and hunting techniques, and the weaponry to go along with it. Eventually we were able to devote more time to developing early 'luxuries' like cookware, farming tools, and housing structures. If we then fast forward a few thousand years we were able to utilize metals to a much larger extent that at any time in history. Metals have been vital for thousands years whether it was to produce a weapon, make a cup, or use as a form of currency. Metals allowed us to do things that had been virtually impossible up until their utilization- and continue to be vital to this day. Look around you and imagine any skyscraper or bridge or structure of any significance being built without the use of metals. The importance of metals has never been greater. Over time early man was able to continue to advance farming techniques and in doing so - was able to develop entire communities. Irrigation techniques helped to fuel early agricultural efforts. Food was an early form of wealth and those that possessed food began facing a new form of predator; humans. Long after the daily threat of survival at the claws or fangs of a wild beast subsided man now had to fear for and protect himself from the hands of man. Man, being primal, was a constant threat if you were in possession of food, tools, or even a beautiful cave woman (and I'm sure there were some real stunners). So the battle lines were drawn and the fight was over resources. Again, not much different than modern times- even though we would like to think that we are more civilized than that. As time progresses (from now) more wars will be fought over food, water, and oil. Some will be internal conflicts (civil) and others regional- but as resources become scarcer and population grows- the convergence of the two is actually stepping up the de-evolution of man. Eventually man will be brought back to his most primal and base needs. Let's take a look at the birthplace of Western Civilization; Athens. Athens has been around for about 10,000. years- with a real city beginning to take shape about 7,000years ago. The Greeks were blessed with an abundance of resources- a very mild climate, a wonderful centralized location, and plenty of neighboring cultures to trade with. The Greeks also enjoyed long periods of relative stability, and were therefore able to devote a greater percentage of time to 'higher thinking' which led to many of the advancements that we enjoy to this day. As a direct result of not having to spend as much time battling the elements, or each other - philosophy, art, mathematics, medicine, astronomy, and democracy were able to flourish. Much of the Ancient Greek advances made (along with their fellow ancient cultures) were as a direct result of developing and utilizing resources to a much greater extent than ever before. The balance of Athenian advances were also aided by a different breed of Greek that was a protective force - the Soldier State of Sparta. Through this entire period we continued to utilize - to a greater degree- a much wider variety of metals, minerals, food, wood, fabric, animals, and water. Man had stopped focusing on animal for food or as a predator and began to utilize them for transpiration, defense, and for agriculture. Life continued to improve. As man developed its resources- greed became magnified. Ancient civilizations began to war with one-another over resources and entire groups of people were lost to to pages (or in this case- tablets) of history. But as cultures were absorbed and transportation improved we also soaked in the new-found knowledge that came with assimilation. Civilizations clashed and empires were taken down one-by-one. All great empire's eventually come to an end and ancient Greece was no exception. The baton was passed to Rome- and the balance of Europe began to grow. As a direct result of the utilization of resources for transportation, shelter, protection, and virtually everything else- tribes were able to prosper in any climate- however harsh. Vikings, Teutonic tribes, Mongols, Huns, were all able to not only survive but prosper in environments and regions that only centuries before would have been uninhabitable. The battle for resources continued and entire continents were virtually monopolized for their resource wealth. South America, for example, was colonized and exploited by the Spaniards and the Portuguese. Resources allowed Europe to be the center of wealth and power. Metals had become very important- as not only a source of wealth- but a source of weaponry- bow and arrows were no match for a musket or cannon- and soon indigenous tribes fell one by one to the hands of their captors. One group of settlers set out to take up residence in one of these newly-discovered lands- the land that most of us reading this blog are Citizens of, what is now known as the United States of America. These early settlers had to overcome some very rough conditions. The climate was unforgiving, the food supply often scarce, and we hadn't actually developed a good neighbor policy. As time went on- many of our early ancestors began resenting the exorbitant demands made by the British Throne- and revolted. A war was fought, and won- and a country was born. Life progressed rapidly in America and the entrepreneurial spirit was alive and well. Unlike our former countries- most of which passed royalty and privilege through generations- an American was free to be whomever or whatever he wanted to be. This was truly a blessed country where motivation not lineage would provide success. Along came the industrial age and our use of materials was never greater. Mass transportation, the ability to drill for oil, trains, planes, and automobiles sprang up during and shortly after this era. We were even able to record our experiences on film instead of canvas for the first time. Life was good. America- much like Ancient Greece was blessed by having large gaps of relative security. Yes, there were wars and skirmishes between the 'new Americans' and neighboring countries or indigenous tribes but these squabbles were usually over quickly and our country was always victorious. The population was still fairly minimal and resources of all types were abundant. We were on our way to becoming the wealthiest country in the world- all being driven by our use and utilization of resources. One of the things that allowed many to become wealthy was the relative lack of regulation on the part of the State and Federal Governments (something we could use more of today). Yes, some used this power to abuse and exploit, but there were also advancements and opportunities created in an unfettered environment. The 20th Century brought much progress and promise. In a generation we had evolved from an era of horses to planes, trains, automobiles, and transcontinental shipping. Growth and technological advancement during the Industrial Revolution grew exponentially. This brings us to the year 1908 which was the 1st time the Times Square ball was dropped at New Years. Things that had been unheard of or that were beyond a person's imagination were now happening on a monthly basis. Life looked good for America and much of the world. We will now take a break at 1908.

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V Winner Post #2- 1908 to 1958- The American Dream

As you can see- I'm just painting the broad strokes and personal observations- details will follow. We covered almost 50,000. years in Post #1- and can't expect too many details from a one-page post. As the posts progress the details will make the picture clearer- but at this point I'm really just making these generalities to prove a point.

1908 to 1958 was another block of incredible change at an accelerated rate. We witnessed inter continental flight, two world wars, the Great Depression, the stock market crash of 1929, prohibition, the fall of Germany as a major power, the emergence of America as a super-power, the dust bowl, and the era in which the American dream was at its finest (the 50s

Coming out of the first decade of the 20th Century development of America was greatly aided by the use of rails. Florida was transformed into a vacation paradise. Some of the great industrialists continued their march to prosperity aided by conditions that allowed them to prosper in an era where the outlook had changed to one of anything being possible. As technological advances accelerated self-imposed limitations vanished. Man in flight has smashed pre-conceived notions about what was possible.

As we entered the 20s a new era of affluence was upon the investing class. The 'roaring 20s' offered a chance for a daring man with a dream the fuel to bring it to fruition. Shares were offered and traded and Wall Street was on fire. Construction was booming and cities throughout America were flourishing. Detroit, Los Angeles, Boston, New York, New Orleans, and so many others were bringing new energy and vast wealth to those that dared to dream big.

Along with the Industrial Revolution we had also had a wave of immigration and large Eastern Cities were full of new cultures. In those days a person had to make huge sacrifices to come to America and an often guaranteed path of poverty for years just to be here. Naturally, we attracted motivated individuals with strong minds and bodies. Our melting pot was at its finest and the creative synergies it brought together were dynamic. We were able to bring the best ideas from all corners of the globe and put them to work for one mission; making a better life.

Unfortunately, the more rapid the rise in any market- the harder the fall. Everything peaked in 1929 in the great stock market crash. Unlike modern times many stock was margined up to 90% (in stock)- and quickly lost everything. Those that were smart enough to see the writing on the wall- were no in possession of a valuable commodity- CASH. Many of those with the foresight to take their 'chips off the table' when they still had time- went on to become incredibly wealthy.

Our economy was in a tailspin and this country suffered as a whole more than at virtually any time in decades. To make matters worse the dust bowl devastated the lives of millions of Americans for the better part of the 30s. Life was bad- very bad.

Along came Adolph. Adolph had been bouncing around for a number of years in Munich. Adolph had a problem with anything or anyone Jewish. He was not a big fan and decided that he was going to do something about it. This, in turn, led to WWII- which led to our involvement.

It was the period starting in the early 40s that cemented our position as a manufacturing giant. Within a matter of months our entire country mobilized more so than at any time in history. We, again, made the best use of our materials and resources - and were able to outfit all branches of the military. Americans were one and the 40s demonstrated what a cohesive unit we WERE.

After WWII it was obvious that we had taken the throne away from Great Briton as the world's number one superpower in virtually every category. America was a liberator and most of the world loved us. For the rest of the world America represented advancement, freedom, liberty, and opportunity. People felt good and started having babies.

The term baby boomer applies to those born from 1946 and the early 60s. This is a large group of Americans- roughly 79 million strong (b. 1946-1964). This is also the most significant group for several reasons - most of which we will cover in subsequent posts.

America once again proved its desire to spread and defend liberty and freedom during the Korean War from 1950 to 1953. Once again we were viewed as a force for good by much of the world.

The 50s - more than any other decade - represent the most idyllic version of the American Dream. This was the family unit before widespread divorce. This was an era before therapists and divorce attorneys. This was an era of a home cooked meal and the local drive in. The American manufacturing might put two cars in many garages and gave us beautiful appliances that made our lives more convenient. There was a period of relative stability. Yes, there was the start of the cold war and fallout shelters- but for the most part- America was free of drug abuse, mass violence, overcrowded prisons, overburdened social programs, and a culture clash. People that had come here had assimilated and were proud to be American- and the rest of the world pretty much respected us.

Resources were plentiful, and we were the envy of the rest of the world. It seemed that life was good. American life continued to be stable throughout the 50s ....Lets take a break at 1958.

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V Winner Post #3- The Information Age

Well if you have bothered to read this far then you either think that I have too much time on my hands or there must be screw loose. Why is Jon talking about cavemen and the the Korean War. I came to this blog to discuss investments?! Be patient my friends. I am convinced that if I spend enough time discussing what ails us- we will build a team- and be able to counter the coming issues which will change the world's priorities. Post #4 will get to specifics. And just so don't think I'm nuts- let me just say that I don't believe that aliens are coming to abduct us.

Moving forward- lets talk about the 60s. The 60s was just one of those decades we have that changes the course of history. By this time many Americans began to rebel against the 'establishment'. Perhaps things were a bit too copacetic in Dodge City for many so it was time to shake things up a bit. The 60s was a decade of rebellion. Perhaps the 50s with Marlon Brando and James Dean has sparked a nerve and gave some mystique to the idea of being a rebel- but the 60s was the decade of mass rebellion.

From music to drugs to hair to clothes to politics to the entire counter-culture movement- people began to question their 'reality'. Many took it one step further and simply altered reality through the use of mind 'enhancing' chemicals. It did make for some pretty colorful t-shirts.

Women and minorities began to assert their rights. People got sick of sweaters. A lot was going on. What was once a fairly cohesive society began to fray at the edges- but by the end of the decade our country was polarized (much as it is today).

Vietnam was our most unpopular war and provided fuel for an already combustible situation. Riots, marches, and even the burning of the American flag became regular occurrences. The American dream wasn't so bright anymore.

Changes were made to the immigration laws and we began the first round of a wider variety of cultures assimilating into this broad melting pot we call America.

The 70's were in my mind a continuation of the 60's but with different drugs, worse clothes and music, and even worse hair. Vietnam finally came to an end- but many of the causes of the 60s were still being fought. We really had two entirely different cultures competing in this country at entirely opposite ends of the spectrum.

One thing is certain; the family unit began to break down and dysfunction slowly became the norm. Divorce was entirely acceptable as were drugs as was rejecting what 'the man' stood for.

Although the Vietnam War was extremely unpopular in our own country much of the world still had respect for us. America had not lost its glamor in the eyes of most.

The 70s also brought some of the first big cracks in our foundation for some time. The oil crisis showed the rest of the world that America had some big weaknesses. America was DEPENDENT of foreign oil. It was at that point that we should have IMMEDIATELY started doing something about the problem. When we became a nation that relies on foreign crude a long term solution needed to be implemented to ensure that we would eventually be self sufficient. It wasn't.

Some other trends started popping up in the 70s - trends that had actually started a decade earlier but were not apparent enough for many to notice for quite some time. We started seeing that more things were 'made in Japan' (remember when it was made in Japan- not China?). I used to think - even as a kid- why do we need products from Japan- can't we make it here? It still doesn't make sense to me that we let it all happen.

Soon cars with funny names- like the Datsun and Toyota began appearing. Then television sets- Sony- Hitashi- Toshiba. Then it was the Casio watch. After a while more and more foreign brands were showing up everywhere. Virtually every industry started losing market share.

It started in home entertainment with reel to reel and in televisions. VCRs and gaming equipment, home appliances, electronics, razors- you name it. Still not a problem- after all- they are going to open their markets to us right? Isn't that what 'free trade' is all about? Let them get on there feet- deal with the disparity for a while- and then they will open their markets to us. Well- gee whiz- ain't that the American way. And how many countries have done that for us???

Getting off on a tangent.

SOOOO- Then came the 80s - Video games - Computers- music got better- hair and clothes continued to get worse. By this time new drugs were coming around- continuing to let people take a vacation from this terrible affluent lifestyle where we have more than 95 percent of the world. The family unit was completely broken down. People didn't even know which cause they were supporting anymore- they just wanted to fight the system dammit!

Greed was in vogue- and I remember watching Wall Street when it came out- another era when anything was possible. Talk on Wall Street went from millions to billions- and another run was in session. In the mid 80s oil dropped from 35$ to 10$ a barrel so who needs energy efficient anything. Lets just forget about it.

Now by this time things were getting really strange to me- I would go in and ask if they sold an American TV and they would tell me that Zenith is still American- "but most of its parts are made elsewhere". I remember standing in some box retailer in shock as he told me that "you can't buy an American VCR- we don't make them anymore". That was a very strange moment to me. I took that as a sign of failure on our part.

As strange as it may sound the VCR 'moment' I had was a realization for me. From that point on I started watching - and observing - and becoming cognizant of how fast things were changing in this country. We were losing ground in many areas.

The 90s brought us into our first Gulf War. We had always had problems with much of the Middle East as a result of cultural differences. No knock against Muslims but they are not big fans of Western habits in general. The first Gulf War was a power grab. After Iraq and Iran had battled it out for eight years- Iraq decided on a smaller country- Kuwait.

There was really no way to win a PR battle in the Middle East going into an Arab country and blowing it to pieces. I think it was around this time that really strong anti-American sentiment began building to a much greater extent than at any time in the past. I suppose wearing t-shirts in Paris hadn't helped our cause either- but things weren't going well.

Most of the 90s really didn't seem all that eventful to me. Technology did improve- life was relatively stable. Just another decade, or so I thought.... Then along comes the INTERNET. Or, as many called it back then the WORLD WIDE WEB - how funny. The Internet really did change everything- as did the blazing speed at which new technology was developed. With it came great promise for the future. We were going to solve every problem known to man if we just had enough websites and bandwidth to make it happen. Soon any company with a .com at the end was virtually assured to raise capital. As long as your 'business model' is promising why shouldn't you have millions of dollars to develop it?

The dot-com frenzy drove many (including myself) to the brink of sanity. Yet- fast forward about 6 or 7 years and we obviously didn't learn our lesson. Stocks were only going to go up- quit that menial job as a dentist and become a day-trader! That makes sense.

Y2K didn't bring the world to its knees as promised- that just proves we have a grip on technology.

Painful reality followed in mid-2000 when the whole house of cards came tumbling down.
What followed was a very painful lesson and a very large bursting bubble.

While we were busy developing our 'technology' a strange thing had been taking place called globalization. Suddenly the rest of the world was becoming wealthy and we were continuing to spend more than we took in, and buy more product from others than they bought from us.

Shortly after the stock market crash of 2000 we were confronted by a new reality and a new vulnerability. It seemed that it had become popular to dislike, and even hate America. Many of our own Citizens began to openly proclaim how much they detest our country. Never had our people been at such opposite ends of the political spectrum.

But there was a solution to the recession- we moved from dot-coms to developers. Lets just buy eight houses- and 'flip' them. Don't worry about the mortgage- you can refinance next year. After all, real estate is only going up...... Cheap money- cheap credit- and a new group of investors to fleece. Everyone is having a party. Oops- things are starting to slow down. Maybe there's a problem... Now we are having a problem! Another bubble popped..

Well folks- that is it. In post 1-3 I really pretty much painted the broad strokes. Moving forward we are going to look at facts, figures, and actions that have taken place that have led us to the year 2008. Bottom line- don't expect me to sugar coat it for you. There comes a tipping point and we are nearing it. It is not what we are going through right now- it is what we are about to experience after the turn of the decade. Preparation is essential if we are to succeed. There are always winners in any down market. From those that cashed out their holdings prior to the market crash of 29- to those that got out of dot-coms in 99- and on to those that sold their real estate holdings in 2006. Bottom line- there are always two sides of a transaction- someone winning and someone losing. I am convinced we can be on the winning side of 2011/12.

Thank you for being patient and expect details to be less objective and more factual going forward.

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V Winner Post #4- A Tribute To Michael Hodges

As I told you the first three posts were really pretty much a little rambling on my part. For some strange reason I always feel the need to start at the beginning and work my way forward- perhaps this is a waste of time- but it helps me to feel more organized. From this point on we will begin focusing more on hard facts and hard data.

Before I begin what will most likely be a multi-dozen post process I wanted to take a moment to give a special thanks to Michael Hodges. Most of you have probably never heard of Michael but while surfing the net a couple years back I came across his website. As I continued to read what he had compiled I was not only shocked at the sheer volume of data- but the content as well.

Now I must admit that I have a common affliction- website snobbery. Basically we have become spoiled over time and dismiss a site if it is not 'crisp' or 'clean' and does not have the bells and whistles that we have become accustomed to. But as I read on- I realized that Michael was really onto something. His site opened my eyes more than any other single website I have come across. I personally believe that his website should be required reading for any econ student, stock analyst, or politician. Although politicians, in general, seem to be happy spending more of our money and not less....

At any rate- I ask that you not judge his work on appearance but substance. It will take some time to dig through the plethora- but when you do- you will probably have the same reaction that I did. The visuals, especially charts and graphs- are especially effective in boiling down fact versus fiction. From what I have seen his facts are pretty damn accurate- which is why I like facts as they are much stronger than opinion. The site is the: Grandfather Economic Report- by Michael Hodges

The link is: http://mwhodges.home.att.net/

Hope you find it as enjoyable as I did.

Jon

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V Winner Post #5- The Population BOMB!

I love the line in A Few Good Men where Colonel Nathan Jessup (Jack Nicholson) tells Kafee (Tom Cruise), "You can't handle the truth!" Well, let's see if our new Virtual Wall Street audience can handle it........

Before I post an article I wrote for a report I did recently on the value of metals as an investment, let me take a moment for a few observations. Recently we have heard the term 'peak oil' quite a bit. The theory is that we have reached the tipping point where the supply of crude is not able to meet current and future demand. When we look at the fact that wells are being drilled 150 miles offshore and to depths of 30,000. feet, this theory does seem plausible.

In agricultural commodities we have heard that speculators are partly to blame for parabolic price movements in the price of everything from corn, to rice, to wheat and so on. We have also begun blaming farmers for converting corn to ethanol. We have all heard the story that the developing world has gone from one meal to two-per-day.

Many metals have seen a 500% or more increase in price since year 2000. This has been blamed on both speculation, investment flow, and the growth in emerging markets-mainly China.

Many factors have been blamed for the incredible run-up in commodities (in general). There is some truth to the fact that as commodities have become a 'shelter' play some of the price movement can be attributed to speculation. The truth, however, is something that I really don't hear being addressed nearly as much as it should. What is the real reason behind the super-cyle commodities run that we are experiencing: OVERPOPULATION

In short, we have reached what I call PEAK RESOURCES. Years ago we were told the world would not be able to sustain itself when the global population reached 8 billion people. The problem with that statistic is that it did not take into consideration global consumption and demand growing at the rates we have experienced in recent years. We have now reached the tipping point and are pushing the limits of what the world will be able to tolerate.

Now before you think I'm exaggerating I need most of you to step outside the box for a moment. Many of the people reading this blog are from the US, most are from developed nations, and those from developing nations are of the 'investor class' and therefore insulated from what many in their nation are forced to deal with on a daily basis. The fact is that approximately 1/5th of the world currently faces food, water, and other resource shortages. In coming years this number will continue to grow as we simply cannot sustain the type of growth this planet has experienced.

As I have said early on- I am not going to sugar-coat anything. These are the facts and, unfortunately, many of us are oblivious to them. It is only when commodity prices became so exorbitant that it affected virtually all of us- did many of us actually begin to take notice as to what had happened. Now it is very difficult to be in denial about what will be one of the biggest issue that we will face during our lifetimes.

Now- we must wipe the tears from our eyes for the poor and suffering and determine what we as investors can do to protect ourselves from the inevitable. (And if you care about actually solving the problem you will be able to solve more problems as a wealthy investor than an average person) Resources will be the currency of the future. What the markets are reflecting recently is a shift away from wants and back to needs. As we discussed in Post number 1- our planet is coming full circle in terms of priorities and the future will bring the past and present together in a very tight circle.

We must realize the value of global currency in the form of tangible assets in coming years.

Here is an article I wrote about a year ago which pretty much sums it up:
The World Population Has Grown:

In 1 AD, there were roughly 300,000 people inhabiting Planet Earth. Nine hundred years later, by 1,900 AD, the world population stood at 1,650,000,000. By the year 2000, the planet held over 6,000,000,000 people. Today, in year 2007, there are 6,600,000,000 people worldwide. The global population is growing at a rate of over 75,000,000 people per year.

Estimates for future growth call for 6.8 billion people by 2010, 8.3 billion by 2030, and 9.4 billion by the year 2050. These numbers are staggering.

Asia accounts for over 60% of the world population with over 3.9 billion people. China and India comprise 20% and 17%, respectively. Africa follows with 934 million people, 14% of the world’s population. North America is home to about 523 million (3%), followed by South America at roughly 380 million, or 5.5%. America is home to roughly 300,000,000 people.

The World Is Continuing To Grow:
The world population increased from 3 billion in 1959 to 6 billion by 1999, a doubling that occurred over 40 years. The Census Bureau's latest projections imply that population growth will continue into the 21st century, although more slowly. The world population is projected to grow from 6 billion in 1999 to 9 billion by 2042, an increase of 50 percent.

Because of their low and declining rate of population growth, developed countries as awhole are expected to remain virtually unchanged in population between 2005 and 2050, at about 1.2 billion. In contrast, the population of the 50 least developed countries is projected to more than double, passing from 0.8 billion in 2005 to 1.7 billion in 2050. Growth in the rest of the developing world is also projected to be robust, though less rapid, with its population rising from 4.5 billion to 6.1 billion between 2005 and 2050.

During 2005-2050, eight countries are expected to account for half of the world’s projected population increase: India, Pakistan, Nigeria, Democratic Republic of the Congo, Bangladesh, Uganda, United States of America, Ethiopia, and China, listed according to the size of their contribution to population growth.

Very rapid population growth is expected to prevail in a number of developing countries, the majority of which are least developed. Between 2005 and 2050, the population is projected to at least triple in Afghanistan, Burkina Faso, Burundi, Chad, Congo, Democratic Republic of the Congo, Timor-Leste, Guinea-Bissau, Liberia, Mali, Niger, and Uganda.

What is important to note is that a majority of the growth projected in developing countries will come from the inclusion of migrants from developing countries into the native population of developed countries. In other words, net growth into wealthier countries will primarily be due to overflow from poor countries.

Competition has never been greater for natural resources, commodities, food, water, money, jobs, land, and opportunity. It is more important than at any time since the Industrial Revolution that investors factor globalization into all decisions, especially with regard to making investments in the future. The world most of us grew up in has permanently and irrevocably changed.

In Post #7- We will actually take a look at something positive: World Economic Growth (sort of like a bear market rally- we can feel good for a moment- before continuing to tackle the problem). Now keep in mind this is a multi-post series- so be patient.........

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V Winner Post #6-A Population Bomb Pictorial

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V Winner Post #7- Global Economic Expansion

This is an article I wrote a little over a year ago- and it is both positive and negative. Basically, U.S. GDP has grown substantially- which is good. The bad news is that over time our share of world GDP is shrinking as developing countries show more rapid annualized GDP growth.

Historic Gross World Product*
1950
7,100,000,000,000
1960
11,300,000,000,000
1970
18,500,000,000,000
1980
26,800,000,000,000
1990
36,300,000,000,000
2000
48,600,000,000,000
2006
65,000,000,000,000
(Estimate)
*All figures quoted are based on purchasing power parity and in 2005 dollars

We witnessed an approximate seven-fold increase in the world’s economic growth in the fifty years from 1950 until 2000. The gross world product is estimated at 65 billion dollars for year 2006, which equates roughly $10,000 gross domestic product per capita, or for each person on earth (again, based on purchasing power parity).

The estimate for 2005 is approximately 59.6 billion dollars in world gross domestic product. The United States accounted for roughly 12.4 billion, followed by China at 8.2 billion, Japan at 3.9 billion, India at 3.7 billion, and Germany at 2.45 billion. In US Dollars, not taking into consideration purchasing price parity, the numbers for the top five world economies were as follows: United States at 12.455 billion, Japan at 4.56 billion, Germany at 2.79 billion, China at 2.23 billion, followed by the United Kingdom at 2.29 billion.

The increasing speed of Globalization has created many new opportunities, such as niche markets, that require everyone to adapt quickly in order to stay competitive. With the increasing global economy, increasing wealth, global communication, and the Internet, companies and individuals are realizing that they are often competing with others around the world in virtually every industry.

The global economy has created an environment in which many large corporations are becoming trans-national firms. Whether we agree with, or like, globalization, it is here to stay. In such a turbulent and fast moving environment we must evolve to succeed, or we will surely perish.

We Can No Longer Take Economic Superiority For Granted The past twenty years has witnessed a huge shift in the world’s wealth. Countries that most of us thought of as third world nations are now economic superpowers. The balance of gross world product has already changed significantly, and further disparities are on the horizon. Unfortunately little of this news looks good for US investors.

The US Economy – The Strongest On Earth: The US has the largest and most technologically powerful economy in the world, with a per capita GDP of $43,500. The US GDP in 2006 was almost 13 trillion dollars. The US also benefits from a great diversification of industry and service sectors. We also enjoy one of the most favorable business climates when it comes to starting or expanding a business and gaining access to capital. US businesses enjoy much greater flexibility than their counterparts throughout the world in making decisions, expanding product lines, and recruiting talent.

The US Economy – The Downside: The US has continued to suffer from huge trade imbalances with many of our global trading partners, most notably China. Unless this trend is corrected, the trade imbalance will grow to staggering heights. Long term, China could overtake the US in terms of world trade unless we enhance our country’s ability to compete in the global environment.

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V Winner Post #7- Global Econ Expansion in Pictures

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V Winner Post #8- US National Debt.

Keep in mind- as is the case with my entire series- many of the articles are a year or more old, and as such some of the numbers have changed. One thing that will really skew trade imbalance going forward is 100$ + crude. At 100$ per barrel we could easily end up spending in the range of 10 TRILLION dollars over the next decade on imported crude. For now let us take a look at our national debt.

What about the US National Debt?
There are many economists who will tell you that there is no need to be alarmed. Their case for maintaining calm is that 9 trillion dollars is ONLY 65% of our gross domestic product. They will tell you that these numbers are in line with those of other industrialized countries. There are three problems with accepting a 9 trillion dollar debt:
• The debt is growing and continuing to grow.
• It takes roughly 1.5 billion a month just to service our interest.
• It is 9 trillion dollars!

The level of foreign ownership of US debt has never been higher. In 2006, roughly 45%of our national debt was owned by foreign interests, the highest level in history.

Russia and Saudi Arabia have both expressed interest in seeing the world’s oil markets trade in Euros, or any currency other than the US dollar. In the past five years, the US dollar has lost, by some estimates, up to 40% of its value.

In case the US does get tough on China, by imposing tariffs, trade restrictions, or other measures that the Chinese deem “protectionist”, China could retaliate by not purchasing US debt. China has openly stated that it is using the billions of US dollars it holds in foreign currency as political leverage.

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V Winner Post #9- New York is Still the Leader.

The good news is that New York and the US financial markets are still the dominant leaders in the world financial markets. Our stock and commodity exchanges far exceed the dollar volume of any other exchange on Earth. Our talent, access to capital, and liquidity are staggering. Many believe that Wall Street has too much liquidity chasing after too few quality 'deals'. In New York, this is called a 'high-class' problem. It is a 'problem' we hope to have for quite a while.

Being number one allows us to attract the best merger candidate, venture capital opportunities, talent, and exposure. We have consistently been on top of every major financial trend over the past two centuries, and have excelled where others have failed. Top US based investment-banking firms long ago developed relationships in global markets that continue to generate prosperity to this day.

Many of the new markets that have opened worldwide are part owned by either American commercial or investment banks or US stock and commodities exchanges. We are well positioned to take advantage of a burgeoning worldwide economic expansion.




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V Winner Post #10- New York is Losing Stature

The bad news is that we are losing market share in sectors previously thought secure. Last year, for the first year ever, London took the lead from New York City as the world’s top Initial Public Offering market. Some analysts believe that London also has more money under management than New York. These are two pillars of our strength as the global financial leader.

Foreign stock and futures exchanges have begun trending away from US Exchange trading and keeping business close to home. Dubai, Shanghai, Mumbai, and several other relatively new exchanges have begun chipping away at our established lead as the only place to get the biggest and best deals done. Regulatory changes after 2000 and 2001 have made doing business in the US very difficult for many growth companies. Large markets throughout the world have taken advantage of this by easing restrictions on doing business and providing incentives to move business to their markets.

Last, the global economic boom has brought a newfound swagger to those companies, firms, or exchanges that didn’t have the confidence or ability to go it alone. Many are now basking in their newfound pride the way a child feels when he or she is finally on their own. Simply not needing the US is enough of a motivation for many upstarts to break their own trail. As so many experience success, others grow more determined, and so the exodus has begun.

The moral of the story is that when you are on top, there is always someone who wants to knock you off the pinnacle. It is human nature and is what created our great country. Had our first settlers not taken their lives in their own hands and risked all for freedom, we would not be the magnificent country that we have become. The question that every American has to ask now is, “What do I have to do to stay number one?”



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V Winner Post #11- The Role of Investment Banks

Traditionally, investment banks helped companies and governments to raise money by issuing and selling securities in the primary market. Their role was to assist public and private corporations in raising funds in the equity and debt capital markets, as well as to provide advisory services for mergers, acquisitions, and other types of financial transactions. Investment banks differ from commercial banks, which take deposits and make commercial and retail loans. Investment banks also differ from brokerages, which in general assist in the purchase and sale of stocks, bonds, and mutual funds. Some firms operate as both brokerages and investment banks.

In recent years, however, the lines between commercial and investment banks have blurred. After the stock market crash of 1929, the Glass-Steagall Act was passed. Essentially, banks were prohibited from accepting deposits and underwriting securities. Glass-Steagall was repealed by the Gramm-Leach-Bliley Act in 1999. The new changes created significant consolidation in the banking industry and integration of banking services. Now many “banks” offer commercial banking, insurance products, investment banking, and brokerage services, all under one roof.

Today, other than a small amount of specialty firms, investment banks are heavily involved in providing a diverse array of financial services, such as fixed income trading, foreign exchange, commodity, and equity securities.

Financial Markets Division of an Investment Bank Sales and Trading is often the most profitable area of an investment bank today and is responsible for the majority of its revenue. In the process of market making, traders will buy and sell financial products with the goal of making an incremental amount of money on each trade. Sales is the term for the investment banks sales force, whose primary job is to call on institutional and high net worth investors to suggest trading ideas and take orders. Sales desks then communicate their clients’ orders to the appropriate trading desks, which can price and execute trades or structure new products that meet a specific need.

Research is the division that reviews companies and writes reports about their prospects, often with buy or sell ratings.

Recent Evolution Of Investment Banking
Investment banking is one of the most global industries and is hence continuously challenged to respond to new developments and innovation in the global financial markets. Throughout the history of investment banking, many have theorized that all investment banking products and services would be commoditized. Firms have been quick to adapt and to offer an ever-expanding selection of new and improved financial instruments. By doing so, banks are able to constantly evolve and stay ahead of trends.

Trading bonds and equities has become a commodity business, but structuring and trading derivatives is highly profitable. Each over the counter contract has to be uniquely structured and could involve complex pay off and risk profiles. An increasing amount of profit has come from proprietary trading, where size creates a positive network benefit (since the more trades an investment bank does, the more it knows about market flow, allowing it to make better trades and pass on better guidance to clients).

Another recent change is that many investment banks have focused on becoming lenders themselves. Instead of raising money for their clients, they have begun making the loans, with the goal of securitizing them. Many investment banks will offer commercial mortgages at very low rates in order to make money securitizing the loans, causing such loans to be a very popular financing option for commercial property investors and developers.

Technology has driven sales and trading in recent years as more sales and trading desk are using electronic trading platforms using complex model driven software to execute trades and to squeeze the profits out of the minutest changes in market conditions.

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V Winner Post #12- Just How Big is Wall Street?

Size Of The US Investment Bank And Securities Market

Revenue from the investment banking and securities dealing industry is well over 150 billion dollars annually, with tremendous growth occurring in the past four years. Revenue for the US securities industry as a whole was approximately $159 billion, which was a 25% increase over 2004 figures and was its strongest year on record. During this time, commodity contract revenue continued to grow, up to $3.9 billion or a $500 million jump in one year alone.

The Biggest US Players: Five US financial firms dominate the marketplace, Citigroup Inc., Goldman Sachs, Morgan Stanley, JP Morgan Chase & Company, and Merrill Lynch & Company. Together, these five firms generated more than $60 billion in 2006 just from underwriting securities and advising on mergers and acquisitions alone.

The biggest single player is Goldman Sachs. In 2006, Goldman produced record revenue of $37.7 billion. Trading and principal investments produced $25.6 billion, and investment banking produced $5.6 billion. Trading and principal investments made up almost 70% of Goldman’s revenue for the year. To illustrate how much the industry has changed in a decade, in 1997 investment banking and trading generated roughly equal revenue; now, investment banking has taken a back seat and is a diminishing part of Goldman’s business.

Wall Street’s Threat: The world has seen tremendous change in recent years, from political and economic integration of Europe, to the triumph of capitalism in Russia, to the emergence of China and India as economic powers. All of this has heightened global rivalries for deals and trading.
In 2006, more than 350 companies went public in Europe, selling 86 billion dollars worth of stock. In the US, 235 companies raised 48 billion in IPOs. In 1999, 507 companies went public in the US, selling a combined 64 billion in stock. Not one of the 10 largest stock issues in 2006 was in New York.

Since 2001, the US share of worldwide securities industry revenue has fallen to about 58% from 62%. The US is no longer the hyper power that it once was. Today, our equity market, the world’s largest, accounts for about 37% of combined value of public companies around the globe. In 2001, that figure was 50%.

London dominates the $2.7 trillion a day foreign exchange market, with 32.4% of all trades, compared with 18.2% for New York. At current rates, the European Union’s combined economic output will exceed that of the US this year, or next. Europe will soon have a bigger economy than the US.

Goldman Sachs estimates that the combined economies of Brazil, Russia, India, and China will dwarf those of today’s industrial economies, the US, Japan, Germany, the UK, France, and Italy, within 40 years.

What Can Be Done?

It has often been said that the first step in solving a problem is first admitting that you have one. This acknowledgement has led business and government leaders to recently rethink our securities and corporate laws as they apply to capital access.

We have begun to accept that we must make drastic changes in our way of doing business, in our beliefs and ideology, and most important, in our long term planning.

As we continue to evolve in the 21st Century, we, as investors and citizens of the greatest country on earth, need to adapt. We can no longer take economic supremacy for granted. We must not be complacent. We must be vigilant. We must, as people, evolve.

One definition of hedging is to avoid a rigid commitment by qualifying or modifying a position so as to permit withdrawal. In other words, be flexible. In order to succeed in the new economy we must be willing to change long-held beliefs and positions. Those that are able to adapt to their new environment will flourish. Those that maintain rigid inflexibility or refuse to accept their new circumstances will surely perish by paralysis.

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V Winner Post #13- Hedging Simplified.

An example of hedging is if you are a farmer and you have 1000 pounds of wheat to sell you could either wait until harvest and sell your wheat at the current market price, or you could use a futures contract to lock-in the price today. If the farmer is satisfied with the price of wheat today then he will sell (or short) the appropriate wheat futures contract. By shorting the contract he is guaranteed today’s price at harvest time. How does that work? The gain or loss on the futures contract will equal the gain or loss on the market price at harvest time; we call this a perfect hedge. A mutual fund manager would use this same strategy, but with index futures he would short futures contracts on a stock index, therefore reducing any downside risk for a certain period of time.

Risks associated with futures contracts apply mainly to speculators. Speculators take positions on their expectations of future price movement often with no intention of making or taking delivery of the commodity. They buy when they anticipate rising prices and sell when they anticipate declining prices. The reason futures carry high risk is because they are usually bought on margin, and each futures contract represents a large amount of the underlying asset. For example a futures contract might cost $10,000 but represent $100,000 in the commodity. Futures rules dictate the size of the deposit and the amount of the contract that can be purchased through the use of margin.

The Exchange is a public market forum and anyone can play a role in these vital global markets. Participation is not difficult, but a few requirements must be met. The first step is to open an account through a licensed, Series 3, commodity futures broker. The broker will be your point of entry to the markets, so make your selection with the same care and due diligence as you would any other financial services professional upon whom you rely.

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V Winner Post #14- A Pictorial of our Situation

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V Winner Post #15- A Pictorial Continued

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V Winner Post #16- The Dumbing Down of America.

Twenty-five years ago we had the best education in the world here is a 10 year old graph of international literacy test results. If we were now to include many of the developing countries I wouldn't show you a graph of the top 25 best educated countries - because WE ARE NOT ON IT! What is the excuse that you are most likely to hear? "The government is letting our kids down". What is the ACTUAL reason? Try -PARENTS have let their children down (if there are even parents, instead of parent. I watch immigrants come to this country and instill the importance of education in their children from day 1, a lesson we seem to have forgotten. As long as children don't get enough sleep, don't exercise, eat junk food, do drugs, and play video games we will be raising a nation of zombies barely able to write their own names.

This post boils down to this single topic as it is one of the most important- yet least discussed emergencies facing our country RIGHT NOW. Our future workforce (the youth of America) are simply not adequately prepared to run our country. Combine that with the largest group of retirees in the history of this country and you have a recipe for disaster. The 'prime earner' (the 40 to 55 age group) will be the lowest proportionate population in decades by the year 2011- with a massive overhang of seniors- and a poorly educated and ill-equipped workforce to pass the baton to.

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V Winner Post #17- Mixed Signals....

If you have read the first 16 posts you are probably wondering what kind of message I am trying to send... Is there hope? Have we lost all hope? Is there a solution?

Well, bear with me my friends as I do believe there is hope for people that position themselves correctly over the next couple of years. For those that don't - the prognosis is grim.

Now here is where I will lose a few members and alienate others. But as I have said from day one I am more interested in making a point than making friends. So, in the interest of 'keeping it real' let me tell you what I think....

I believe that in coming years America will eventually squeeze the middle class up or down (depending on the choices individuals make during this critical stage of our country's evolution).

What I see happening (and it is becoming more apparent here in NYC already) is a two-class society; the elite and the servant class. Before you think this to be such an odd scenario take a look at the rest of the world. As the cost of living, housing, transportation, a good education, and virtually every other expense increases- more people will naturally gravitate to one end of the spectrum. In Manhattan for example, a person making less than $100,000. a year is borderline poor already.

Basically what is happening now is the demise of the middle class. Now before you start thinking that I am taking a political position here-understand that I believe the root of our problems began with big government. I have virtually no faith in any politician and believe that their biggest concern is getting through the next election and retaining or enhancing their own personal power regardless of the cost to the average American. I also believe that when we began enabling people the era of self-sufficiency died. What made this country great was the creative energy, work ethic, and cohesive bond that we had as Americans. What is ruining our country is greed, selfishness, and short-sightedness.

We will get to the solution soon enough but we must be willing to face facts. We simply cannot afford to sustain social programs at current levels, run up our trade deficit, rack up the national debt, provide public and private pensions, and care for the largest aging population in the history of America. Social Security is like a giant ponzi scheme at this point and there are simply not enough new 'investors' to pay the old ones off. The credit bubble bursting is emblematic of what will eventually happen to our economy when the level of debt simply can't be serviced. The tab keeps getting bigger and we are having a hard time simply paying the INTEREST on the bill.

Now if you listen to either of the two current political candidates running for President you will hear about great 'plans' for the future. You will hear about 'solutions', 'straight talk', and 'change'. We have heard the song and dance for years now. We heard from the 'new' Congress a couple of years back about a 'concrete' energy plan- but then again, we have heard about that plan since Jimmy Carter. There comes a time where we must say "enough is enough". I have had enough talk as that is all it is. We allow politicians to play the blame game and we don't hold them accountable when they fail to produce. This is why you have Senators sitting in cushy offices for a quarter of a Century- we have not taken action.

Half the country expects a mommy or a daddy in government, and the other half turns a blind eye while we give away our nation. This is the current state of America.

Now- to take it one step further- I have my own personal barometer for gauging our current state of affairs. I like to pop into everyone's favorite 'super-store' for a little test of my own called the 'Wal Mart American'. Now if you shop at Wal Mart- don't be offended because I'm not referring to you. Walk into any Wal Mart and you will see people in their 30s and 40s that ARE NOT handicapped tooling around in the friendly little electro-wheelchairs throughout the store. In isle three you will see someone with drool running down their chin while they try to decipher how many bags of potato chips they can stuff in their overflowing cart. In isles 6 and 7 you will see a pack of wild children creating chaos, and in isle 9 you will see the man who has to turn sideways so that someone else can get past him. When you need to find something your 'knowledgeable' sales clerk can't seem to help you because he or she doesn't know the difference between an airgun and an air bed. When you finally get to the checkout line the cashier is upset that they have to interrupt their personal conversation to actually do their job while the bagger scowls at you because........... Get the picture??

When you enter the parking lot you have to walk through a pile of discarded auto garbage because it would have been too much to actually use a trash can, through a maze of shopping carts (the cart guy/gal has to talk to his friends and can't be bothered), and then navigate throughout the IndiCar-like conditions as people race to get to the stop sign.

By now I'm 100% sure I have alienated some of you (if you are still reading at all)- BUT this series is not being written for those easily offended. This series is being written for those of you that are aware of what we are dealing with, and those that still need a little convincing. The end result of this project will be as much up to you as it is to me. Perhaps I will get to the end of the series and the mystical solution will be a plea for help from a very confused individual. Or, maybe I have a few ideas and would like more input. Either way- my firm opinion is that we cannot make the mistake of having faith in those that have let us down time and time again. To do that would be the real tragedy. We must, over time, develop a plan to succeed- and THAT is the reason this blog was started.

One note about the two-tier society. One thing this blog is not is a humanitarian project. I would describe it more a survival of the fittest dialogue. In other words, if you accept my reality that our country is headed in this direction then you will also accept the agenda of being a member the elite class and not the servant class. If you feel guilty about aspiring to such a self-serving goal just remember you can do far more good with capital. Warren Buffet and Bill Gates are two prime examples of the elite class helping the masses.

Another note to our non-US readers. Don't think I am disparaging America while you are avoiding criticism. Most developed nations share many of our same problems, England being a prime example (although Brits seem to prefer getting drunk over being obese). This is truly a global problem. So, simply substitute the name of your country in place of the U.S. and the problems we face instantly become yours as well!

Hope you stick with me for the rest of the journey. I promise that by post #25 we will be in the 'solution'.

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V Winner #18- Commodities and Derivatives Markets

Disclaimer: For the sake of this post we will be using gold as the commodity example. Simply substitue Nat gas, Oil, wheat, rice, or some other commodity and the post applies equally well.

Commodities Markets Defined: Trading in commodities began in Japan in the 18th century with the trading of rice and silk, and similarly in Holland with tulip bulbs. Trading in the US began in the mid 19th century, when central grain markets were established and a marketplace was created for farmers to bring their commodities and sell them either for immediate delivery (also called spot or cash market) or for forward delivery. These forward contracts were private contracts between buyers and sellers and became the forerunner to today's exchange-traded futures contracts. Although contract trading began with traditional commodities such grains, meat and livestock, exchange trading has expanded to include metals, energy, currency and currency indexes, equities and equity indexes, government interest rates and private interest rates.

A Commodities Exchange is an exchange where various commodities and derivatives products are traded. These contracts can include spot prices, forwards, futures, and options on on futures.

Commodities exchanges usually trade futures contracts on commodities. Such as trading contracts to receive something, say corn, in a certain month. A farmer raising corn can sell a future contract on his corn, which will not be harvested for several months, and guarantee the price he will be paid when he delivers; a breakfast cereal producer buys the contract now and guarantees the price will not go up when it is delivered. This protects the farmer from price drops and the buyer from price rises.

Speculators also buy and sell the futures contracts to make a profit and provide liquidity to the system.

Commodity Markets are markets where raw or primary products are exchanged. These raw commodities are traded on regulated commodities exchanges, in which they are bought and sold in standardized Contracts.

“Derivative”: That which is derived.
“To Derive”: To draw from a source.

Spot and Alternatives: The gold price quoted in the international market is the spot price in US dollars per troy ounce. A “spot” price is the price quoted for metal to be delivered, and paid for (in the case of gold), two days after the transaction date.

Other forms of transaction, notably forwards, futures and options, are those that will be either settled and delivered against, or unwound, at a date further in the future than the spot settlement date. These are known as derivatives and were originally developed as a form of price protection. Futures can be (and often are) used as a hedge mechanism by members of the industry and examples as to how this works are provided below. However, when derivatives are used purely by traders who do not have an offsetting position in the physical market, then they are a means of speculation and must be traded with care, especially as they operate using margin, or deposits, rather than lines of credit. If a speculator does not have the capacity to take delivery of a long position, or the metal to deliver against a short, then he must settle financially and volatility in price can mean chasing losses.

Risk Management & the Development Of Hedging: Derivatives were devised as a means of hedging price risk, i.e. reducing exposure to adverse price movements. Some are also for speculation, notably (but not exclusively) the futures contracts on the COMEX division of NYMEX, and on TOCOM. New exchanges have been opened in India since 2003, with a view to both hedging and speculation. These are the Multi Commodity Exchange of India (MCX) and the National Commodity and Derivative Exchange (NCDEX). In the second half of 2005 an important new development sees the opening of the Dubai Gold and Commodity Exchange, with Dubai and Indian authorities working in collaboration, which summarizes the different exchanges around the world and their functions. 2005 also saw the Chinese market begin trading in platinum and gold futures through its Shanghai Futures Exchange.

History of Futures Trading: Futures trading is not the child of the twentieth or even the nineteenth century. In the Roman Empire, commodity markets known as fora vendalia were important as distribution centers for products that came from all over the Empire. Along with the Agora in Athens, the Forum in Rome started life as a market. These markets used both bartering and currencies, and would price for future delivery.

Much later, futures markets developed in Japan in rice (17th century) and then in Chicago in the first part of the nineteenth century when Chicago found itself at the center of grain trading. Because it took time to deliver the produce from farmland to the terminal market, merchants developed a system of forward pricing, matching both buyer and seller and the first recorded forward contract was struck in March 1851.

Formal futures contract were developed over time as a result of the perceived need for consistency and standardization. The Chicago Board of Trade started developing futures in 1865. The concept of time from striking a contract to point of delivery is the key to the development of forward and futures markets. The reason that the London Metal Exchange’s flagship contract is “three months” is because when the LME (which is a futures market) was founded in 1877, it took three months for copper to be shipped from Chilean ports into London (and similarly, latterly, tin from the Far East).

The first futures market in gold was opened on what was then Commodity Exchange Inc (COMEX) in New York on December 31st, 1974. COMEX has since merged with the New York Mercantile Exchange (NYMEX).

Options in gold were initially developed on the Over the Counter market by Mocatta Metals Corporation (now Scotia Mocatta) and Valeurs White Weld (now CSFB), in the late 1970s. Exchange-traded options were launched on COMEX in 1982.

Forwards and Futures: The difference between forwards and futures is as follows:

A futures contract is an agreement to buy or sell a specific amount of a commodity or financial instrument at a particular price on a stipulated future date. The contract can be sold before the settlement date. Typically less than one percent of metals futures contracts on NYMEX ever come to delivery. Futures contracts are standardized in terms of unit size and delivery dates.

A forward contract is an Over the Counter, or principal’s contract, which may be of any size or maturity date, subject to the agreement struck between the counter parties. It is clearly, therefore, not standardized in terms of size or delivery date and more flexible than an outright exchange futures and the majority of physical business takes place on the Over the Counter basis.

The forward or future price that is agreed is a function of the underlying spot price, and the prevailing interest rates in the money markets, plus insurance and storage.

Because gold has vast quantities of aboveground stocks, forward prices almost invariably (but not quite always) rise as the maturity of the contract extends. The difference between this premium over the nearby price is known as the contango. When expressed as a percentage, it is usually very close to the money market interest rate; i.e. gold’s contango is usually close to “full carry”. If for any reason there is a squeeze on material due for delivery on a particular date or range of dates, something that happens not infrequently in the non-ferrous metal markets, then this forward curve can be severely disrupted. If a price for delivery on a date in the future is lower than the price for delivery nearer in time, then that mismatch is known as a backwardation (or “back”).

Options & Spot-Deferred: These are newer and slightly more complicated derivative instruments, again used largely for hedging although speculators also use options. Spot-deferred are geared much more to the “trade”, or industrial, side of the market, especially miners.

An option is a contract that gives the buyer of the option the right but not the obligation to buy (call option) or to sell (put option) a quantity of the underlying asset at a specified price (strike price) by or on a certain date. The seller of the option is the “writer” or “grantor”. An option writer holds a “naked” position when he has written an option without having the asset behind it.

An option is in-the-money if, in the case of a call option, the strike price is below the prevailing price of the underlying asset, and in the case of a put option if the strike price is above the prevailing price of the underlying asset. If the reverse situations apply then the option is said to be out-of-the-money. An option is at the money if the price of the asset equals the prevailing price.

Varieties of Options: There are many types of option available to the market; we propose here to stay with the simplest.

European Options may only be exercised on the date of expiry and are the predominant option in the London bullion market. Each contract, as with forwards, is tailor-made between two counter-parties and may be for far forward dates and in considerable volume.

American Options may be exercised on any day up to and including the expiry date.

OOMEX options: These are options on COMEX contracts and are therefore options on futures. As with futures, these are standardized contracts rather than the bespoke transactions in the OTC market, and are freely tradable. These instruments, like the futures contracts themselves, attract a high degree of speculative activity.

A spot deferred contract is a forward contract in which the contracts are rolled forward as they mature. There is thus no pre-specified delivery date, and as each contract comes to maturity it may be rolled forward with fresh interest rates applied. The facility is, however, set up such that it will to terminate within a pre-determined maximum period (e.g. a client may roll forward every three months up to ten years). These long-term contracts have been popular with some of the mining fraternity. Each time the contract comes up for rollover, the terms (interest rates) are adjusted to reflect prevailing conditions in the dollar and gold markets and for this reason the contracts are sometimes described as floating rate forwards. The flexibility they offer means that a hedger may deliver into his contract at one maturity date if the spot price is high, or may roll forward if he so prefers.

Pricing: The difference between the “bid” and the “offer” is known as the spread. In the gold market this is typically somewhere between 50 cents and one dollar, which at $ 430/ounce gold equates to 0.11%-0.22%, or 11-22 “basis points”. A basis point is one-hundredth of one per cent.

A forward price is a function of the spot price of the underlying commodity (or currency) plus a premium based on prevailing interest rates in the currency, in which that commodity is priced, plus storage and insurance charges. It is outlined above how the gold contango usually, though not always, is at close to full carry. The forward premium will be quoted as a percentage of the underlying price.

A dealer making a two-way forward price will calculate a forward price at which he will buy, and similarly for that at which he will sell. If the forward rate is, say, one per cent annualized (bid-rate), then the one-year forward bid-price will be the spot bid-price raised by one per cent. If the forward offered rate is 1.1% then the one-year forward offered price will be the spot offer raised by 1.1%. The forward rate for gold is the prevailing dollar interest rate in the financial markets, less the interest rate that gold will achieve if loaned out over the period of the forward transaction.

The “Buy” Leg: Buying forward effectively works as follows: a dealer sells spot metal, and raises dollars as a result of the transaction. These dollars will be used to buy forward metal. This forward purchase of gold will not actually be settled (i.e. the gold and the dollars will not change hands) until the settlement (forward) date; therefore the dollars raised through the spot sale of gold are put on deposit to earn interest until they are needed for payment. Equally, the dealer will pay a forward premium for the gold that he is buying.

By selling gold spot and buying forward, the dealer is effectively lending gold to the market. The gold that the dealer sells into the spot market will probably, but not necessarily, have itself been borrowed from the official sector; is not is not unknown for investment funds to lend metal to the market if it finds that the circumstances are attractive.

The “Sell” Leg: Equally, if a dealer is to sell forward, he is effectively borrowing gold. He would buy metal from the spot market, then sell it forward. The dollars for buying the spot gold are borrowed from the dollar interest rate market and are due to be repaid on the day that the gold transaction closes. The dealer thus incurs a dollar-borrowing cost. He therefore adds an interest rate to his bid price and a (higher) interest rate to his selling price.

Example Of A Forward Price: On March 31st 2004, spot gold was fixed in the afternoon at $427.50/ounce. The interest rate that a dealer might be prepared to pay for one year forward was 0.70%, and to charge, was 0.80%. On a spot market of, (say), $ 427.00-427.50, this would mean a forward price for one-year gold of 430.00-430.90, a contango of $3.00-3.40. This is calculated as $ 427*1.007 (bid) and $ 427.50*1.008 (offer).

For periods different from a year, the interest rate quoted is the annualized rate and this is then adjusted by the number of days between spot and the maturity of the contract. The London market works on the basis of 360 days in the year.

Options Trade And Pricing: The purchaser of an option has the right but not the obligation to exercise that option. The price paid for an option is known as the premium; the strike price is the pre-determined price as which an option may be exercised. While the purchaser of the option is therefore relatively well protected, in that his only risk is the premium that he has already paid (if the market goes badly against him his option will expire worthless), the writer or grantor of the option ahs risk against him throughout the life of the instrument.

Part of this risk is therefore built into the pricing of the premium at the outset. There are numerous models of varying degrees of sophistication for pricing models, but the essential components that have to be assessed (apart from the prevailing price and the strike price) are: time to expiry; potential costs to the grantor in terms of financing any metal or currency transaction that he has to undertake in order to hedge his exposure; and price volatility. When prices are volatile, option premiums tend to increase as the risk to the grantor is that much greater than when the market is flat.

The delta is the degree of change in an option’s premium for a given change in the price of the underlying asset and is undertaken by the grantor of the option. The grantor of a call is, technically, potentially short of the market as he may need to settle with metal if he is called away (i.e. the buyer of the option chooses to exercise). As the time to expiry decreases, or the option goes further into the money, or as volatility increases, the grantor will (in this case) enter the underlying market as a buyer to cover a part of his risk. In the first of these instances the change in price of the option will increase as maturity approaches because there is less time decay attached to the transaction; in the second case the probability increases that the option will be exercised; and in the third case high volatility commands extra protection. The volume of the metal that he carries against the option, as a proportion of the total volume represented by the option, is the delta. The same works in reverse with the seller of a put, who may need to sell metal against his short put position if prices are falling.

Futures And Their Adjuncts: Futures contracts, as outlined above, are standardized so that each contract traded on an exchange is of the same size and purity of metal as all the other contracts in that commodity traded on that exchange; also the point of delivery (should delivery be made) is precisely specified, as is the period of time within which delivery must be made. In practice, generally less than 1% of futures contracts come to delivery as the majority of the clients with physical metal choose to deliver through the normal channels but use the futures to hedge their price risk.

Trading through an exchange such as the COMEX division of NYMEX is effected though futures brokers who act as independent agents. The source of the deal may therefore remain anonymous. COMEX trading is centrally cleared, which technically eliminates counter-party risk as the client is trading with the Exchange, which has matched him with an equal and opposite trade from an other counter-party.

ACCESS is the COMEX after-hours electronic trading mechanism. Currently there are terminals in major cities in the US, along with London, Ireland, Sydney, Hong Kong, Singapore, Japan, Bermuda, US territories and possessions, and UK territories and possessions. Trading commences at 4pm NY time (7pm on a Sunday) and continues at 8 am, giving an effective trading day (including COMEX open outcry) of 22 hours.

EFP (Exchange for Physical) is the exchange of a futures contract for a position in the cash market. This may be carried out during or outside exchange trading hours. The “EFP” is also the price quotation specifying the price differential between the spot price and the price prevailing for the relevant futures contract. One advantage of this is that the client, by executing an EFP to a physical position with a named dealer, can then (at the appropriate fee) take delivery of metal where and when he wishes, as opposed to the time and place previously specified through the Exchange.

A client trading on the futures exchanges is required to deposit an initial margin with the Exchange when he opens a position. This money is emplaced in order to guarantee that a client will be able to fulfill his obligations. After depositing his Initial Margin, he must then maintain a minimum “maintenance” margin on deposit at all times and, if a client’s position goes against him and he effectively has less in his trading position than his maintenance margin requirement, he will be called upon to put up additional margin to cover the losses (on paper) that are being incurred. This is referred to as a margin call and effectively insures the Exchange against default. This is one reason why speculators must trade with care, as an adverse position can prove expensive.

Using Futures to Hedge Price Risk: The purpose of hedging price risk is to minimize the impact of adverse price movements. Effectively, locking in a future price for the date of delivery of the metal means that the producer, consumer, merchant etc knows the price that he will command or receive on the day in question. Hedging can be as simple as taking out a contract that exactly offsets the tonnage involved in the physical market for a single date of execution (known as a “blind hedge”) or it can allow the flexibility to alter positions as market conditions change (a “selective hedge”). Further, it can extend to multiple uses of contracts, options and more complicated structures spread over a series of maturity dates.

Hedging: Simple Principles: The important principal to bear in mind here is that a forward or futures prices is a function of interest rates, storage and insurance charges for a given period of time. Consequently, all other things being equal, a forward price will be higher than a nearby price and as the time value of the contract dwindles to zero, so does the difference in price. In other words, once the futures contract has become spot, so by definition its designated price is the spot price.

Using Futures: This means that, when a trade client holds gold and takes out a contract to sell it in (say, December) at a price of $440/ounce, he knows that that is the price he will receive. The reasoning is as follows: He has sold the contract at the outset for $440/ounce. He unwinds the contract at maturity by buying the contract back at the spot price. At the same time, he sells the metal into the physical metal into the physical market for the spot price. Difference between the two, zero; amount received; $440/ounce.

If on maturity, the spot price were $420/ounce, the client would have locked in a profit of $20/ounce over spot. If however the price were $460/ounce he would have incurred an opportunity cost of $20/ounce. In practice, futures rarely, on NYMEX, come to delivery and if prices had been moving against the client then he would almost certainly have adjusted his position before maturity. The same applies in reverse for a long-side trader.

A “trade” client. e.g. a mine producer or a jeweler financing his inventory in this way uses the exchange to lock in a price so that he can plan, and at least lock in a minimum profit on his products. If the market starts to move against him then he can either adjust his position or run it to maturity and deliver accordingly.

A speculator is in rather a different position. He does not have the metal to deliver against a loss-making short position, and will not wish to take delivery of metal against a long position and this is why speculators will often run their positions with close “stops”, in order to minimize risk. He will also face margin calls on loss making positions. This is why it is important to realize that the futures markets are a good mechanism for hedging physical positions, but speculative losses, as well as gains, can be substantial.

A Stop-Loss Order is a resting order left with the broker and is designed to close the client out of a loss-making position. Generally the price has to trade on the other side of the stop-loss price for the order to be triggered. So, therefore, if a client is running as long position in December gold with a “stop” at $445/ounce, then once the December price trades below $445/ounce his order will be triggered and he will be sold out of that position as soon as is feasible. In a fast-running market, this is not always at a price close to the order!

In a thin market, powerful players may try to push a price through levels where it is believed that a number of stops may have built up, because this will accelerate the move in the market and potentially (but by no means always successfully) generate profits for those elements who have successfully caused stops to be elected. This is called gunning or probing for stops. This ploy des not always work; sometimes players will probe for stops, not find them, and have to lock in losses themselves.

A limit order, by contrast, is an order that lies on the profitable side of a trade. It rests with the order in the same way as a stop-loss order. So if our client has a long December gold position at $440/ounce and wishes to lock in a profit at $460 December, then he places a limit order accordingly. Once $460 December is touched (rather than breached), the order is triggered and he will be closed out on the next possible trade.

The basic theory of trading for the future is the same whether the client is using futures or forwards – i.e. the forward date becomes the spot date on maturity. Clients using forward contracts will not necessarily be trading on initial margin, but on a principals’ contract, using lines of credit. There have, however, certainly been instances of principals’ contracts when clients have been called for margin when their finances sheet has been deemed insufficiently robust to handle a position that has gone badly against them.

Forwards are tailor made rather than standardized, and this is one of the reasons why the Exchange-for Physical exists; as a contract is coming to maturity so a client may refine the specifics of his contract using an EFP and then finessing with his counterpart.

Both forward and futures have vital roles, therefore, and each market participant will, if possible, use on or other or both to his best advantage.

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V Winner Post #19- The New World Order of Commodities

Asia gaining market share quickly.

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V Winner Post #20- Asia vs. The World

Click the above graphics for expansion.

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V Winner Post #21- What is Wrong With America?

As I write this post- it is a cloudy and blustery day over Manhattan. The sky is turning grey, the air is cool, and the rain is about to begin. The wind is whipping and the sounds of thunder are rumbling through the air. A perfect setting for the completion of my series on the problems we face in this country.

Now before anyone gets the wrong impression I want to go on the record as saying that I love my country- but I am saddened by what has happened to it. I, like many of you, have had family in this country for many generations- many of whom have served in the military and worked for the Federal Government. I also see the tremendous good we have done for people throughout the world.

Some of you reading this post may be offended by my personal opinions or beliefs and that is a risk I am willing to take. Being ‘politically correct’ and not taking a stand or expressing our true opinion is one of the biggest problems that we face today as our way of life has been slowly eroding over time.

The entire world has problems but that is an entirely different set of issues. As this blog focuses on the American market and economy our discussion on global issues will pretty much be restricted to those that directly impact us as Citizens, taxpayers, and investors.

As is the case with anyone- most of my experiences will be drawn from my own personal experience in life. As my life began in 1965 I will be relating experiences I have had since that time- although it is my view that our nation’s problems actually began much earlier when we began enacting social programs and ended the era of self-sufficiency. I do, however feel that a 42 year body of ‘work’ is sufficient to adequately outline the root cause of much of our current dilemma.

So let’s go ahead and start from the beginning………..

The year was 1965 and I was born in New York City. My parents both came from religious and business-oriented families and like many people from their era chose to pursue a different path than their parents. In the case of my parents it was art. Now although the baby boomer had experienced relative security during the twenty year period from 1945 to 1965 stability and conventional behavior had become over-rated by the mid-60s. Yes, there were the duck and dive drills and the nuclear fallout shelters but for the most part baby boomers had experienced a relatively stable existence.

Something changed in the 60s and youth began questioning its allegiance to societal and parental expectations. It is funny to think that the Beatles were actually shocking when they emerged but that is just one example of just how much has changed in our culture. My parents, being typical free thinkers of the era had us calling them Jim and Linda- instead of mom and dad. The breakdown of the traditional American family had begun.

Drugs emerged in a big way in the 60s and many chose to artificially alter the cruel reality of comfort by taking a mind bending trip to expand their ‘consciousness’. So now drugs had emerged as a force in society and soon there would be a multitude of artificial travel- up, down, and sideways- all to get away from the norm- and all designed to rebel against the ‘establishment’.

Around the time I was born the civil equal rights movement was in full bloom. It was the year of the Watts Riots and women and minorities were demanding equal rights. New causes were forming daily.

The year I was born also marked the deployment of US combat units to Vietnam- and we were at war.

Moving into the latter 60s society was polarized we went from being a more cohesive society to one of two extremes; one being a more ‘traditional’ block and another with more liberal views toward virtually all aspects of life. The difference between the baby bomber generation and my own- is that my age group never had to fight for freedom and tended to take it for granted whereas WWII was a lesson that we must fight to protect the rights of free men and women.

Drugs had indeed altered consciousness but not in the ways that many early users had envisioned. For the first time we faced wide-scale addiction, beginning with heroin. As drugs became more prevalent we developed a group of people that were unable to properly care for themselves and became a burden on society.

Also during the 60s we made our first dramatic changes to immigration laws that had been in place for over half a Century. Prior to the mid-60s most immigrants came from Europe and, for the most part, shared a similar culture and religious affiliation to those already in this country. That began to change as our ‘melting pot’ was stocked with several new ingredients. Absorbing a rapidly growing variety of cultures is difficult as assimilation into a culture can take generations. But it really hadn’t reached crisis levels yet, and would not do so for another quarter century.

Moving into the 70s there were many disillusioned people in our country. We were at odds with one-another and the battle lines between past and present had been drawn. Change was upon us and many were happy while many had a hard time accepting that the world they had grown in up in was being slowly altered.

In the early 70s we also woke up to the shock of foreign energy dependence. This is a problem that was never solved and has come back to haunt us in the year 2008 in a big way!

The 80s brought us ‘latch key kids’ and working moms. Now I know I am going to get in trouble with some women here- but I think that a child needs a mother. Children being raised by the system become institutional brainwashing victims. I also think that it should be unacceptable to a much greater degree for ‘fathers’ to abandon their children.

I could go back through decade after decade but that is really what the first series of posts were about- if you go back to posts V Winner Posts 1-3 I broke out the decades in a little more detail. Instead, I will cover the last twenty five years or so in broad strokes and the final ‘barrage’ will a whole lotta’ my opinions…..

Immigration continued without properly assimilating new cultures into our society. If anyone thinks I am anti-immigrant you are entirely mistaken. I happen to be married to an immigrant (who, incidentally loves our country and has done her best to fully assimilate). What I am against is being forced to give up rights that have been part of our culture for hundreds of years- and also unrealistic absorption of millions of people within such a short period of time as I find it unrealistic. More on that later.

Somewhere in the 80s or early 90s the idea of social promotion entered the education system and suddenly children were advanced onto the next grade without having the requisite skills. This and mind boggling bureaucracy were just part of what led to the downfall of what had been the greatest educational system in the world. Time progressed, and the word and thought police entered the system and education was politicized.

The 80s also brought the advent of wide-spread imports and a huge shift away from American made products. This is also covered in earlier posts- and continues increase our trade deficit to this day.

The 90s reduced nutrition to additives we can’t pronounce and brought with it a wave of obesity. Approximately two-thirds of our country is overweight and a third is obese. Physical education has been eliminated in many school systems while video game, smart phone, and computer use has created a generation of physically crippled children.

Immigration continued in the 90s at levels we had never experienced before and continued what I believe to be an unrealistic migration of conflicting cultures.

Year 2000 represented a turning point to me- sort of the peak of our country’s dominance as the world economic powerhouse. It seems strange to me that Y2k was when the dreams of the 90s melted down, only to be followed by 9/11- and the new reality that we have faced since then.

Although we had what I would call ‘artificial recovery 1’ (to be followed by ‘artificial recovery 2’ in 2009-2011) the problems had become so vast in size and scope that we will never really be able to escape them at this point.

Before completing my ‘inventory’ of problems- let me say that I was optimistic up until Year 2000.

Although I had been watching my country change around me- I still held out hoping coming into Y2K. Yes, we had problems- and they were numerous. I had watched Los Angeles go downhill over a twenty year period at that point but was still of the mindset that we were strong enough to turn things around.

I, like millions of Americans, was enthralled by the Internet from the moment I first used it in 1995. What an incredible technology it was. Doing research on virtually any subject that up until that point would have taken days or weeks, was suddenly available in minutes –and in some cases seconds. Truly remarkable. I was convinced the technology revolution would be bigger that the Industrial revolution.

Again, like many others- I started a ‘dot com’. I developed a ‘business model’ in 1996 and raised millions of dollars to bring it to fruition. Soon we had offices in New York, Los Angeles, and San Francisco. We were appearing in financial publications, on radio, and I’ll never forget watching the first clip about my company on CNBC. The future was bright- and my faith in America was restored. Why had I been so pessimistic in the first place? The world was about to change. Soon we would be able to live in a world free of wires with smells, sights, and sounds coming to us through the web. Our lives would be simple and our suddenly all of these self-imposed limitations about what was possible were shattered. We were going through a renaissance where anything was within reach. Right? Well….. it didn’t quite work out that way.

On a side-note I am still highly bothered by the fact that given the amount of technological advancement we have still not been able to eliminate the clutter of wires! This frustrates me almost as much as the fact that it took two decades for computer makers to discover that computers can be made in a color more exciting than silly putty.

Anyway- just as is the case of sub-prime mortgages the old adage that ‘if it sounds too good to be true it usually is’ kicked in and the market brought up back to parity with reality within months after the turn of the millennia.

A year later- our security blanket was ripped out from under us as the World Trade Center came tumbling down.

Shortly after that our economy did get shaken up a bit- but then commercial and Ibanks got together and devised a new drink. Sort of like a whiskey-red bull. The whiskey was the intoxicating effect of these double digit CDOs and the red bull was the Ibanks ability to package and unload them as quickly as mortgage brokers could send in the files. The problem with a whiskey/red bull combo is that one doesn’t feel the effect of the alcohol until it’s too late. The result can be scary- and always leads to a crash. Just as mortgages should not have been diluted whiskey should be left in its natural state. The effects would have been felt much more rapidly.

Needless to say- that the rest of the world has taken full advantage of our distractions going back a few decades now. This trend became exponential after Y2K and we have seen the greatest shift in wealth in our planet’s history take place in about a decade. Whether we can stop the bleeding is a question that will be answered over time. We can, however, grow with the rest of the planet as investors- and in a post-2000 world, that decision is simply not optional, it is mandatory.

Stay tuned for ‘THE LIST’

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V Winner Post #22- The List of Problems Striking Us

For my grand finale- I am going to make a list- one which encompasses most of what I think
is to blame for our current state of affairs.

These are my personal opinions and I fully understand if you don't share them, as I respect your right to be wrong.

One of the great things about this country is the freedom of expression that we afford our people.

This will be the last 'problem' post- and we will, instead begin discussing the solutions (from an investment standpoint).

We look forward to your involvement in being part of that solution.

Trade Deficit- We need to immediately DEMAND entry into foreign markets. We can no longer subsidize the growth of the world’s economy. If we open up our market to you and let you sell your goods to us, once you ‘get on your feet’ you need to reciprocate. If, after a period of time you refuse to do so- we begin a ‘balancing’ program of restricting your goods and services until parity is met. We are allowing our country to be bullied and while we still have economic leverage we need to correct the imbalance immediately.

Foreign Debt- At no point should we allow money flow to be used as a political bargaining chip. We should restrict foreign ownership of our debt to 25%, and 10% for any one country. We can no longer be held hostage by a foreign government because we are at risk of having US currency or debt ‘dumped’.

Foreign Aid- We are currently providing foreign aid to countries around the world while we have millions of homeless and poor Americans. This needs to stop. We should take care of our own people first. As long as there is a single non-voluntary homeless person we should not be giving away money. The rest of the world needs to pull its load- and produce aid proportionate to its economy-whether classified as a developing or developed economy.

Disaster Relief- Again, we have a disaster of our own in this country, (actually, several of them). We consistently give a much greater percentage of aid (even on a pro-rata economic basis) than the rest of the world. It is time that we stabilize our own economy and provide aid and comfort to our own citizens before looking out for the rest of the world.

Immigration- When my family arrived here we didn’t have a ‘push 1 for German’. What we had was a system in place where if you wanted to be an American you made an effort to learn the language and assimilate into our culture- not the other way around. My wife is an immigrant- and speaks 4 languages- and has made every effort to assimilate. She is a perfect example of a person seeking to contribute to our society. We also need to severely restrict new inflow. We have taken in approximately 40,000,000. people in the last twenty-five years (legal and illegally). No culture can absorb the equivalent of several small countries and successfully absorb them within a decade or two.

Education- We need to put an end to social promotion as it is creating a nation of mental handicaps. By allowing children to pass through the system without having the skills necessary to succeed in society we are condemning a whole generation to failure in the global economy. We need to take the politics out of the school system and force teachers to teach rather than indoctrinate youth with jaded views and personal opinions. Last, there should be no such thing as a dropout. Successful completion of high school should be mandatory- even if a child has to stay in school until the age of 22.

Citizenship- We need to mandate fluency in English and the love and respect of this country as a prerequisite to becoming an American. I meet two kinds of immigrant on a regular basis, those that love this country and are grateful for the opportunity to be here, and those who tell me the “are just here to make money”. I believe if your allegiance is not to this country, and you don’t respect our culture- then you should not be here, and under no circumstances should you be allowed permanent residence status or citizenship.

Alternative Energy- It is ludicrous at a time like this to be even debating whether or not to extend tax credits for solar or to provide economic incentives for wind energy. Although a small part of our overall energy mix- these two (and several others) have proven to be effective sources of energy. All alternative energy sources need immediate and permanent tax and investment incentives to further the expansion of alternative energy.

Additional Oil and Gas Drilling- We need to avoid damaging what few remaining national treasures we possess but be realistic about the fact that foreign oil dependence is not only a national security issue but an economic disaster in the making. We need to increase drilling in the least environmentally sensitive areas. It is estimated that we will run up a 10 TRILLION dollar debt importing crude over the next decade alone- and we simply cannot afford to take on this burden.

Not Revoking the Capital Gains Tax Break- Revoking this tax break would be one of the worst decisions we could possibly make as investment capital would simply move offshore. It has been proven that economic expansion comes in large part by small business and investors. To do anything to harm the necessary infusion of capital these two groups provide would be harmful to our entire economy.

Enforcement of Large Brokerage Finra/SEC violations- I have owned two brokerage firms and have dealt with regulators in many states, Finra (formerly NASD), and the SEC. Small brokerage firms are treated much more harshly than the titans of the industry. Large brokerage firms are allowed to do things like tell the investing public that they are ‘liquid and stable’ and go out of business three days later (BEAR STERNS) without so much as a slap on the wrist- yet if a small firm tried that their firm, and their principals would be barred from the industry. Large brokerage firms should be subjected to the same level of scrutiny as their smaller counterparts.

Regulation of Hedge Funds- Recently the head of the Fed, Ben Bernanke had to bring in traders from Goldman to ‘explain’ what is happening in the world of hedge funds- and he is a former Goldman exec. Hedge funds are able to operate using instruments so complex that 99% of financial executives don’t even understand them. Their trades are often conducted secretly (black box trading), and they are operating in a completely unregulated market (shadow banking). The problem is leverage- and this leverage (and the complete lack of oversight) puts our entire market in jeopardy.

Slight Modifications to Futures Regulations- I do mean slight as our markets are efficient. Also- if over-regulation occurs- monies will simply go offshore and into channels with little oversight. What I am talking about is the kind of regulation that prevents pension funds (both private and public) from speculating on a non-hedged position. Although this does represent a small overall share of the futures markets- Pensions and municipalities lost significant amounts of capital on CDOs that they did not understand- and are subject to as much, if not more risk in un-hedged futures positions.

Accountability of Elected Officials- Why is it, for example, congress is able to take a 5 week summer ‘recess’ right now, (combined with numerous vacations and ‘breaks’ that add up to over 8 weeks a year. What jobs in private industry offer two months of paid vacation. During a political or economic crisis Congress should be restricted to a much shorter recess. For example, no meaningful energy legislation was passed yet this is one of the top-3 issues facing most Americans.

Limitations on Political Campaigns- Presidential campaigns should be limited to 1 year (and even that is 6 months too long). Over the years the presidential campaign has gotten longer each time to the point where it has really become a two year race. Again, what private sector job allows you to take a year or two off, not do your job, and get paid- all while looking for a better job. If a person accepts the nomination of their party they should immediately resign whatever ‘current’ position they hold whether it is that of Senator, Governor, or any other elected position.

Christmas Trees- and Merry Christmas- I have been deeply offended in recent years after seeing and hearing more reports of our Holiday season being whitewashed. Municipalities throughout America have been taking down Christmas trees in an effort not to ‘offend’ anyone. I don’t care if you celebrate Ramadan, Hanukah, Kwanzaa- or any other holiday- but we have to make a stand against the violation of our customs and traditions- and Thanksgiving, Christmas, and Easter are all US holidays with long histories. We should never allow anyone to take that away from us. As far as the ‘happy holidays’ that you hear now in exchange for what was ‘merry Christmas’ – why is that acceptable to any American.

Respecting Local Customs- Like opening a door or keeping it open for the person coming after you. Like saying thank you, you’re welcome, please. Like letting a woman in an elevator before you get in. Like allowing a person with two items to step in front of your basket of 54 items and volunteering to do so. Like not blasting your music so that a three block radius can hear it with your windows down. Like not swearing in front of children. Like not emptying your garbage on the street. Like not tailgating someone to get to a stop light. Like showing respect for your elders. Like being a civilized person.

Donating Money to a Domestic Cause- We get so carried away with the plight of people overseas that we forget about the millions of poor people in our own back yard. Why don’t we solve the problems of the single mother living in a homeless shelter in downtown Chicago before saving a child in Cambodia? I see that Bill Gates wants to make sure the developing world has a laptop- while I’m sure there are thousands of kids right there in Seattle that could use one. I see Oprah Winfrey set up a school in South Africa when Chicago has yet-another disastrous public school system. Why is that?

Calling A Hypocrite a Hypocrite- We have Arnold Schwarzenegger taking a private jet to and from his job in Sacramento every day- burning the equivalent of hundreds of auto’s worth of fuel every day- all while lecturing us on energy consumption. We have Al Gore using 40 times the amount of energy in his own home than that of an average American all while telling us to change our light bulbs. We have Cheryl Crow telling us to use a ‘single square’ of toilet paper while tooling around with 6 gas guzzling tractor trailers while on tour. What do they do? They buy ‘carbon credits’. To me that’s like calling pizza health food if it is topped with a tomato. They are still wasting much more energy than the average person- and very rarely get called on it.

Double Standard on Political Correctness- Well if Don Imus makes an off color joke he has to immediately resign. But if the shoe is on the other foot- anything goes. If we are going to tar and feather people for a bad choice of words then the penalties need to be handed out equally. Anything short of that would be discriminatory.

Political Correctness In General- Well this is my number one pet peeve. We have become so neutered and emasculated that no one takes a stand on anything anymore. By forcing society to make life as bland as melba toast we don’t address issues we simply shove them into the crevices of our mind. It is only when we stand up for ourselves and take a stance can real change occur.

Crime- Well my philosophy on that is that if you are not a citizen and you are convicted of any violent act- misdemeanor or felony- then you just bought yourself a one-way ticket out of town. Now here is the other problem- one out of 100 people in this country is in prison! The root cause of much of this activity is simply not being addressed. Drugs and alcohol are being 60-70% of the crimes committed in this country (the 30-40% are the true evil and don’t need chemical enhancements to do what they do), either directly or indirectly. Until we have mandatory drug and alcohol screening upon entry into every facility the recidivism rates will never drop as the root cause of many of these crimes will never be addressed.

National Gang Affiliation Injunction: We are currently fighting two overt wars, and several covert operations- yet we have 500,000 terrorists in the form of gang members in our own country. Los Angeles alone has 150,000 gang members- these are not just criminals- they are terrorists and needed to be treated as such. LA has created injunctions against group associations of known gang members (while meeting huge resistance with local politicians). Any known gang member should be barred from freely associated with their fellow terrorists. As simple as that.

Forced Labor for Felony Convictions- With almost 3,000,000 people incarcerated- why are we not putting these people to work? Why are they sitting around drawing, making shanks, and playing handball? Why are they not doing the jobs Americans don’t want to do. Perhaps if prison wasn’t three hots and a cot- and there was serious labor involved, and not a 24-7 lounge (that many don’t seem to mind) we would see a reduction in crime. What are the consequences when a guy goes from hanging out with his ‘homies’ on the street playing cards in a t-shirt- to simply adding a few bars on the walls?

More Stringent Driving Tests- Anyone that has driven in any urban area (and I’m sure most rural ones) - knows that the standard of driving ability has gone downhill in recent years. As long as a standard driving test doesn’t take the freeway into consideration, or a multitude of driving conditions we will have problems that endanger our lives. We need to make sure that people are equipped to handle the increased speed and traffic before handing over the keys to a two-ton vehicle. Testing has not changed much over the years, but conditions are vastly more difficult. While we’re at it what is the point of giving a non-English written driving test in a foreign language if our signs are in English?

Government Spending and Budgets- It’s called a balanced budget. One of the problems with government is that it keeps expanding and in doing so puts a strain on already-tight tax dollars. Hiring freezes at the public level need to be implemented whenever the budget exceeds revenue. Workload needs to be distributed more evenly.

Workers Compensation Abuse- This needs to stop as it is another HUGE drag on our economy. People routinely abuse the system. I had a neighbor claiming a neck injury who used to wear a neck brace whenever he left his home yet he would take it off to do gardening and repairs on his back yard and guest house. As soon as he won his settlement off came the brace and within a day or two he was installing AC units in his house. From what I understand he walked away with close to 500,000 and was physically fit. This is repeated day after day- without thorough non-bias second and third party examinations.

Generational Public Assistance- Here in NYC we have people living in public housing that are on their third (and even fourth) generation. Throughout America you have people accepting public assistance that are able- bodied individuals that could easily work. If you are able bodied and you can work- you should not be on public assistance. If you cannot find work- the good ole’ government should provide the opp (just as is the case with prisoners) to do the work Americans won’t do…

Parental Involvement- Not to racially stereotype- but I really have to for this example. Why is it that, in general, Asian (Indians, Koreans, etc) seem to be proficient in school over so many other ‘indigenous’ people? Well- let’s see- how about PARENTAL INVOLVEMENT. How about take away the video games, and the iPod, and the iphone, and the computer/internet- and the MySpace- and make them do their homework. How about drugs not being acceptable, and their 15 year old daughter not dressing like a streetwalker. In other words, not being a kid’s best friend- but being a parent. (see next ‘problem’)

The ‘friendship’ parent- I have already said that it was my generation that began the ‘friendship’ experiment. In my case it was knowing my parents as Jim and Linda- instead of mom and dad (and look what it did to me!). Today- people that are my age (42) that have kids are more concerned with being their kid’s friend- and not violating their space. I will hand it to my father- he taught me to swim as his father had taught him- by throwing me off a boat in the middle of a lake and turning around. I swam real quickly! Today he would be arrested for child abuse. What is this ‘time out’ thing anyway?

The Advent of the Metrosexual Man- Well, here is where I’m going to offend a few more, but am the only one that still thinks manicures are for women? When a man smells better than a woman I think we are having an identity crisis. Don’t even get me started on ‘man-bags’ with shoulder straps.

‘Social’ Networks- and Technology in General- Wireless Bluetooth devices bother me. Yes, they are safer but I can’t seem to embrace having a device attached to my ear. I constantly ridicule my friends about them. That does at least serve a safety purpose. But- the idea that someone is your ‘friend’ because of a click of the mouse is absurd. Equally absurd is the fact that there is nowhere to hide when it comes to people discussing their most intimate details in public anymore. We could all use a little less time on the computer. I am guilty of being an obsessive blogger- and checking my e-mail too much so I guess I’m throwing a brick from a glass house as we speak….

Selling Away Technology- It used to be reverse engineering and patent infringement- now everything is out in the open and done through ‘technology exchange’. Yes, we will let you open up a plant in China but first you need to tell us how you make that gadget so that when we can replicate what you do- we will not need you anymore. While you’re at it can you sell us some of your military technology as well?

Lack of Regulation in the Mortgage Industry- Why is it that brokers responsible for securing the funds to what will be the single biggest purchase most people will ever make have less oversight than a used car dealer?

Lack of Loyalty to Our Own Products- Does anyone else even check first to see if they can actually buy something made here before sending their money overseas?
Offshore Customer Service- Why do you have to speak to someone in Jamaica when you have a problem with your Dell? Why is that acceptable to anyone?

Oh- I could go on and on and on…… But I think I’ve said enough. Basically the way I look at it is that we have slowly given up our rights, our industries, our money, our ability to freely speak, and even our holidays.

Over time- unless the trend is reversed this country will be so confused that you will be lucky to find a banana at a fruit stand. It all starts with you making a stand. I was driving to work the other day and I saw a van driving down the street that had a statement in big letter that said; “American Love it or Leave It”. If you are not part of the solution you are part of the problem. I am doing my part today- at the risk of alienating a lot of people- to share my TRUE opinions. Why? Well- like I said at the very beginning of ‘the list’ being silent is part of the reason we are in the position we are in today.

The minute the first Christmas tree was in danger of being snatched from the town square- a riot should have occurred- to let people know that we are willing to stand up for our rights as Americans. When we allow one tree to be removed we have given the green light for a forest to be discarded- and, in doing so, start giving away pieces of whom and what we are. I am willing to alienate some to form a better bond with others.

For those of you that are visiting the blog from another country I have travelled around the world and always try to respect other cultures. I would not expect to come to Libya and break open a cold can of Bud (beer) as not drinking is their custom. I wouldn’t expect to come to a Buddhist country and tell you to grow hair because your monks offend me. Bottom line- I love traveling and observing other countries and cultures- and ACCEPT their traditions and customs.
Recently there was a problem in Minnesota with Sudanese taxi drivers not willing to pick people up if they had a bottle of alcohol in hand. This is a perfect example of putting the hammer down and instantly revoking their taxi license. Now if you agree with me on that them we think the same way. If not- why not book your next vacation to Khartoum and see what kind of freedom you have walking down the street (that is- if you are still alive after half a mile) in Sudan.

Chances are if you have read this post-and agree with my points- I don’t need to fill in the blanks by continuing the list as you ‘get it’. THAT, my friends is what is wrong with America today. Now the question becomes what do we do about it- and we will be addressing it in the next series of education/solution-based posts (and, no – I’m not going to recruit you for the militia).
Thanks for reading and welcome your input.

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V Winner Post #23 - South American Stocks

South American Stocks are among my favorite, especially the resource stocks. As I have been saying all along- resource stocks are the way to go long term. Although we are going through a correction in commodities in general- the world's hunger for resources will continue to grow dramatically in years to come. We simply have too many people on this planet already. The problem is that from a current population of roughly 6.5 billion we are expecting a total of 9 billion by the year 2040. Bottom line- those in possession of resources (water, metals, food, etc) will be the winners in coming years.

Coverage of South America, Brazil, and many of their companies can be found at:

http://www.southamericanstocks.com/

I look forward to seeing you there.


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V Winner Post #24 - All About Metals

As we have discussed - resource stocks are my long term choice for success in tomorrow's challenging environment. Going back to my primer for this blog- 'Virtual Wall Street- A User's Guide' I talked about the fact that so many of the industries of the future will require vast quantities and varieties of metals:

Water Desalination,Water Purification,Oil and Gas Drilling (rigs/platforms/new techniques/technologies),Hydrocarbon Conversion (non-conventional petro),Hydrogen Energy,Wave Motion Energy,Nuclear Energy,Solar Energy (thermal/thin film/concentrated),Hybrid Vehicles,Wind Energy,Alternative Energy, Battery technology, Computer and Flat Screen Technology,Mining (mining services).Developing Country Infrastructure Build out, Construction, Mining and Ag Equipment,. Etc,etc,etc...

As our thirst for resources becomes insatiable demand in most metals will continue to grow dramatically on already stretched supplies. I feel this is one of the no-brainers of a lifetime.

For research and information on metals:

http://www.empirestateventures.com/basemetals.shtml

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V Winner Post #25- The end-part one.

I am ending my first of three series today at post #25.

When we talk about the end- it is not just the end of the series we are discussing, it is the end of an empire. Which empire is coming to and end? Well, unfortunately - it is America. Year 2000 was symbolic to me as the peak of American dominance as a nation. From the Internet implosion, to 9/11, to the sub-prime meltdown, to the increase in debt and deficits, to the decline of the dollar, America has been on a downward spiral since that time. The real estate boom was an artificial recovery based on a faulty financial model - one that we are paying the price for today.

We are losing market share in many of the industries that were a pillar of domestic strength from finance, to manufacturing, to technology, and so many others. Our population is aging, overweight, and in the worst physical shape in our country's history. Our infrastructure is crumbling and we cannot properly maintain what has already been built, let alone continue to expand properly. Our dependence on foreign crude will cost us 10 trillion dollars over the next decade.

We have lost share in underwriting, trading, futures, and virtually all sectors of the financial industry. Our national debt is closing in on 10 trillion dollars, our trade deficit continues to grow, and social programs continue to take an ever-expanding chunk of our national budget. Medical costs are skyrocketing as people live to be older, while continuing to be plagued by exponential increases in preventable diseases. Public and private pensions are underfunded- and social security will not be able to meet the needs of future generations.

Our youth is ill equipped to compete in global markets and our education system is a complete failure. We have absorbed 40,000,000. people (legally and illegally) over the last quarter century and were not able to properly assimilate these new immigrants. Our standard of living is going down and urban areas throughout America have become war zones.

Our share of the world economy is shrinking and within twenty five years China is expected to overtake us as the number one economy globally. The largest shift of wealth in the world's history has taken place in the last decade and, unfortunately, it is a shift AWAY from the U.S. economy. Our form of currency has been priced accordingly as a substantial amount of our national budget is going to pay interest on debt, and the figure continues to grow.

We have regulated U.S. corporations to death and caused a flight of capital to global markets. We have developed entire regions (South Western United States) that are already struggling with water. Our electrical grid is maxed out and subject to incredible strain.

Over the next 25 years we are expected to grow to a population of 400,000,000. people most of this growth coming from developing (third world nations). Our entire standard of living is subject to a drastic reduction in quality over this time. In other words, we are basically handing over our way of life, and in the process- giving away most of the freedoms and luxuries that we have come to appreciate and enjoy. In short, when you mix third world with first world- the end result is 'second world', and that is what America is becoming.

So what am I saying? I am saying that every empire comes to an end and we are coming to an end in this country as the world's undisputed global leader. We will still be a major figure for years to come but, over time, foreign countries will continue to chip away at the 'pie' which is the world economy. You can call this sad or tragic- and I think it is- but this is simply a fact of life in the new world order. When we could have done something about it we failed to act. At this point politicians are so blind that our priorities are renaming post offices and investigating steroid use in baseball. The problem with luxury is that it produces soft people and we, as a nation, have become soft and spoiled. The work ethic and cohesive bond we shared as Americans is largely gone.

I see youth as being largely weak and spoiled and unwilling to do the things that our parent's generation did to get ahead. I see kids addicted to the computer, to 'games', to media, and to fulfilling their pleasure-centered goals as the most important priority. I see parents being friends and not parents. In short, I see a breakdown in society. I am very concerned at the ability of many of today's youth to be able to defend our country in a wide-scale military confrontation. Our military is stretched more than at any time and is under-appreciated by at least half of the entire country.

That is how I see things. Sorry if I have burst your bubble or if I did not offer some source of hope- but I am afraid that the post-2010 era will be one of the most difficult and challenging times we have ever had to face.

I can offer at least one solution; 'globalize your portfolio'. This is perhaps my best suggestion going forward- invest in global expansion and growth rather than fight it. What is happening has been in motion for sometime and is not going to change. The shift of wealth is upon us and you can be in denial or you can accept its existence and actually profit from it. I have chosen to use metals as my mode of investment but there are many more sectors in which to profit. The most important criteria is finding a company that is already globally positioned and will profit from worldwide economic expansion.

In the future I will limit my posts to discussions of various types of metals and the stocks one can look at that produce them. I will also discuss other ways to get involved in the metals markets.

My belief is that resources are the way to go in the future and that an investor must globally position their portfolio in order to succeed.

Good Luck,

Jonathan

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V Winner Post #1 A- 'Peak Resources'

Click on image to expand (as is the case with all graphics on this blog).

Here is where we begin the 'educational series' on metals. Here is the wiki link for further discussion: http://en.wikipedia.org/wiki/Periodic_table

My theory is that in the coming decades (as we discussed in the first series #'s 1-25) life's priorities will have come full circle from the beginning stages of man's life on earth. What better way to start that then to talk about the elements that make up our planet.

During our lifetimes we have, for the most part, taken resources for granted. There was plenty to go around- at least in the developed world. Let's take water for example. As a typical American I have taken water for granted my entire life. There was never a shortage of water for whatever needs I had whether it was to drink, take a shower with, or water my lawn. Now for many the quest for water is a daily struggle and in some cases a life or death proposition.

Most of us have taken metals for granted as well. In fact, I would assume that most people have never asked themselves if there will be enough metal to go around in twenty years- or how much it will cost- or whether we will be competing with other countries for it. Metal is just one of those things we use in virtually all facets of life without even thinking about.

Lets step away from the periodic table for a moment and talk about resources in general. Most of us (at least in the developed world) take all resources for granted. We have always had enough food, water, wood, metal, oil and gas, materials, clothing, and shelter. It is hard for us to imagine a world in which we have to struggle, fight for, or compete with others just to fulfill our basic needs as modern human beings. We have grown up in a world where there was enough to go around. Although we were empathetic to the plight of third-world nations it was difficult for us to envision a planet that would not be able to fulfill our own needs. Resources in general were thought of as almost limitless in availability. Recently many have become aware that this is not the case and that shortage of, and competition for resources will begin to impact all of us in coming years.

As I said in an earlier post year 2008 was what I would call the first wave of a Tsunami. The first wave of a Tsunami is usually not the largest in the series of waves, nor is it the most significant. The first wave is a warning of impending doom if you do not escape to high ground immediately. The first wave of the coming global resource crisis was the RESOURCE SHOCK of 2008. Anyone watching CNN for example would have thought the scenes of riots over food and energy costs were out of a futuristic sci-fi world, but they were all too real. 2008 marked the first time that virtually everyone on our planet (rich or poor) finally began to wake up to the fact that perhaps we no longer have the luxury of taking resources for granted.

The problem with humans in general is that we have a short memory for pain and we need not look past the oil crisis of the early 70s in our own country to be reminded of this. Oil, food, and metals prices go down and we go back to our routine dismissing it as just another 'economic cycle' or 'speculative bubble'. I assure you it is far from such. In fact, what happened this summer is a sign of things to come. People have been talking about 'peak oil' for some time now and many of those individuals have been dismissed as paranoid or irrational. What we are beginning to experience is actually much broader in scope and I would say that we have reached 'peak resources'. The theory behind peak oil is that we have reached, or will soon reach- the limit of being able to meet the world's oil demands. In actuality we are approaching the limit of being able to meet the world's resource needs.

Many resources are not limitless. Fresh water, food, oil and gas, and metals do have limits and we are beginning to test them. The conventional 'commodity cycle' will soon become obsolete as new resources will not be developed fast or economically enough to meet future demands. The bottom line is that there comes a point where the earth simply cannot sustain the amount of people it has and the resources that are depleted. We are reaching a tipping point.

Much of the developing world is all too aware of the fact that resources are scarce. Most of the developed world has yet to feel the life-altering sting of food, water, oil, or metal shortages. In coming years no one will be immune to the supply-demand curve.

Years ago estimates were made that when the global population reached 8 billion people the planet would not be able to sustain itself. The problem with those models is that they did not take into account the larger than expected level of consumption increase that would occur. I believe that we are rapidly approaching the point at which a breakdown takes place with regard to deliverability of resources to the vast majority of the global population. Even if I am wrong about the time-frame it certainly isn't by much. Our population will grow from about 6.5 billion people at present to more than 9 billion over the next 25 years or so. There is simply no way to meet the needs of a population base of that size with resources already being strained. To think otherwise is foolish.

Why metals? I like metals because there are a finite amount (types of metals). In a world of extreme complexity I personally like the appeal of having a fixed platform from which to work with. In coming years as infrastructure is built out, technology expands, the global wealth shift continues, and new applications are developed- metals are a no-brainer. Most of the 'industries of the future' will be heavily reliant on metals. There are over 10,000. stocks traded on American Exchanges. Globally there are far more than 100,000. stocks traded. I prefer to work with 20/25 metals going forward as a proxy vehicle.

This is why I chose to work with metals as my personal solution to the problems that will be dished out in coming years. There are other solutions and I think any astute investor should take the commodities and resource sectors very seriously over time. Water, agriculture, oil and gas, alternative and conventional forms energy, and all other resource plays need to be integrated into the 21st Century portfolio. Rather than sift through thousands of stocks I can participate in the growth of virtually all technologies of the future through a small and select 'index' of metals. Simple as that.

So- we will now continue the 'education' series by discussing various types of metals.

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V Winner - Post #1-B - The Two Tiered Society

This is a quick post- but one that is crucial for you to understand where we are headed- long term. What we are facing with regard to population growth worldwide and the resource strain it brings will be the most difficult battle we face in the future. If you don't 'get this' now, you will over time. It is important that you realize that we all have a choice to make with regard to what we do in our lifetime to plan for the future. The sooner you accept what is coming, and devote energy to developing and implementing a plan, the more likely it is that you will prosper instead of fail.

During the next few years opportunities will be created by the expansion of a middle class in much of the developing world. The reshuffling of the global economic pie will also provide for growth and opportunity. The decisions you make over the next decade will dictate your future in the coming two-tiered society. Now, you may ask- well, if there is an expansion of the middle class in the developing world why is it not a three-tiered society? What will happen is that as the population growth occurs - and life becomes much more expensive- the newly minted 'middle class' of the developing world will either be forced up or down with regard to their wealth or lack thereof. In other words, there will be a period going forward where a large expansion will take place in terms of elevating a vast number of people's lifestyles in the developing world. However, when 'peak resources' (see post 1-A) takes full effect, the middle will be decimated as a result of lack of affordability of resources and related lifestyle costs and expenses. Those that are able to capitalize on the coming short to medium term global wealth expansion and 'econ pie shuffling' have a chance to elevate their lifestyles to become a member of the 'elite' class.

The two-tiered society is already taking shape in places like New York City. A person living in NYC is borderline poor with an income of $100,000. In NYC the average cost of a decent one-bedroom condo exceeds $1,000,000. already. What are left are renters of three varieties; rent controlled tenants (hanging on for dear life- mostly not able to live in the city on a free market basis), standard renters (these are your 100k yearly working 'poor'), and housing project tenants (already poor but subsidized). As more of NYC becomes gentrified from Harlem to the Lower East Side, and rent controlled apartments diminish over time ,the two-tiered society becomes more prevalent. Eventually even those that owned properties through inheritance are not able to afford property taxes and living expenses to continue to live here. There you have it- two classes of residents one poor and one rich. NYC is a microcosm of what the rest of urban society (global and domestic) will eventually experience.

So- you ask, what does this mean? Well it means that if you know that over time society will become two classes; the elites (ruling class), and the servants (working class)- you better devise a plan to be on the elite side of the fence ( electrified gate and guard dogs). A perfect example of how the two classes will live in the future is Sao Paulo, Brazil. The wealthy of the city live in an area known as Jardines. The Jardines is home to the elite class of Sao Paulo and virtually every estate has large gates, a private security guard, cameras, and in many cases- other security precautions. Many of its citizens travel in bulletproof vehicles, are members of clubs with huge layers of security, and are basically prisoners to their wealth. This element of society is completely insulated from its fellow citizens for its own protection. Now you may think this an unrealistic portrayal of the developed world going forward, but for most urban areas it is only a matter of time.

So, the way I look at it on a long term basis is that you will have a choice going forward:

1. Prepare for the worst possible outcome and hope for the best. In doing so make the decisions that will afford your entry into the elite class (and from there if you feel guilty you can work on a cause to help those less fortunate than you).

or

2. Reject what I am saying as the ramblings of yet another blogger with too many ideas and hope that I am entirely wrong about the future. (Or you could move to Northeastern Maine and probably be safe for the rest of your life).

Now- this will not take place anytime soon. We have a window of about a decade to make the right decisions- and a period of a few years after that to 'cement' your position with regard to 'tier level'. Again, the sooner you start making the right decisions the better prepared you will be going forward. As I said from the beginning many do not want to hear, or cannot accept the truth. When faced with difficult circumstances many prefer the route of distraction or denial as, for the short term, it is less stressful. If, however, I am wrong- but you have prepared yourself accordingly then the worst case scenario is that you are better fortified going forward regardless.

So the goal is to generate as much wealth as possible during this global wealth expansion stage so that when we reach massive contraction and a widening wealth gap- we are in a position to survive and prosper in our new global reality. It is during this stage that materials and resources become more crucial and more valuable - presenting an opportunity for those of us that see the future and have a plan to utilize that knowledge.

The next posts - will be about metals. We will start with the most popular and work our way into some of the lesser known. Until then, I hope I was able to brighten up your day.....

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V Winner Post #1-C- Living In the Age of Globalization

We have experienced more rapid changes on a domestic and global level since the year 2000 than at any time since the Industrial Revolution. This decade has witnessed the greatest wealth redistribution in the history of mankind. Trillions of dollars have changed hands, and our country can no longer take its economic superiority for granted. We must evolve as a nation, and as individuals, if the US is to retain its position as the financial leader. If we don’t act know we run the risk of losing economic supremacy.

We have seen capitalism and a wealth of natural resources turn Russia into a major contender in the financial markets. Brazil has become energy independent, and continues to exploit its vast agricultural, mining, and mineral resources, as well as a major supplier of goods and products to other developing economies. China has experienced staggering growth as the world’s manufacturing and export capital. India is witnessing almost double-digit annual growth as a hub for outsourcing in technology, communications, and in the service sector. Even Vietnam and Korea are getting in on the action.

In the financial markets, London is challenging New York City as the financial capital of the world and already has the lead in spot trading of metals, trading of currencies, and in IPO listings. Dubai, Shanghai, and Mumbai are growing their newly formed exchanges at exponential rates. Markets throughout Europe, Latin America, the Middle East, and Asia are taking ever-larger bites of market share in Stock and Futures Trading, IPO listings, Investment Banking services, and other financial sectors.

In the Investment Metals markets, Tokyo, Shanghai, Mumbai, Dubai, London, and other new and established players are witnessing stellar growth in both transaction and dollar volume of trades. Technology, global economic expansion, and access to capital and talent have leveled the playing field. New exchanges are being added on a monthly basis. The global economic boom is still in full swing.

Whether we like it or not, globalization is here to stay. Products that only a decade ago were seen as exotic or arcane, like foreign stock funds, are now commonplace and necessary. Financial vehicles that were reserved for professional traders and institutional investors a short time ago, like futures and options contracts, are now seen as necessary in today’s volatile and highly fluid market environment.

In February 2007, E-Trade began offering direct online access to US investors, direct access to trading on the Tokyo, Toronto, Paris, Honk Kong, and London Exchanges. E-Trade also began allowing investors to hold international currencies in their global accounts. Soon, US retail customers will have online access to all 42 international exchanges and their related currencies. This means that by having a simple internet connection, an investor will be able to buy and sell stocks anywhere in the world, using any major currency in the world, any time of day or night!

Investment banks have also evolved rapidly. Most investment banks today generate more returns in trading of stocks, options, and futures, than in initial public offerings or mergers and acquisitions. This is even more remarkable considering that this was a very small and insignificant element of their business model only a decade ago.


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V Winner Post #1-D- What Are Precious Metals

What Are Precious Metals?

A precious metal is a rare metallic chemical element of high economic value.
Chemically, the precious metals are less reactive than most elements, have high luster, and have higher melting points than other metals. Historically, precious metals were important as currency, but are now regarded mainly as investment and industrial commodities. Gold, silver, platinum, and palladium each have an ISO 4217 currency code.

The best-known precious metals are gold and silver. While both have industrial uses, they are better known for their uses in art, jewelry, and coinage. Other precious metals include the Platinum Group metals: ruthenium, rhodium, palladium, osmium, iridium, and platinum, of which platinum is the most widely traded.

The demand for precious metals is driven not only by their practical use, but also by their role as investments and a store of value. Rhodium is the most expensive of the precious metals with prices that have traded higher than $8000.00 USD/per ounce.

Bullion: Precious metals in bulk form are known as bullion and are traded on commodity markets. Bullion metals may be cast into ingots, or minted into coins. The defining attribute of bullion is that it is valued by its mass and purity rather than by a face value as money. Many nations mint bullion coins, of which the most famous is probably the gold South African Krugerrand. Although nominally issued as legal tender, these coins' face value as currency is far below that of their value as bullion. For instance, the United States mints a gold bullion coin (the Gold Eagle) at a face value of $50 containing 1 troy ounce (31.1 g) of gold. Bullion coins' minting by national governments gives them some numismatic value in addition to their bullion value, as well as certifying their purity. The level of purity varies from country to country, with some bullion coins of as pure as 99.99% available, such as the Canadian Gold Maple Leaf.
Gold as an investment and silver as an investment are often seen as a hedge against both inflation and economic downturn. Silver Coins have become popular with collectors due to their relative affordability, and unlike most gold and platinum issues which are valued based upon the markets, silver issues are more often valued as collectables, far higher than their actual bullion value.

A metal is deemed to be precious if it is rare. The discovery of new sources of ore or improvements in mining or refining processes may cause the value of a precious metal to diminish. The status of a "precious" metal can also be determined by high demand or market value.

Reasons To Own Precious Metals Now: Investment experts have long-recommend portfolio diversification and that 10% to 20% (and sometimes more) of an investor's assets be devoted to tangible assets such as gold, silver, platinum and palladium bullion and bullion coins. That's prudent asset diversification strategy at any time. But, in today's uncertain political and economic environment, many (and very sound) reasons exist to consider investing in precious metals now. Here are three:

Precious Metals Have Been A Solid Hedge Against A Declining U.S. Dollar. The value of the U.S. Dollar declined more than 40% from 2001 through 2007. For a long list of reasons, including massive increases in U.S. government deficits totaling trillions of dollars, the cost of a prolonged war against terrorism, and a massive trade imbalance, this trend may be just the beginning. This means U.S. Dollars could now be worth less and less every day. Which also means that investments pegged to the U.S. Dollar could be worth less and less every day. Gold, silver, platinum, and palladium, though, are held and traded throughout the world . . . and their true value (that is, their purchasing power) is not solely or directly dependent on the falling fortunes of the U.S. Dollar. Precious metals, therefore, can be a form of protection against a falling U.S. Dollar. As demonstrated during the last few years, as the value of the U.S. Dollar declined, gold and silver prices and the value of precious metals expressed in dollars increased.

Precious Metals Have Been A Proven Safe-Haven In Times Of War, Political Strife And Uncertainty. Today's financial markets are increasingly at risk from terrorism, political instability and war. As we saw so clearly after the 9/11 tragedy, financial markets can be closed down, and remain closed down, for extended periods of time. As terrorism incidents continue to increase around the world, it is not unreasonable to expect further (and potentially more severe) disruptions in financial markets, banking and commerce in the future. Whenever and wherever tension or hostilities break out, people everywhere quite naturally gravitate toward the assets they trust most. And today, even in our high-tech driven twenty first century, the asset class millions rely on in times of trouble is gold and silver. Precious metals have always been, and likely will continue to be, a valued form of wealth insurance in good times and bad.

Precious Metals Can Offer Outstanding Price Appreciation And Profit Potential. After the infamous stock market bubble in early 2000 wiped out trillions of dollars of investor equity, many stocks have failed to return to anywhere close to their previous highs. The recent dramatic bull market shares some striking similarities to the late nineties. Gold and silver prices, on the other hand, have increased dramatically - more than 40% - during that same time period. Which means precious metals can produce impressive investment returns even when (and sometimes, especially when) returns from stock, bond and other paper investments decline in value or evaporate completely. And many financial experts have predicted and continue to forecast rising gold, silver, platinum, and palladium prices in the months and years ahead.

Uncertainty in Financial Markets: In our uncertain world of the 21st century, the whims and fancy of a select few can quickly alter the economic security, stability and order we have come to expect and take for granted in our free society. In the end, it is the responsibility of each of us, individually, to be prepared for change, recognize change when it happens, and take the steps necessary to adapt to change when it occurs.

Nowhere is change more prevalent and pronounced than in the world's financial markets. Prices on stock and bond markets, and on currency and commodity exchanges, can and do change throughout each trading day. Periodically, these changes are quite dramatic, resulting from volatile and unpredictable market conditions. At such times, a diversified investment portfolio may help protect an investor from the full effect of unanticipated and potentially disastrous market movements such as a stock market crash.

A Question of Value Investing: Many experts believe that the stock markets, and the mutual funds that invest in them, are overvalued and potentially at risk for correction similar to the corrections seen in 1929, 1987 and 2000. Every stock market investor should consider balancing his market risk with real precious metals and not just gold stocks, which like all stocks, are subject to business risk as well as market risk (and can be extremely volatile at times). Historically, physical gold has been a premier and desirable financial asset in times of market turmoil. Precious metals are one of the only financial asset classes in an investment portfolio that are not simultaneously someone else's liability.

The Prospect of Inflation: US monetary policy is biased toward positive, and occasionally high, inflation. Precious metals can offer inflation protection and profit opportunity, as evidenced by the skyrocketing precious metal prices in the late 1970s when inflation reached double-digit rates.

Government Debt May Also Spur Inflation: Despite political jawboning, our colossal national debt has continued to snowball and now stands at $8 trillion-plus. Interest payments on this debt now drain the budget of billions of dollars each month. If history provides any guidance, this escalating debt could lead to a new wave of inflation, particularly if debt repayment causes a collapse of Gross Domestic Product.

Wealth Protection In The 21st Century: Many investors are growing increasingly nervous about what they see in the world today: Increasing levels of domestic and international strife, war and terrorism . . . the declining value of the U.S. Dollar eating away at their nest eggs and their futures . . . stock, bond and real estate markets that appear chronically overvalued . . . and the very real possibilities of inflation, deflation, recession, depression and tougher times ahead.

In such an uncertain environment, it is natural - and highly appropriate - to seek out strategic investment alternatives in order to 1) Preserve one's wealth; and, ideally, to 2) Increase one's wealth. For thousands of years, in good times and bad, precious metals have offered investors a solid, long-term and tangible way to hold and protect wealth with relative safety. Unlike paper investments (like stocks, bonds and currencies) that can and have become worthless overnight, precious metals have true intrinsic value . . . and, hence, will always be valuable. In recent years, precious metals have also proven to be outstanding short-term trading vehicles, offering traders periods of outstanding profit potential as metals prices fluctuate, sometimes dramatically, on world markets.



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V Winner Post #1-E - The Platinum Group Metals

The Periodic Table

The six platinum group metals (PGMs, marked in red) occur together in nature alongside nickel and copper. They are Platinum, Palladium, Iridium, Ruthenium, Rhodium, and Osmium.

South Africa is the world's leading platinum producer and the second largest palladium producer after Russia, whose production is concentrated in the Norilsk region.

All of South Africa's production is from the Bushveld Igneous Complex, which hosts the world's largest resource of PGMs. In addition to platinum and palladium, these mines also produce rhodium, ruthenium, iridium, gold, silver, nickel, copper, cobalt, ammonium sulphate, and sulphuric acid as by-products.

Platinum and palladium have the greatest economic importance and are found in the largest quantities. The other four – iridium, rhodium, ruthenium, and osmium – are produced only as co-products of platinum and palladium and are never likely to be mined for their own sake.

PGM ore is mined underground and less usually in open cast pits. It is blasted out of the ground before being crushed and milled into smaller rock particles, which are mixed with water and reagents and pumped through with air to form a "froth flotation". PGM-rich particles adhere to the bubbles created by this process. They are then removed at the surface, and the remaining material is put through the process a second time.

When dried, the flotation concentrate is smelted at temperatures that may be over 1500 °C, and a mixture of the metals is separated from unwanted minerals such as iron and sulfur, by air blowing through it.

Nickel, copper, and cobalt are separated and refined using electrolytic techniques leaving rich residues that require the separation and purification of the remaining PGMs, as well as gold and silver. This part of the process is an intricate combination of solvent extraction, distillation, and ion exchange techniques.

Finally, the soluble metals, which are extracted using hydrochloric acid and chlorine gas, are obtained: first gold and then palladium and platinum. The insoluble PGMs (rhodium, iridium, ruthenium, and osmium) are the last to be extracted.

Platinum As An investment metal: Platinum is a tangible asset, which shares with other precious metal investments the attractive physical properties of being largely unchanging and unchangeable. Like gold and silver, platinum is acceptable as a means of exchange by virtue of its internationally standardized form and purity, and, since it is very dense, it is a compact and readily portable store of wealth.

During the last thirty years a number of different retail investment products have been introduced to meet demand for platinum, which can be bought and kept as a repository of value, often for long periods.

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V Winner Post #1-F- Platinum and Palladium As An Investment

Platinum As An investment metal: Platinum is a tangible asset, which shares with other precious metal investments the attractive physical properties of being largely unchanging and unchangeable. Like gold and silver, platinum is acceptable as a means of exchange by virtue of its internationally standardized form and purity, and, since it is very dense, it is a compact and readily portable store of wealth.During the last thirty years a number of different retail investment products have been introduced to meet demand for platinum, which can be bought and kept as a repository of value, often for long periods.

Platinum Bars And Coins: Various refiners in the USA and Europe are or have been producers of small investment bars in platinum up to one kilogram (32 troy oz) in weight. The Royal Canadian Mint, the Perth Mint, and the United States Mint, as well as many other smaller mints, have issued legal tender platinum bullion coins and collectors’ coins. Many of these products are in circulation and can be obtained from coin dealers and distributors.

The public in Japan buys kilogram and smaller platinum ingots produced by the principal Japanese precious metals refiners. Another form of investment in Japan is the accumulation plan, introduced in 1992, which enables investors to buy and accumulate platinum with of a regular sum of money paid monthly into their account.

Size Of Investment Demand: Demand for the above forms of physical platinum was at its height in the 1980s, stimulated by a proliferation of new investment products and by concern about the security of supplies of platinum from South Africa, the main producing region, during the period of sanctions against apartheid. In 1988, a total of 630,000 oz of platinum was sold in the form of bars and coins, representing 17 per cent of world platinum demand that year.

Investment Consideration For Platinum Group Metals: Investors are now the main propulsive force behind rising prices of the “other” precious metals – platinum and palladium – as they are for gold and silver.
Fresh investment demand, especially in Japan, “has required higher prices to encourage existing holders of platinum to part with their metal,” consultancy GFMS says in its latest report on the industry.
In the case of palladium, investors have been mopping up a substantial quantity of surplus metal. Interest has been stoked by expectations of a narrowing in the price differential between the two metals.
The two metals are found together in the same ores and have similar but not identical characteristics. Palladium is less effective than platinum in some kinds of anti-pollution devices, especially those used with diesel engines. It has half the density of platinum, so jewelry made from it is much lighter for the same volume of metal.
While jewelry manufacture provides most of the annual demand for gold, it is much less important for platinum and palladium, where it accounts for less than one-fifth of consumption. Palladium jewelry demand has recently increased due to its substantially lower prices than platinum and gold, and its similar attributes to platinum.
PGMs have unusual qualities which make them prized in a wide range of industrial uses.

For example, catalytic converters now fitted to all new motor vehicles produced in advanced nations convert poisonous exhaust gases such as oxides of nitrogen into water and other harmless substances, reducing air pollution. Autocats account for roughly half of world demand for platinum and palladium currently.

The two metals are also used as catalysts in oil refining and chemicals industries, and in the manufacture of a wide diversity of products such as computer monitors, mobile phones, electronic weaponry, hard disc drives, temperature control instrumentation and synthetic fibers.
Although the combined global market for the two is larger than for silver, and one-seventh the size of that for gold, investment interest has been negligible in the past, but is gaining considerable momentum.

Gold and silver have traditionally been regarded as potential investments and as alternatives to currencies, but there is no such tradition with the PGMs, apart from platinum in Japan. That trend is changing, however, as global investors are beginning to accept platinum and palladium as mainstream investment vehicles.

There are now several exchange traded funds (ETFs) for gold, where certificates giving ownership of physical metal generated demand for 200 tons last year. New products are being launched on a daily basis and ETFs are expected for PGMs soon. Rumors of a new Platinum ETF caused its price to increase by $200 per ounce recently.

Barclays Capital, recently launched the world’s first silver ETF, and similar funds are starting for other metals, including the PGMs.

Wealthy Individuals Are Starting To Buy. Investor interest generally is growing. GFMS makes these comments in its latest survey:
“Activity in platinum is mainly coming from a relatively small number of hedge funds and commodity trading advisers.” They have also been making most of the running in palladium. But there is now also some interest by high net worth private investors.

Whereas some investor demand for gold is driven by expectations of a collapse in the dollar or an event-driven spike in the oil price, as a rule, investors are not taking positions in platinum or palladium for this reason, nor to hedge their other investments.

There is little evidence of short selling of platinum. And “the shallow pool of bullion stocks, coupled with a market essentially in balance, has required fairly large price increases to persuade existing holders of stocks to part with their metal.”
Retail investor interest is growing for platinum, as well as in palladium coins and small bars has developed in North America.
As with gold, investment demand is becoming increasingly important for the PGMs because of worrying fundamentals.
In the case of platinum, the longstanding shortage in annual supplies has now disappeared because of greater mine production and fast-rising recovery from autocatalyst scrap, with demand growth now sluggish.
That’s primarily because of competition from palladium, which has made a spectacular debut in jewelry, mainly for the market in China. Palladium is much cheaper for jewelry buyers – yet offers hugely profitable margins for manufacturers and merchants.
Over the past couple of years, jewelry-industry consumption of palladium has more than tripled, to over 1.13 million ounces, while equivalent demand for platinum has fallen by 1.47 million.
Nevertheless, the GFMS consultancy remains positive about platinum, one reason being that demand is now less sensitive to conditions in the jewelry market, with three-quarters going for “essential/inflexible” applications. And there are no substantial above-ground stocks.

Investment Recommendations: Should you invest in these metals? Longer-term, without a doubt. Their unique characteristics make them much more important in industry than the other precious metals, and they are much rarer. Worldwide, anti-pollution regulations get steadily tougher, and the PGMs are big beneficiaries of this trend.

Investment Options: Shares of certain listed mining companies largely depend on earnings from the metals. Most of these operate in South Africa, such as Angloplat, Impala and Lonmin, and the smaller Aquarius and Northam. Outside South Africa, there’s Stillwater in the US, primarily a palladium producer. Other listed companies such as Norilsk Nickel of Russia and Inco of Canada are primarily miners of base metals.

Derivatives-based products geared to PGM prices are listed on securities exchanges, particularly in Germany. Futures are traded on the Tocom (Japan) and Nymex (US), as well as London’s Platinum and Palladium Market.

There is an active market in platinum bars in Japan and Switzerland. Swiss banks, for example, will store them for you for a small fee. The Perth Mint, owned and guaranteed by the government of Western Australia, sells certificates giving ownership of physical metal in bar or coin form, for a minimum investment of US$10,000. Demand is growing in the US for such large bars as well as platinum coins and mini-bars. The same is true of palladium.


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V Winner Post #1-G- More About Platinum

HIGHLIGHTS OF THIS SECTION
· Platinum is the rarest of the precious metals.
· Platinum has widespread industrial use, including growing demand as a catalyst in emissions control.
· Platinum production is limited and mainly confined to South Africa and Russia.

Platinum History: Widespread knowledge of the white metal platinum stretches back only a few hundred years, versus thousands for gold. Despite being worked with some skill by South American Indians over 1,000 years ago, not until the Spanish conquest of the New World during the fifteenth and sixteenth centuries did news reach Europe of this new metal. The Spanish first considered it a nuisance because it interfered with their gold mining activities. Platinum’s extraordinary properties did interest European scientists and was noted that it would not “melt by fire or by any of the Spanish arts.” Heavier than gold and virtually impossible to corrode with gases or chemicals, in 1751 platinum was recognized as a newly discovered element.

Early Use: During the latter eighteenth century, platinum had some industrial uses. It was used to make durable laboratory instruments in Berlin in 1784. In France crucibles for glass production used it, a significant use still today. Platinum also began to impress jewelers and goldsmiths. Leading metal workers, such as Marc Janety, Royal Goldsmith to Louis XVI, and Pierre Chabaneu of Spain, were using platinum to make expensive cutlery, watch-chains, and coat buttons.

Early in the 19th century, new refining techniques increased platinum’s availability. It was soon being used in gun parts, sophisticated batteries and fuel cells, the production of caustic chemicals (the first platinum sulfuric acid boiler weighed over 400 ounces), and the purification of hydrogen.

Platinum from Limited Availability to Money: Increased platinum use was limited by its supply. In 1820, Columbia, still the only major producer of platinum in the world, ceased exporting the metal. Then in 1822, Russian alluvial platinum was proved to be present in the gold fields of the Ural Mountains. The Russian government made platinum into rubles. Over the next 18 years, the Russian government minted almost 500,000 ounces of platinum and, perhaps more importantly, introduced to the world the notion that platinum was like gold, a store of value.

Jewelry: Platinum jewelry remained rare until high-temperature jewelers’ torches were developed. After this, jewelry makers made quick advantage of platinum. The rise in popularity of platinum jewelry over the past two decades has been remarkable; Japan has long been a traditional source of platinum jewelry demand, but double-digit growth rates over the past several years in both China and North America now make these two markets highly important. Combined they count for over 40% of world total platinum jewelry demand. Platinum is prized the world over for its understated elegance and its tensile strength, making it the most secure precious metal for setting precious stones.

Limited Sources: The sources of platinum production remain limited. The demand for platinum is essentially satisfied by the mining activities in just two regions. The Bushveld Complex, which is just north of South Africa’s capital, Pretoria, produce more than two thirds of the annual platinum supply. The Noril’sk-Talnakh region in the extreme north of Siberia in Russia supplies most of the rest. Russia is the only nation with significant stocks of platinum, and many believe that these may be running out.

Platinum Bullion: In 1975, after the Arab Oil Embargo sparked increases in precious metals prices, platinum bars that were small enough for the individual investor to buy were introduced in Japan. With platinum’s huge price changes during the late 1970s and early 1980s, interest in platinum bullion investing spread to Europe and the United States. Two platinum fabricators, Johnson Matthey & Co. Ltd., and Engelhard Corporation began, to produce one and ten ounce platinum bars.

Platinum Coins: In November of 1983, The Isle of Man, a British Crown Possession, issued a one-ounce Noble platinum bullion coin. The highly successful Noble enticed other mints to issue their own platinum coins. During the second half of 1988, Australia (the Koala) and Canada (the Maple Leaf) introduced platinum legal tender bullion coins within three months of each other. Despite the proximity of the launches, both introductions were enormously successful, bringing the level of investment demand to new highs. For nearly ten years, Australia’s Koala and Canada’s Maple Leaf were among the leading platinum coins in annual sales. Not until 1997 was the platinum American Eagle released.

From being the metal that polluted the gold of the Conquistadors to its recognition as being the rarest or even the most precious of the precious metals, platinum’s odyssey has given it the investment performance of a precious metals hedge with the potential of the scarcest of industrial commodities.

Why Invest In Platinum? Platinum has unique chemical and physical properties that make it essential in a wide range of industrial and environmental applications. And yet, it is also considered one of the finest of all jewelry metal.Over 20% of all consumer goods either contain platinum or are produced using platinum. As a consequence, the continued expansion of advanced and developing economies has caused demand for the metal to grow at a faster pace than it is being mined.

Platinum Is A Truly "Precious Metal". Platinum is the rarest of the precious metals. Roughly 90% of all platinum supplies come from South Africa and Russia. Virtually all of the platinum mined in South Africa is pre-sold to industrial users. Approximately 8 tons of raw ore must be mined to produce just one pure ounce of platinum. Today, the finest and most elegant jewelry contains platinum. Investment platinum is available in the form of American Eagle Platinum Coins.

Japanese consumers buy approximately 48% of the world's platinum jewelry each year. In recent years the Chinese market has also developed an appetite for platinum. Demand for platinum in high technology applications is soaring due to its unique properties: It is virtually impervious to corrosion, has a melting point, 1770 Celsius, is a powerful catalyzing agent and is highly conductive.

Platinum Is An Environmental Metal. Over one-third of all platinum supplied to the international markets each year is used in catalytic converters to control harmful automobile emission. Higher North American, European, and Asian automobile emission standards continue to add pressure to auto manufacturers to increase the use of platinum in catalytic converters and devices like oxygen sensors.Platinum catalysts are a core component of fuel cells, a power generation technology that combines oxygen and hydrogen to form water and electricity. Fuel cells are poised to become the environmentally friendly power generation source of choice in the next century and a key source of future platinum demand.

Platinum Is The Premium Investment Metal. Platinum is known as "high-octane gold," for its stronger price moves and prospects for a higher upside. Buying platinum is an easy way to invest in worldwide economic growth because the metal is essential to the economies of many industrialized nations. Pure platinum legal tender bullion coins and bars provide a liquid, convenient, and reliable way to invest.

Regulation: New clean air legislation in the United States and in many of the world's fastest growing economies is significantly increasing the total amount of platinum used in automobiles. Platinum is essential for the wide range of products that are being consumed in nations that are experiencing rapid gains in incomes. Because of this, world platinum use per unit of world economic output has risen rapidly in the past decade.

Jewelry: Platinum jewelry has gone from being a thing of the art deco past to being all the rage in North America and China. The largest economy in the world and the largest country in the world are seeing tremendous growth in platinum jewelry demand. This is in addition to Japan's relatively stable consumption of the white metal for jewelry purposes. While growth has been strong, overall market share is still low - meaning that these trends of increasing demand are sustainable for some time to come.

Investors: Investment demand by individuals around the world is rising. Many are attracted to the vastly improving fundamentals in the platinum market. In rising markets, platinum normally develops a significant premium over gold. Platinum has historically tended to be more expensive than gold because it is considerably rarer and has more extensive and irreplaceable applications.

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V Winner Post #1-H More About Palladium

HIGHLIGHTS OF THIS SECTION
· Palladium has industrial uses similar to platinum.
· Palladium as an investment is a very recent option.
· The palladium market is currently oversupplied, making future price increases more likely than decreases

Palladium History
Palladium’s name is derived from the Greek word, Pallas, the goddess of wisdom. Palladium has a history that is sealed with that of platinum, with which it is found, and with which it is also associated as a member of the platinum metals group, also known as the noble metals. “Native platinum” refers to the natively occurring platinum, which is not actually pure platinum at all, but rather a natively alloyed mix of platinum group metals including palladium. Palladium was not separated from platinum for quite some time after the discovery of native platinum so its early history is a shared one.

Following the perfection of his technique to obtain pure samples of platinum in 1801, William Hyde Wollaston went on to isolate palladium from platinum two years later by dissolving native platinum in aqua regia (a mixture of hydrochloric and nitric acid). He named it after Pallas, the ancient Greek goddess of wisdom whose name had also been recently lent to the second asteroid ever discovered.

In an attempt to keep his techniques a secret, Wollaston offered samples of palladium for sale anonymously and his peers were cynical about the new metal’s provenance, suspecting that it was an alloy of platinum. This forced him to publish details of his findings in 1805.
It took nearly two centuries for palladium’s significance to be recognized, and the fight against global pollution owes a lot to this unique metal. The use of palladium really took off in the 1970s when demand for catalytic converters - in which its remarkable properties play a key role increased as automobile emission standards were introduced in the developed world. As these standards were tightened and applied globally in the 90s, demand for palladium expanded enormously.

World Production of Palladium

Sources of palladium production are quite limited. More than 80% of world palladium production is concentrated in just two countries: the Russian Federation and South Africa. The Russian Federation alone accounts for nearly half of total palladium supply.

Russian main sources of Palladium are the Norilsk Nickel mine, and Gokhran (Russia's precious metals and gems reserve). The state-owned trading monopoly, Almazyuvelirexport, handles palladium shipments from Russia. The Russian Central Bank also has a significant stockpile.
The Norilsk-Talnakh region in the Russian Federation produces the majority of its palladium, and the company NORILSK NICKEL is the world palladium industry leader. Because the palladium mined by this company falls short of meeting the tremendously growing world demand, the Russian State has filled the deficit from large state stockpiles.

The Norilsk-Talnakh mines reached their highest level of production in the late eighties. Output fell at the beginning of the nineties, mainly due to low level of investment as well as to lower productive capacity. PGM grades were also lower due to the mining-out of massive sulphide ores. Higher palladium prices in the late nineties prompted Norilsk Nickel to successfully invest in improving PGM recoveries, resulting in increases in refined PGM production.

The Russian Federation is also the only country that has held significant stockpiles of palladium, although many believe that their level has decreased considerably. The actual level of Russian palladium stockpiles is a state secret. Russian Government export policies have significantly influenced world palladium supply and prices volatility.

The other significant producing area is the Bushveld Complex in South Africa, where Platinum Group Metals are mined as primary products. Palladium is also mined in smaller deposits in United States and Canada. Mining companies in South Africa and North America are developing expansion plans, which will lead to future increases in palladium production.

Mining Platinum Group Metals is capital intensive. Large investments are needed to build production facilities and long-term survival of a PGM mine requires heavy expenditures in order to finance exploration and production. Processing of the ore through milling, flotation and smelting to form a matte that contains the PGM is normally undertaken at the mines. Further refining may take place in refineries on the mine property or elsewhere.

New palladium mine development and exploration outside the Russian Federation, particularly in North America, are taking place as a result of the palladium market boom. This is a response to the erratic Russian supplies and consequent higher palladium prices. Diversification away from dependence on Russian palladium is considered desirable.

Investing In Physical Palladium

Precious metals offer the investor the opportunity to possess real physical metal in the form of bullion bars or rounds. Bullion is readily available as the precious metals of gold, silver, platinum, and now, palladium. The purchase price of bullion from reputable dealers is normally on a spot plus basis, that is, the current market spot price of the metal plus the dealer markup or transaction fee. When the investor wishes to sell the bullion, the bullion dealer will purchase it back, again at spot. A transaction fee may apply.

Palladium bullion is readily available for purchase from many online sources. Ownership of palladium offers similar investment opportunities as the better-known gold or silver.

The highest refined purity palladium available is refined by Johnson Matthey from ore mined by the Stillwater Mining Company.

Stillwater Palladium Bars and Coins
Regarding palladium markets, Johnson Matthey, in their Annual Platinum Review, offer this assessment:

“For palladium, however, it was (and is) harder [than platinum] to make a bullish case for investment based on the metal’s fundamentals. The market has been in a position of oversupply since 2001. Supply will continue to grow strongly from the expansion of PGM mining in South Africa and from increased recycling of auto catalysts and electronic waste. Even with the most optimistic projections for auto catalysts, electronic and dental demand, the palladium market appears set to remain in substantial surplus. Nevertheless, as the price of platinum climbed in 2003, fund managers increasingly inferred that the differential between it and the price of palladium would become unsustainably large. With the risk of a downward correction in the platinum price considered small, due to the metal’s strong fundamentals, the conclusion was that the price of palladium would almost certainly have to rise.

In addition, the platinum and palladium markets are very small compared with other commodities, and are minute compared with equity, fixed income or foreign exchange markets. Consequently, significant activity by hedge funds can move the price in either direction regardless of the fundamentals. Furthermore, price trends can rapidly become self-sustaining as funds that trade on momentum or technical indicators are drawn into the market”.

Investing In Palladium Futures: Futures contracts on palladium are actively traded on the NYMEX Exchange. Futures contracts play an important role for metal suppliers, for commercial users, and for investors speculating in future price movements.

Investing In Palladium Mining: Investors can buy shares in palladium mining companies. This is not a direct investment in the metal, and a rise in the palladium price doesn’t necessarily mean an equal rise in the value of the company. In addition, most palladium is produced as a by-product of nickel or platinum mining. The few firms focused mostly on palladium include Stillwater the largest primary producer of platinum group metals outside of South Africa, and North American Palladium.

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V Winner Post # 1- I - More About Silver

HIGHLIGHTS OF THIS SECTION
Silver is in heavy demand by industry, but the supply is insensitive to demand.
Silver is the least expensive and most plentiful of the precious metals.

Many options exist for investing in silver in affordable volumes

Historical Background: Silver has attracted man’s fascination for many thousands of years. Ancient civilizations found silver deposits plentiful on or near the earth’s surface. Relics of these civilizations include jewelry, religious artifacts, and food vessels formed from the durable, malleable metal. This metal took on near mystical qualities in marking important historical milestones throughout the ages, and served as a medium of exchange. The Mesopotamian merchants were doing just that as early as 700 BC.

In 1792, silver assumed a key role in the United States monetary system when Congress based the currency on the silver dollar and its fixed relationship to gold. Silver was used for the nation’s coinage until its use was diminished in 1965. The dawn of the 20th century marked an important economic function for silver, that of an industrial raw material.
Today, silver is sought as a valuable and practical industrial commodity, as well as an appealing investment precious metal. Many countries now issue silver bullion coins, among them the Unites States, Canada, and Mexico. Private issue silver bullion is also available from select private mints.

Although silver is relatively scarce, it is the most plentiful and least expensive of the precious metals. The largest silver producing countries are Mexico, Peru, the United States, Australia, and Chile. Sources of silver include; silver mined directly, silver mined as a by-product of gold, copper, lead, and zinc mining, and silver extracted from recycled materials, primarily used photographic materials. Today, silver bullion stocks make up a significant component of silver supply.

The American Eagle Bullion program was launched in 1986 with the sale of gold and silver bullion coins. Platinum was added to the American Eagle Bullion family in 1997.

Why Invest In Silver? Bullion is the basic commodity traded in the precious metals market. By adding precious metals in general, and silver in particular, to a portfolio of stocks, bonds and mutual funds, an investor is introducing a tangible or real asset to the asset mix. This increases the degree of diversification and protects the portfolio against fluctuations in value of any one-asset type.

Economic Forces: The economic forces that affect the price of precious metals are different from, and often are opposed, to the forces that determine the price of most common financial assets. This independent movement of precious metals to other financial assets can reduce overall portfolio volatility and contribute balance.

The Declining Dollar: The purchasing power of the U.S. dollar has steadily declined over time and is expected to continue to do so. Precious metals can often provide a hedge against inflation. For example, between 1971 and 1981, the U.S. dollar lost more than half its value, while silver prices rose nearly five times. Economies cycle between inflation, recession and expansion, precious metals investment helps diversify and lower overall risk.

Asset Allocation: Whether you are conservative or aggressive in your investment approach, precious metals can represent an important part of your asset allocation. Some experts suggest that 10-15% of portfolio assets be in precious metals. No matter what level of risk an investor wishes to take, every portfolio needs a secure foundation.

Ease Of Ownership: For investors who wish to take possession or direct control of their assets, buying physical bullion has appeal. Owning bullion is easy and convenient, and commissions on buying and selling it are minimal.

Inexpensive Silver: Silver bullion bars are the least expensive way to own silver. They can be converted easily to cash, prices are widely quoted and they are internationally negotiable. Silver bullion coins are relatively inexpensive. Because of their smaller unit size they are affordable and easily converted into cash.

Industrial Demand: Silver, more than other precious metals, has significant demand rooted in sectors as diverse as imaging, electronics, jewelry, coinage, superconductivity, and water purification. For this reason, silver is no longer know as just a precious metal, a store of value, a work of art or an industrial metal. It is all of these. Today silver is indispensable, working all around us to improve the quality of our lives.

Individual Retirement Account (IRA): Today, millions of people throughout the world recognize silver’s intrinsic value and have made it popular as an affordable investment. In the United States, Individual Retirement Account (IRA) participants can invest a portion of their investment portfolio in silver bullion coins and silver bullion bars provided that they are of a fineness equal to or exceeding 99.9 percent silver. Contact your IRA plan administrator for further information.

Silver Is A Precious Metal. Precious metals are valued for their beauty and relative scarcity in the Earth’s crust, and their superior properties. They are very malleable, highly resistant to corrosion, superior reflectors of light and are unsurpassed as conductors of heat and electricity.
Aside from signifying status and wealth, silver has been one of the most romantic and sought after of all the precious metals. Mystified by its beauty from the beginning of time, people have been drawn to remote areas of the world in search of this white, reflective metal.
Silver has often been surrounded by mystery. The Incas of Peru called it "the tears of the moon" because they were awed by silver’s strange gleam, and the Chinese believed that a silver locket hung around a child’s neck would ward off evil spirits.

As A Part of Your Financial Plan: For the average investor, silver can be an effective means of diversifying investment assets and preserving wealth against the ravages of inflation.Although the value of silver may vary, it has an intrinsic value that is immutable and permanent. Accordingly, many experts suggest that investors should include it among their investment

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V Winner Post #1- J- More About Gold

HIGHLIGHTS OF THIS SECTION
· Gold is the king of precious metals, because of appearance, rarity, and utility.
· The supply of gold increases only slowly.
· Gold is the traditional hedge against disasters and market downturns.

Gold History
Gold has a long and complex history. From gold’s first discovery, it has symbolized wealth and guaranteed power. Gold has caused obsession in men and nations, destroyed some cultures and gave power to others.

Archaeological digs suggest the use of gold began in the Middle East where the first known civilizations began. The oldest pieces of gold jewelry Egyptian jewelry were found in the tomb of Queen Zer and that of Queen Pu-abi of Ur in Sumeria and are the oldest examples found of any kind of jewelry in a find from the third millennium BC. Over the centuries, most of the Egyptian tombs were raided, but the tomb of Tutankhamen was discovered undisturbed by modern archaeologists. Inside the largest collection of gold and jewelry in the world was found and included a gold coffin whose quality showed the advanced state of Egyptian craftsmanship and gold working (second millennium BC).

The Persian Empire, in what is now Iran, made frequent use of gold in artwork as part of the religion of Zoroastrianism. Persian gold work is most famous for its animal art, which was modified after the Arabs conquered the area in the 7th century AD.

When Rome began to flourish, the city attracted talented gold artisans who created gold jewelry of wide variety. The use of gold in Rome later expanded into household items and furniture in the homes of the higher classes. By the third century AD, the citizens of Rome wore necklaces that contained coins with the image of the emperor. As Christianity spread through the European continent, Europeans ceased burying their dead with their jewelry. As a result, few gold items survive from the Middle Ages, except those of royalty and from church hordes.
The Greeks, however, were perhaps the most skilled goldsmiths of their time, and produced works that adorn museums throughout the world. The Italians learned much of this craft from their more skilled Greek counterparts.

In the Americas, the skill of pre-Columbian cultures in the use of gold was highly advanced long before the arrival of the Spanish. Indian goldsmiths had mastered most of the techniques known by their European contemporaries when the Spanish arrived. They were adept at filigree, granulation, pressing and hammering, inlay and lost-wax methods. The Spanish conquerors melted down most of the gold that they took from the peoples of this region, and most of the remaining examples have come from modern excavations of gravesites. The greatest deposits of gold from these times were in the Andes and in Columbia.

During the frontier days of the United States news of the discovery of gold in a region could result in thousands of new settlers, many risking their lives to find gold. Gold rushes occurred in many of the Western States, the most famous occurring in California at Sutter’s Mill in 1848. Elsewhere, gold rushes happened in Australia in 1851, South Africa in 1884, and in Canada in 1897.

The rise of a gold standard was meant to stabilize the global economy, dictating that a nation must limit its issued currency to the amount of gold it held in reserve. Great Britain was the first to adopt the gold standard in 1821, followed, in the 1870s by the rest of Europe. The system remained in effect until the end of the First World War, after which the US was the only country still honoring the Gold Standard. After the war, other countries were allowed to keep reserves of major currencies instead of gold. The arrival of the Great Depression marked the end of the U.S. export of gold in the 1930s. By mid 20th century, the US dollar had replaced gold in international trade.

The American Eagle Bullion program was launched in 1986 with the sale of gold and silver bullion coins. Platinum was added to the American Eagle Bullion family in 1997.

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V Winner Post #1- K- The Case For Investing In Gold

Gold Is Rare. While many commodities have been experiencing bull markets for the past few years, most other rocks and minerals are plentiful. At a given price, the supply of copper, coal, or iron ore can be increased. With gold, higher prices certainly lead to increased mining activity, but those efforts may or may not yield additional production. Looking at global production over the past 10 years shows essentially no production increase, even in the past several years of rising gold prices.

Annual production of gold tells only part of the story, because gold is not consumed the way other commodities are. It is not burned to make power as coal is or converted to ethanol as corn is. Central banks and ETFs keep it in vaults. Private parties keep their jewelry and then go down to the pawnshop to hock it when times get rough. It is estimated that of all the gold ever mined, 85% of it remains, and it's estimated at 129,000 tons. Of that amount, 33,000 tons are held in central banks, and 96,000 tons are in jewelry. It is precisely because gold does not go away that it has lasting appeal as money. Given the numbers above, it is a money supply that only grows at 2% per year and thus maintains its value.

Demand Is On The Rise. Demand for gold is driven mostly by the jewelry market, central bank reserves, and investments. Consider jewelry. As the number of wealthy people in the world increases, demand for gold jewelry is predicted to rise. Central banks, on the other hand, were net sellers of gold from 1995 to 2001 – and here is where we note the irony of the best financial minds selling gold when it was at a 30-year low. Since 2001, there has been speculation about Russia and China increasing their central bank gold reserves, but data is limited. On the investment front, ETFs including shares traded on NYSE and Amex have made investing in gold much more accessible to individual investor. These funds and similar products available in foreign markets have helped increase demand.

Gold Protects. In a peaceful, stable, non-inflationary world, gold would be valuable, but it would likely under perform as an investment class. However, gold prices rise in times of war, unpredictability, and inflation. In the past five years, the world seems to have become less peaceful, with instability rising in key energy-producing regions.

Of course, no one can predict the future, and no one knows whether war, instability, or inflation will increase or decrease. Study after study has shown that a well-chosen portfolio of stocks has always been your best bet for long-term capital appreciation. Many of those same studies also show that gold returns are not correlated to stock market performance. Therefore, a 5%-10% position in gold in your holdings may soften the blow of the next bear market.

Bottom Line: When thinking of the ones you love, give a gift that will love them back. Gold will last far beyond our time on Earth and will remain beautiful. A thousand years from now, people will likely still adorn themselves with gold. In the coming decades, the supply of gold will rise only slowly, and that will keep the metal precious. Demand will likely rise as billions of people increase their purchasing power and barriers to investing in gold are eliminated. Finally, the next time the stock market tumbles; a position in gold might just help you sleep through the cold winter nights.

Factors Influencing The Gold Price: Today, like all investments and commodities, the price of gold is ultimately driven by supply and demand, including hoarding and dis-hoarding. Unlike most other commodities, hoarding and dis-hoarding plays a much bigger role in affecting the price. Given the huge quantity of above ground hoarded gold, compared to the annual production, the price of gold is mainly affected by changes in sentiment, rather than changes in annual production or gold jewelry demand.

Central banks and the International Monetary Fund play an important role in the gold price. At the end of 2004 central banks and official organizations held 19 percent of all above ground gold as official gold reserve. The Washington Agreement on Gold (WAG) which dates from September 1999, limits gold sales by its members (Europe, United States, Japan, Australia, Bank for International Settlements, and the International Monetary Fund) to less than 400 tons a year. European central banks, such as the Bank of England and Swiss National Bank, have been key sellers of gold over this period.

In November 2005, Russia, Argentina, and South Africa expressed interest in increasing their gold holdings. Other than Russia, these are not viewed as significant central banks, but any move by Japan, China, or South Korea to do the same would be seen as significant. Currently the United States Federal Reserve has 16% of its assets in gold , whereas China holds approximately 1% in gold.

Although central banks do not generally announce gold purchases in advance, some such as Russia have expressed interest in growing their gold reserves again as of late 2005. In early 2006, China, which only holds 1.3% of its reserves in gold, announced that it was looking for ways to improve the returns on its official reserves. Many bulls took this as a thinly veiled signal that gold would play a larger role in China's reserves, which they hope will push up the price of gold.

Sentiment: It used to be said that "Gold is the world's frightened bunny". Whenever crisis threatened, the demand for physical gold increased.
Bank failures: When dollars were fully convertible into gold, both were regarded as money. However, most people preferred to carry around paper banknotes rather than the somewhat heavier and less divisible gold coins. If people feared their bank would fail, a bank run might have been the result. This is what happened in the USA during the Great Depression , leading President Roosevelt to declare a national emergency and to outlaw the holding of gold by US citizens.

Inflation: Paper currencies pose a risk of being inflated, possibly to the point of hyperinflation. Historically, currencies have lost their value in this way over time. In times of inflation, people seek to protect their savings by purchasing liquid, tangible assets that are valued for some other purpose. Gold is in this respect a good candidate, since producing more is far more difficult than issuing new fiat currency, and its value does not rely on any particular government's health.

Low Or Negative Real Interest Rates: Gold has a long history of being an inflation-proof investment. During times of low or negative real interest rates, when significant inflation is present, investors seek the safe haven of gold to protect their capital. A prime example of this is the period of Stagflation that occurred during the 1970s and that led to an economic bubble forming in precious metals.

War, Invasion, Looting, Crisis: In times of national crisis, people fear that their assets may be seized, and the currency may become worthless. They see gold as a solid asset, which will always buy food or transportation. Thus in times of great uncertainty, particularly when war is feared, the demand for gold rises.

Production: According to the World Gold Council, annual gold production over the last few years has been close to 2,500 tons. However, the effects of official gold sales (500 tons), scrap sales (850 tons), and producer hedging activities take the annual gold supply to around 3,500 tons.
Demand: About 3,000 tons goes into jewelry or industrial/dental production, and around 500 tons goes to retail investors and exchange traded gold funds.

Supply and demand: Some investors consider that supply and demand factors are less relevant than with other commodities since most of the gold ever mined is still above ground and available for sale at a price. However, supply and demand does play a role. According to the World Gold Council, gold demand has increased dramatically in the last couple of years. The increase came mainly from the launch of gold exchange traded funds, increased investor appetite, and from jewelry. Demand from the electronics industry is rising by over 10% a year, jewelry by around 20%, and industrial and dental by about 20%. India has a voracious appetite for the metal and Dubai has recently announced its intention of building the largest gold retail marketplace in the world there.

Reasons To Say Yes To Gold Ownership

The dollar is weak and getting weaker because of national economic policies that don't appear to have an end.

Gold price appreciation makes up for lost interest, especially in a bull market.
The last four years are the beginning of a major bull move similar to the 70s when gold moved from $38 to over $800. Traded in today’s dollar, gold prices would have to rise to more than $2,000 to equal their highs in the 70s.

Central banks in several countries have stated their intent to increase their gold holdings instead of selling. China alone could result in an unprecedented run on gold stocks creating a staggering effect on the price.

All gold funds are in a long term up trend, with bullion most recently setting new all-time highs. The trend of commodity prices to increase is relative to gold price increases. Most gold consumption is done in India and China and their demand is increasing with their increase in national wealth. Worldwide gold production is not matching consumption. The price will go up with demand.

Several gold funds reached all-time highs in 2006 and are still trending upward. The short position held by hedged gold funds is being methodically reduced.

U.S. government economic policies over the past decade have systematically projected the U.S. economy down a road with uncontrollable federal spending and uncontrollably increasing trade deficits. Both will cause the dollar to lose in international value and will increase the price of alternative investments, such as gold.

With the recent devaluation of many international currencies, the U.S. dollar was the international safe haven of last resort. We are seeing signs of this ending due to many financial factors, the most important one being a falling dollar.

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V Winner Post # 1 - L Ways to Buy Gold

Equity Type Products: Gold is traded in the form of securities on stock exchanges in Australia, France, Mexico, South Africa, Switzerland, the United Kingdom and the United States. By design, this form of securitized gold investment is expected to track the gold price almost perfectly. Unlike derivative products, the securities are 100% backed by physical gold held mainly in allocated form and are generically referred to as exchange traded gold. The securities are all regulated financial products.

Futures And Options: Gold futures contracts are firm commitments to make or take delivery of a specified quantity and quality of gold on a prescribed date at an agreed price. Investors may take or make delivery of the gold underlying the contract on its maturity although, in practice, that is unusual. The major benefit is that such contracts are traded on margin; that is, only a fraction of the value of the contract has to be paid up front. As a result an investment in a futures contract, whether from the long or the short side, tends to be highly geared to the price of bullion and consequently more volatile.

Futures prices are determined by the market's perception of what the carrying costs ought to be at any time. These costs include the interest cost of borrowing gold plus insurance and storage charges. Where the future price is greater than the spot price, as is almost invariably the case, the difference is known as the contango. Very rarely, the future price is lower than the spot price in which case the difference is known as a backwardation.

The cost of a futures contract is determined by the initial margin, that is the cash deposit that has to be paid to the broker. This is only a fraction of the price of the gold underlying the contract, thus enabling the investor to control a value of gold that is considerably greater than the cash outlay. In the event of significant movements in the gold price that could lead to losses, the broker will call for additional, so called variation, margin.

While such leverage can be the key to significant trading profits, it can also give rise to losses in the event of an adverse movement in the price of gold.

Futures contracts are traded on regulated commodity exchanges, the largest of which are the New York Mercantile Exchange Comex Division (www.nymex.com) and the Tokyo Commodity Exchange (http://www.tocom.or.jp/).

Gold options give the holder the right but not the obligation to buy (call option) or sell (put option) a specified quantity of gold at a pre-determined price by an agreed date. The cost of such an option depends on the current spot price of gold, the level of the pre-agreed price; known as the strike price, interest rates, the anticipated volatility of the gold price, and the period remaining until the agreed date.

As is the case with futures contracts, an option position can give the holder substantial leverage. Of course, if the strike price is not achieved then there is no point in exercising the option and any loss is limited to the premium initially paid for the option.

Futures and options can be traded through brokers, just as shares can. Note that when calculating options prices, the higher the strike price, the less expensive call options become and the more expensive put options become. Both call and put options become more expensive the longer the time to expiration.

Warrants: Gold warrants originated in the mid-eighties and were mostly related to gold mine issues. These days, they are commonly issued by leading investment banks and give the buyer the right to buy gold at a specific price on a specific day in the future, for which the buyer pays a premium. Warrants can usually be sold back to the issuer at any time prior to the expiry date. Despite their resemblance to options, warrants are securitized instruments and trading them is less complex than options trading. Some warrants are traded on stock exchanges.

Although warrants are generally leveraged to the price of the underlying asset (in this case, gold), this is not necessarily the case. Although purchasers of warrants may choose to take delivery of the underlying asset, in practice this is unusual.

Coins and Small Bars

King Croesus in Lydia struck the first gold coins during his reign between 560 and 547 BC. Gold coins have continued as legal tender since that time. Today, bullion coins and small bars offer private investors an attractive way of investing in relatively small amounts of gold. In many countries, gold purchased for investment purposes is exempt from VAT (this includes the whole of the European Union).

Bullion Coins: Although the Krugerrand was the first bullion coin to be marketed as an investment product, today investors can choose from a wide range of bullion coins issued by various governments throughout the world. Such coins are legal tender in their country of issue, although this would be for their face value rather than for their gold content.

Gold bullion coins range in size from 1.5 grams to 1000 grams, although the most common weights (in troy ounces of fine gold content) are 1/20, 1/10, 1/4, 1/2, and 1 ounce. The market value of bullion coins is determined by the value of their fine gold content, plus a premium or mark-up that varies among coins and dealers and tends to be higher for smaller denominations, as one would expect.

Bullion coins should not be confused with commemorative or numismatic coins, whose value depends on their rarity, design, and finish rather than on their fine gold content. Many dealers sell both.

Numismatic Coins: Older coins, which fit the description of collectibles, have a premium to the value of gold included in the coin. The holder is dependent upon an accurate and fair appraisal

Small Gold Bars: Gold bars may be bought in a variety of weights and sizes, ranging from as little as one gram to 400 troy ounces (1 kilogram is equivalent to 32.1507 troy ounces), the size of the internationally traded London Good Delivery bar The term “small bars” refers to bars weighing 1000g or less.

According to the publishers of The Industry Catalog of Gold Bars Worldwide, there are currently 89 active manufacturers, accredited to significant international and national gold exchanges and associations, producing more than 500 standard small bars, denominated in grams and in ounces. Their gold purity is normally between 99% and 99.99%.

Gold Accounts: There are two types of gold accounts, allocated and unallocated.

Holding gold in an allocated account is rather like keeping it in a safety deposit box. Specific bars (or coins, where appropriate), which are numbered and identified by hallmark, weight, and fineness, are allocated to each particular investor, who has to pay the custodian for storage and insurance.

Many investors prefer to hold gold in unallocated accounts, which are conceptually similar to foreign exchange accounts. Unless investors take delivery of their gold (usually within two working days), they do not have specific bars ascribed to them. An advantage of unallocated accounts is that investors do not incur storage and insurance charges. However, they are exposed to the credit-worthiness of the bank or dealer providing the service in the same way that they would be if they had any other type of account.

As a general rule, bullion banks do not deal in quantities less than 1000 ounces. In this sense, they can be thought of as wholesalers or business-to-business entities. Their customers are institutional investors, private banks acting on behalf of their clients, central banks and gold market participants wishing to buy or borrow large quantities of gold. Major bullion banks are members of the London Bullion Market Association and their contact details are available on the "List of Members" section of the LBMA website.

However, other opportunities exist for investors wishing to open gold accounts representing less than 1000 ounces. The minimum investment requirement of the Perth Mint Certificate program is USD 10,000.00, while the minimum investment requirement for Gold Pool Accounts is one ounce. Bullion Vault takes orders for as little as one gram and has no limit on maximum size.

Gold Accumulation Plans

Gold Accumulation Plans (GAPs) are similar to conventional savings plans in that they are based on the principle of putting aside a fixed sum of money every month. What makes GAPs different from ordinary savings plans is that the fixed sum is invested in gold.

Key Advantages: Monthly fixed sums can be as small as one likes, while avoiding the premium normally charged on small bars or coins.

Because small amounts of gold are purchased over a long period of time, investors reduce the risk of investing a large sum of money at the wrong time. GAPs are managed electronically, making them very easy to use.

Individual Retirement Account (IRA): Today, millions of people throughout the world recognize gold’s intrinsic value and have made it popular as an affordable investment. In the United States, Individual Retirement Account (IRA) participants can invest a portion of their investment portfolio in silver bullion coins and gold bullion bars provided that they are of a fineness equal to or exceeding 99.9 percent silver. Contact your IRA plan administrator for further information.

A Bit Of History: The Gold Accumulation Plan was first introduced by Tanaka Kikinzoku Kogyo in Japan in 1980 and has subsequently been marketed by other bullion dealers, mining companies, trading houses and banks. A major breakthrough came when Sanwa Bank, a major commercial bank in Japan, launched its own GAP in 1988, followed by Fuji Bank in 1990. Thereafter, the product was widely promoted at major regional banks all over Japan in the early '90s. Currently, there are more than 200 tons of gold accumulated by various operators of the Japanese GAP program.

How Do Gold Accumulation Plans Work? A Gold Accumulation Plan is set up just like most other savings accounts. The investor commits to investing a fixed amount every month, usually for a minimum period of one year, although about 90% of contracts are rolled over (extended) when the one-year term is complete. Once the Plan is set up, installments are withdrawn from the investor's bank account automatically. The monthly amount is then used to buy gold every trading day in that month (not simply a one-off monthly purchase). The advantage of this is that less gold is bought when the price is high, and more is bought when the price is low, since the daily amount of money invested is fixed.

At any time during the contract term, or when the account is closed, investors can get their gold in the form of bullion bars or coins, and sometimes even in the form of jewelry. Of course, they can also get cash should they choose to sell their gold.

Gold Certificates: Historically, gold certificates were issued by the U.S. Treasury from the civil war until 1933. Denominated in dollars, these certificates were used as part of the gold standard and could be exchanged for an equal value of gold. Although they are now collectibles, these gold certificates have been out of circulation for many years. They were initially replaced by silver certificates, and later by Federal Reserve notes.

Nowadays, gold certificates offer investors a method of holding gold without taking physical delivery. Issued by individual banks, particularly in countries like Germany and Switzerland, they confirm an individual's ownership while the bank holds the metal on the client's behalf. The client thus saves on storage and personal security issues, and gains liquidity in terms of being able to sell portions of the holdings (if need be) by simply telephoning the custodian.
The Perth Mint also runs a certificate program that is guaranteed by the government of Western Australia and is distributed in a number of countries.

Gold Oriented Funds: A number of collective investment vehicles specialize in investing in the shares of gold mining companies. The term “collective investment vehicles” as used here should be taken to include mutual funds, open-ended investment companies (OEICs), closed-end funds, unit trusts, and so on.

A wide range of such funds exists, and they are domiciled in a number of countries. These funds are regulated financial products, and as such, it is not possible to go into any details on specific funds.

Funds are likely to differ in their structure – some may invest simply in mining stocks, some may invest in companies that mine minerals other than gold, some may invest in futures as well as mining equities and some may invest partly in mining equities and partly in the underlying metal (s).

It may be misleading to equate investment in a gold mining equity with direct investment in bullion.

The appreciation potential of a gold mining company share depends on market expectations of the future price of gold, the costs of mining it, the likelihood of additional gold discoveries and several other factors. To a degree, therefore, it depends on the future earnings and growth potential of the company.

Most gold mining equities tend to be more volatile than the gold price. While they are subject to the same risk factors that influence the demand for gold itself, there are additional risks that are specific to the mining business generally and to individual mining companies specifically.

Gold Mining Stocks: Individual stock ownership of a company traded on one of the exchanges. The price movement is dependent not only upon the price of gold, but also upon the future of the corporation and management. It's price movement is almost always more than the movement of gold itself.

Gold Mining Claims: Ownership of a claim allows the party holding it to explore for gold or other precious metals on the land that is staked as part of the claim. There are various types of claims. Such claims are filed with the appropriate county, state, and federal mining and land authorities and have proven to be extremely valuable to many individuals and companies in the past.

Jewelry: Jewelry is not thought of as an investment in the US, but in many parts of the world it is a significant family asset. Representing the largest consumption of gold each year, jewelry is a major method of savings in developing economies. The Indian market alone, which prizes high carat gold, saw an increase from 533 metric tons in 2003, to over 800 metric tons in 2005. Their market is continuing to expand with Dubai currently building the largest gold retail marketplace in the world in Mumbai.

Structured Products

This section deals with forwards and structured products such as gold-linked bonds, which are traded on a principal-to-principal basis. Although some warrants are traded on an over-the-counter basis, others are traded on exchanges.

The market for structured products is dominated by professional (institutional) investors, or, in the case of forwards, by gold market professionals, since minimum investment levels may be rather high. The information provided here is intended to provide a general overview of what these products typically look like and how they work, again, in a generic sense. Professional (institutional) investors and private client advisors wishing to learn more about how to execute trades should contact the gold dealing desks of London Bullion Market Association Members directly.

Forwards: Like futures, forward contracts are agreements to exchange an underlying asset, in this case gold, at an agreed price at some future date. Consequently, futures and forward contracts may be used either to manage risk or for speculative purposes. However, there are important differences between forwards and futures:

A forward contract is negotiated directly between counter parties and is therefore tailor-made, whereas futures contracts are standardized agreements that are trade on an exchange. Although forward contracts offer a greater flexibility and are private agreements, there is a degree of counter party risk, whereas futures contracts are guaranteed by the exchange where traded. Because futures contracts can be sold to third parties at any point prior to maturity, they are more liquid than forward contracts, the obligations of which cannot be transferred to third parties.

Gold-Linked Bonds And Structured Notes: A number of the world's largest bullion dealers and investment banks issue gold linked bonds in various forms. Typically, these products provide investors with some combination of:
· Exposure to gold price fluctuations
· A yield
· Principal protection Structured notes tend to allocate part of the sum invested to purchasing put/call options (depending on whether the product is designed for gold bulls or bears), with the balance invested in traditional fixed income products such as the money market in order to generate the yield. Such products may be structured to provide capital protection and a varying degree of participation in any price appreciation depending on market conditions and investor preferences

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V Winner Post #1- M- Mining Process

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V Winner Post #1- N Mining Overview

Mining Claims Defined

Patented Mining Claim: A patented mining claim is one for which the Federal Government has passed its title to the claimant, making it private land. A person may mine and remove minerals from a mining claim without a mineral patent. However, a mineral patent gives the owner exclusive title to the locatable minerals. It also gives the owner title to the surface and other resources. With a Patented Claim: You own the Land as well as the minerals

Unpatented Mining Claim: An Un-patented mining claim is a particular parcel of Federal land, valuable for a specific mineral deposit or deposits. It is a parcel for which an individual has asserted a right of possession. The right is restricted to the extraction and development of a mineral deposit. The rights granted by a mining claim are valid against a challenge by the United States and other claimants only after the discovery of a valuable mineral deposit. With an Unpatented Claim: You are leasing, from the government, the right to extract minerals. No land ownership is conveyed.

Two Types of Mining Claims: Lode and Placer

Lode Claims: Deposits subject to lode claims include classic veins or lodes having well-defined boundaries. They also include other rock in-place bearing valuable minerals and may be broad zones of mineralized rock. Examples include quartz or other veins bearing gold or other metallic minerals and large volume but low-grade disseminated metallic deposits. Lode claims are usually described as parallelograms with the longer sidelines parallel to the vein or lode. Descriptions are by metes and bounds surveys (giving length and direction of each boundary line). Federal statute limits their size to a maximum of 1,500 feet in length along the vein or lodge. Their width is a maximum of 600 feet, 300 feet on either side of the centerline of the vein or lode. The end lines of the lode claim must be parallel to qualify for underground extra lateral rights. Extra lateral rights involve the rights to minerals that extend at depth beyond the vertical boundaries of the claim.

Placer Claims: Mineral deposits subject to placer claims includes all those deposits not subject to lode claims. Originally, these included only deposits of unconsolidated materials, such as sand and gravel, containing free gold or other minerals. By Congressional acts and judicial interpretations, many nonmetallic bedded or layered deposits, such as gypsum and high calcium limestone, are also considered placer deposits. Placer claims, where practicable, are located by legal subdivision of land (for example: the E 1/2 NE 1/3 NE 1/4, Section 2, Township 10 South, Range 21 East, Mount Diablo Meridian). The maximum size of a placer claim is 20 acres per locator. Other Claim Types

Mill Sites: A mill site must be located on non-mineral land. Its purpose is to either (1) support a lode or placer mining claim operation or (2) support itself independent of any particular claim. A mill site must include the erection of a mill or reduction works and/or may include other uses reasonably incident to the support of a mining operation. Descriptions of mill sites are by metes and bounds surveys or legal subdivision. The maximum size of a mill site is 5 acres.

Tunnel Sites: A tunnel site is where a tunnel is run to develop a vein or lode. It may also be used for the discovery of unknown veins or lodes. To stake a tunnel site, two stakes are placed up to 3,000 feet apart on the line of the proposed tunnel. Recordation is the same as a lode claim. Some states require additional centerline stakes (for example, in Nevada centerline stakes must be placed at 300-foot intervals). An individual may locate lode claims to cover any or all blind (not known to exist) veins or lodes intersected by the tunnel. The maximum distance these lode claims may exist is 1,500 feet on either side of the centerline of the tunnel. This, in essence, gives the mining claimant the right to prospect an area 3,000 feet wide and 3,000 feet long. Any mining claim located for a blind lode discovered while driving a tunnel relates back in time to the date of the location of the tunnel site.


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V Winner Post #2-A What Are Base Metals

Base metals are the building blocks of civilization. The term refers to metals that are not precious. Precious metals (primarily gold, silver, and platinum) are held and traded like money. Base metals, on the other hand, are traded because they are useful. Iron and aluminum construct buildings. Copper and lead generate power, as does uranium. Molybdenum, vanadium, gallium, and other metals are not commonly talked about, but play critical niche roles in our technology.

Consequently, base metals differ from the precious metals as targets of investment. Each metal is part of an industry, and the normal law of supply and demand applies. Factors of interest may include mineral extraction, processing, and fabrication, whereas the precious metals are influenced more by general economic factors such as inflation, currency movement, and economic growth.

Base metals are not very different from the precious metals, however, in the available means of investing. All of the major investment metals are represented by futures and options, funds, and specific stocks. Differences can be found in the matter of physical delivery and the reasons for particular investments.

This section discusses the base metals, which are major metals and which are minor. It examines the history of base metals and the opportunities for investments in them.


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Visa Winner Post #2-B- Major and Minor Metals

Click Graphics to Expand: Top Graphic = Minor Metals, Bottom Graphic = Major metals

Major and Minor Metals
Most of the periodic table of elements is metals, as a chemist sees things. Only a few metals are actually important, however. To the financial markets, the major metals are aluminum, copper, lead, nickel, tin, and zinc. In industry, certain metals can be grouped into a high-production set (below). Note that the amount of steel produced each year is enormously greater than any other metal.

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V Winner Post #2- C The History of Metals

Ancient History
Seven metals were known to antiquity, copper, gold, iron, lead, mercury, silver, and tin. Each of these is discussed elsewhere. Of the ancient metals, copper may have been the most important, mercury the least. These seven metals either occur naturally in their metallic state (gold) or are easily extracted from their ores (mercury).

Early metalsmithing involves hammering and shaping soft metals as well as casting those with low melting points. Also early in history, metals are combined into alloys with new and different properties. The most important of these alloys is bronze, a combination of copper and tin. The Bronze Age is a distinct shift in technology and marks different years in different parts of the world. The Bronze Age starts around 3,300 BC in India, 2,500 BC in Europe, 2,000 BC in China, and before 1,000 BC in the Andes.

Other early alloys include some in which one or more of the constituent metals was never actually isolated. For example, early nickel alloys are known, and early brass was made from zinc ore rather than actual zinc. Additionally, many substances used from prehistoric times contain metals in their chemical makeup. The most obvious of these is salt, containing sodium, a metal not identified until the 19th century. Few of these substances seldom exhibit metallic properties of their own and so should not be considered a direct part of the history of metals.

Wood or coal fires are sufficient for manipulating most of the ancient metals, but iron is different. Forced air from a bellows is required to obtain high enough temperatures to first smelt iron from its ore and then create steel. Many cultures never achieved an Iron Age, but find evidence of iron smelting in India around 1400 B.C., Sub-Saharan Africa before 1200 B.C., and China around 500 B.C. Meteoric iron was recovered and shaped well before smelting was a possibility.

Medieval Metals
Very few additional metals were discovered until the industrial age. Platinum and zinc are among these intermediate discoveries. Most of the later developments in metallurgy until modern chemistry began involve hotter furnaces, purer smelting, and greater control of alloys.

Q
Sun
gold
R
Moon
silver
S
Mercury
mercury
T
Venus
copper
U
Mars
iron
V
Jupiter
tin
W
Saturn
leadA curious precursor to modern chemistry is the medieval activity known as alchemy. Alchemy has many philosophical aspects, but as a physical study it involves characterizing and manipulating the properties of substances. The seven known metals were elemental substances; interestingly, each metal was paired with one of the seven known planets.

Alchemy began in the medieval Arab world (alchemy is an Arabic word) and was picked up by Western Europe. To modern eyes, the end goals of the alchemists seem misplaced – turn lead into gold, create the philosopher’s stone, perfect an elixir of life. Nevertheless, alchemists developed techniques still used today.

Alchemists, particularly the early Islamic practitioners, created specialized laboratory equipment (and laboratories), repeated experiments, and a toolbox of procedures.

Each metal was considered to have a small number of fundamental attributes. For example, lead is “cold” and gold is “hot”.To transform one into another, alchemists developed procedures such as distillation, filtration, and crystallization. The right combination of techniques would presumably turn “cold” lead into “hot” gold.

(Logically, turning gold into lead would be just as difficult as the reverse. Somehow, no efforts toward that end are attested to.)

The mystical aspects of alchemy fell somewhat out of fashion during the Renaissance and early industrial period. Nevertheless, famous figures such as Isaac Newton (1643-1727) spent a great deal of time on alchemical investigation. Not until the 18th century does alchemy substantially evolve into modern chemistry.

The Industrial Era
It is in the 18th century that chemistry and metallurgy become recognizable disciplines. Figure 4, the number of known metals (some dates are debatable), shows an explosion of knowledge after 1700.

The pioneers of chemistry of this period include Joseph Priestly (discovery of oxygen), Henry Cavendish (hydrogen), and Antoine Lavoisier (basic terminology and theory). Scientists such as Cavendish and Benjamin Franklin experimented with electricity, which would soon be a powerful tool for purifying metals. Also that century, James Watt perfected his steam engine for use in mining.

Many key inventions of this period involve the making of steel. For example, coke (treated charcoal) creates a hotter blast furnace while introducing fewer impurities. Toward the end of the Industrial Revolution, Henry Bessemer in 1855 invented the first cheap method of mass producing steel. By this time, iron and steel are incorporated into bridges, buildings, and railroads.

With respect to other metals, the Hall-Héroult process developed around 1888 turned aluminum from a curiosity into an affordable material. Copper required no breakthroughs to manufacture economically, but the growing demand for electrical wiring in the late 19th century coincided with westward expansion of the United States. Mines in Arizona, Montana, and elsewhere met this demand.

The Modern Era
In the 20th century, World War II, aviation, and electronics all drove research into metals and materials. Steel is still the most commonly used metal. As described in their individual sections, however, other major metals such as nickel and zinc have gained in importance because of their use with steel. Various metals are used either to plate steel vs. rust or to alloy with steel.

A new use for metals came with the proliferation of power transmission and then electronics. Previously, structural strength and malleability were the material properties of major interest. But, in the last 100 years, copper and aluminum have become desirable because they conduct electricity well. On a smaller scale, little-known metals such as gallium and indium make high-performance electronics possible.

Going forward, computer modeling allows metallurgy to proceed in a previously unknown way, predictively. The behavior of metal alloys can be predicted from calculations, where traditionally a foundry or laboratory would mix a sample and inspect it. The possibilities are open-ended.

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V Winner Post #2-D The Base Metals Industry

The Metals Industry

Every industrial metal has the starring role in a cycle of extraction, manufacture, distribution, and possibly recycling. Generally speaking, the supply from mining and manufacturing is balanced by the demand of distribution and consumption. The balancing factor is the fair market price.

The most heavily mined metal by far is iron. Other major metals include aluminum, copper, and zinc. Countries with great natural resources have an obvious advantage in mining – Canada, the United States, most of South America. China has enormous mining production.

Only some consuming countries produce enough raw materials for their own needs. As shown on the next page (Figure 5), different countries produce different metals. That and demand create international trade.

This section examines the life cycle of metals from mining to recycling.

Exploration
To produce metals, metals must be found. Most of the easily accessible metal ore bodies have long since been found and mined. Thus, exploration geologists use a variety of sensors and techniques to find increasingly more remote and less accessible sources of minerals.

Surface inspection, the simplest technique, is still applicable in remote areas that have recently become more accessible. Also on the surface may be tailings from old mines that are now profitable to process because of improved technology or rising market prices. Seismic readings give evidence of deeper rock layers, domes, and intrusions that may bear metal ore. The most definitive analysis of where the metal lies comes from exploratory drilling and sampling. This is also the most expensive analysis, and so must be limited. Drilling also requires filing a claim.

Mining Claims
A mining claim gives ownership of the mineral rights on a tract of land. Mineral rights may be sold separately from property rights; in the western United States this is definitely the case. A property owner who does not own the rights to the minerals under his land must generally allow the holder of the mining claim to gain access for mining.

In what would become the western U.S., prospecting and mining generally preceded organized government, and so miners developed their own rules. Often these were based on Mexican property law. When Congress enacted the 1872 Mining Law, mining claims became easily available on federal land in areas that now cover 19 states.

Most of the exploration conducted by mining companies does not locate profitable veins. The cost and delay associated with mineral exploration is one of the major reasons that the supply of metal does not respond quickly to changes in demand

Mining
Mining can be classified as surface, tunnel, and borehole. Surface mining includes strip mining, open-pit mining, and placer mining. Surface mining tends to be the cheapest, particularly placer mining, which amounts to picking up shiny rocks. Copper and aluminum are commonly surface mined. The disadvantages of surface mining include the need to find metal ore at or near the surface and the simple fact of using a lot of land surface. Increasingly, the cost of reclaiming the land afterwards is a consideration. Jurisdictions in Canada and the United States require that mining companies provide for eventually cleaning up their mines and tailings.

Tunnel mining isn’t necessarily restricted to literal tunnels. The method includes large underground rooms with pillars of uncut rock for support and other designs in which humans beings go underground. Tunnel mining is more expensive and somewhat unpredictable, as the drilling and tunneling follow veins of ore. An obvious drawback is the danger of working in tunnels. Precious and more valuable metals tend to be mined this way.

Borehole mining is much like oil extraction and is only suitable for a few metallic ores. A borehole is drilled, water is forced down, and a metal-bearing slurry comes up. Uranium has been mined through boring.

Refining and Other Processing
Only a very few metals, such as gold, commonly occur in pure form. Such metals can be separated from the surrounding rock by crushing, grinding, and flotation. Other metals must be isolated from the mineral compound. This refining includes a variety of processes depending on the chemistry involved.

Many metals occur as oxides or sulfides. The lead ore galena, for example, is a combination of lead and sulfur. These metals are smelted, that is, heated in a blast furnace with coke or another additive to extract the unwanted element. Oxygen extracts and combines with sulfur, coke (carbon) combines with oxygen. Some elements are particularly difficult to isolate. Titanium refining, for example, requires costly magnesium.

Refined metals can be purified by melting or boiling, then separating the components. Certain metals normally occur together, as platinum with gold, and both are of interest. Other times, the purification produces waste that must be treated and disposed of. Refining and purification as a general rule take a great deal of water and power.

Also taking a great deal of power is the modern tool of electrolysis. Electricity in a metal solution can isolate a dissolved metal with great purity. This is the exclusive method of manufacturing aluminum. It is also used for nickel and tin plating and for a variety of other metals.

Manufacturing
Pure metals are usually created in a few standard shapes, such as ingots and bars. These standard shapes can be shipped anywhere in the world for manufacturing into useful goods. Metals are pressed into plates, extruded into beams, drawn into wire, and plated onto surfaces. The semiconductor industry requires that a metal such as gallium be purified even further and then grown into large crystals. Certain metals are useful in their liquid form, such as indium in a thermometer.

Recycling
Historically, a metal item at the end of its useful life is discarded. For some metals, however, a viable recycling industry has arisen. Gold has been recycled since prehistory, an easy task given that gold doesn’t rust and retains a high value. Steel has been recycled and remelted for hundreds of years.

Several metals have developed credible recycling industries in the Western world. Aluminum is probably the most visible of these. Certain metals are recovered because they are toxic to dispose of – cadmium and uranium are examples. Recycling can have a large effect on the flow of materials. In the United States, consumption is supplied largely or significantly by recycling for several metals. Recycling can be much cheaper than locating, claiming, extracting, and refining new sources of metal.



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V Winner Post #2- E The Case for Investing in Base Metals

The Case for Investing in Base Metals

People invest in gold and platinum as a form of money; the precious metals are seen to have intrinsic value. So, why invest in the base metals? Copper and lead do not share the allure of gold, after all. There are several answers to this question, but the simplest answer is that investing in base metals has worked in the past.

The Base Metals Appreciate
Base metals trade between suppliers and consumers. These are generally miners and manufacturers. The major metals are tracked on international commodities exchanges, where they have done moderatey well over the long term.

Since 1970, base metal prices have risen, though not as much as gold. In the recent past, however, several metals have appreciated a great deal, and distinctly more than gold. So, the most fundamental reason for investing in metals is that it has worked.

Diversification
Every investor should diversify his portfolio, and base metals are a different kind of investment from stocks, and bonds. Base metals are even different in behavior from the precious metals.

A Tight Supply
Mining and manufacturing of metals represent a significant fraction of the world economy, an economy that is growing. The value of the annual production of various metals was given earlier. Actual production quantities have risen over the last few decades, but not nearly as much as prices (Figure 9).

It is not easy to expand production of metals. Veins and other mineral sites must be located, claimed, tested, and put into production. Mining is a labor-intensive effort, as seen in the various photos of mining operations in this report.
Demand is not so constrained. Demand for industrial metals comes from a combination of population growth and technology. When supply fails to meet demand, stockpiles fall and prices rise.

Demand in ChinaAny discussion of industrial metals cannot overlook China. China is a top producer of some of the world’s metals, but it is a consumer of even more. As a percent of world demand, China consumes a great deal of the base metals.

Investments in the so-called BRIC countries (Brazil-Russia-India-China) have become popular, and with good reason. But while scrutinizing the companies doing business in China, and the exchange-listed funds tracking China, investors should also seriously consider the raw materials demanded by China.

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V Winner Post #2-F - A History of Base Metals Commodities Markets

The base metals are considered commodities, the raw materials of commerce. Commodities trading is as old as agriculture and as recent as this morning’s farmers’ market. Commodities futures trading is a considerably more interesting story.

Futures trading begins with agriculture, an inherently uncertain endeavor. Crop yields vary from year to year because of weather and insects, and therefore so do crop prices. At harvest time, farmers typically bring their foods to market at the same time. The market is saturated at this time, whereas at any other time of year, the food crop is scarce. Prices swing from very low to very high.

Despite these factors, farmers want to sell their wheat at a predictable price, and bakers want to buy at a predictable price. Therefore, at many times in many places, farmers and bakers have entered into forward agreements, agreeing at planting time as to what the price will be in the fall.

Going a step beyond such agreements, the first structured commodities trading seems to have been in 18th century Osaka, Japan. Merchants stored grain in warehouses and sold tickets against that grain. The tickets were standardized and traded something like currency.

In the United States, the Chicago Board of Trade was established in 1848, as that city was a natural hub between Midwestern farmers and Eastern consumers. Standardized contracts were soon traded even between people who had no ultimate interest in delivering or receiving actual wheat. New York, Kansas City, and other cities also opened their own commodities trading centers.

Formal metals trading may have begun at the Royal Exchange in London in the 16th century. The London Metals Exchange was established in 1877 for the trading of copper and tin. In the United States, The New York Metals Exchange (NYMEX) began trading platinum futures in 1956. Various metals are now traded at exchanges around the world, but LME and NYMEX are still the largest.

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V Winner Post #2-G Aluminum

Aluminum

History of Aluminum
The substance alum, long used as an astringent, is chemically potassium aluminium sulfate. But, the metal component of the compound was unsuspected until the advent of modern chemistry. French chemist Antoine Lavoisier suggested in 1787 that alum contained an unknown metal oxide. In 1808, Sir Humphry Davy failed to isolate the metal, which he first called alumium, then aluminum. The metal was finally isolated by Hans Christian Ørsted in1825 and by Friedrich Wöhler two years later.

The new metal ultimately gained the conventional -ium suffix for metals. Aluminium, as it was called, binds tightly to oxygen and was therefore very expensive to manufacture. Napoleon III is said to have served his guests on the metal in preference to gold. It plates the capstone of the Washington Monument.

In the late 19th century, Charles Hall in the U.S. and Paul Héroult in France independently developed a much more efficient electrolysis method. Hall called the metal aluminum, and because his company (now Alcoa) dominated production in the United States, the shorter name stuck there.

Mining and Production
Aluminum is the most common element in the Earth’s surface, comprising 8% of the crust by weight. Bauxite is the ore of choice, although aluminum could conceivably be extracted from clays and other minerals. World mine production in 2007 was over 190 million tons, the most of any metal except iron. The major mining nations were Australia, China, and Brazil.

The Hall process makes aluminum production commercially viable, but it does use a great deal of electricity, 15 kilowatt-hours per kilogram. Therefore, a producing country without abundant reliable power must locate aluminum smelters carefully. By far the largest aluminum producer in 2007 was China (32%), followed by Russia and Canada.

Recycling is an important source of aluminum. In the United States, aluminum recovered from beverage cans and other items accounted for about 25% of consumption in 2007.

Properties and Uses
Aluminum is a light weight and relatively strong metal. It is the economically attractive choice of material wherever the greater strength of steel is not required, nor any metal with a special property. Aluminum oxides in air, but immediately forms a protective coat of aluminum oxide that halts the process.


Aluminum is soft, ductile, and malleable. It can be easily formed into sheets and wires or machined into other shapes. A thin coating of aluminum, such as on mirrors, is highly reflective.

Aluminum’s electrical conductivity is lower than copper by volume, but greater by weight. Therefore, copper is the better choice in tight spaces, but aluminum is used for electrical transmission lines that must be supported by towers.

Aluminum is used worldwide for vehicles, buildings, and containers. Only steel is used more.

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V Winner Post #2- H Chromium

Chromium

History of Chromium
“Chrome” as a reflective finish is probably more familiar than the actual metal it comes from. In the late 18th century, that metal was an unknown component of brightly colored minerals from the Ural mountains that were used as pigments in paint. French chemist Louis Nicolas Vauquelin spent two years analyzing these minerals, culminating in 1797 in the discovery of a new metal. Vauquelin also detected his new metal in beryl; that is, rubies and emeralds.

Rubies, emeralds, and paint pigments – the new metal was named from the Greek “chroma” meaning “color”. Indeed, chromium makes many brightly colored compounds that for decades were its primary use. Such compounds are used to color paint, enamel, and glass.

Chromium as a pigment is actually a minority use in modern times. Chromium plating on steel was developed as electroplating became commonplace in the 19th century. Also in that century, the ability of chromium was recognized to protect steel from corrosion. Stainless steel that includes around 18% chromium was developed in the early 20th century.

Mining and Production
Chromium occurs in several minerals, but the only one commercially mined is chromite, an oxide of iron and chromium. South Africa is the biggest producer, followed by Kazakhstan and India.

Chromium is produced from its ore by smelting with coal and an active metal such as aluminum that will strip away the oxygen. Since most chromium (95%) is used in alloying with steel, it is normally traded and shipped in the form of ferrochromium (an excessively rich alloy) rather than the pure metal.

Properties and Uses
Chromium as a metal is lustrous and hard, but almost never used in its pure form. By far the biggest use for chromium is in stainless steel, so called because it “stains less”This is the preferred alloy of steel when looks and durability are more important than extreme levels of hardness or toughness.

Chrome finish is a thin layer of chromium deposited on (usually) steel to form an attractive shiny surface that also hinders corrosion. The chromium (immediately converted to chromium oxide) layer is actually thin enough to be transparent; the shine is the underlying steel.

Comparatively small amounts of chromium are still used in pigments for paint and dye.

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V Winner Post #2-I Copper

History of Copper

Ancient copper ingot

Copper is a metal known from antiquity. As a semiprecious metal in the same group as gold and silver, copper occurs naturally in pure nugget form. Copper coins and jewelry date back 10,000 years. About 5,000 years after that, we have the first evidence of copper smelting in Anatolia, by which minerals such as green malachite and blue azurite become sources of the metal. This, the first metal technology, was also developed in Africa, China, and Central America, among other places.

Copper, which is soft, alloys with tin to form bronze, a much harder metal that launched a new era in human history. The Bronze Age starts around 3,300 BC in India, 2,500 BC in Europe, 2,000 BC in China, and before 1,000 BC in the Andes. Bronze is the first truly hard metal – copper won’t hold an edge, and iron smelting is more difficult. Thus, bronze armor and weapons mark the end of the Stone Age. Because copper and tin are seldom found together, bronze is also a stimulus to trade.

The Romans used copper extensively. The Latin Cyprium refers to their main source, the island of Cyprus. We find copper-backed mirrors and more copper jewelry and also large quantities of copper alloyed with zinc; in other words, brass.

Meanwhile, New World civilizations were beginning to produce their own copper jewelry and bronze tools. Copper jewelry from the Great Lakes area dates to well before 3,000 BC.

Iron superceded copper as the signature metal of technology, starting in Anatolia and China, but copper retains and expands its uses in the medieval and modern ages.

Mining and Production

The earliest copper was probably loose nuggets scavenged as placer mining. Soon, prominent minerals such as brightly-colored azurite and malachite were surface-mined for smelting. These are carbonate compounds with blue and green colors that announce the presence of copper. Modern copper mining is more likely to target copper sulfides, but surface activity in the form of open-pit mining is still the favorite approach.

By far the largest copper producer is Chile (36%), well ahead of Peru and the United States (each 8%). Chuquicamata in Chile and Bingham Canyon copper mine in Utah are among the largest open-pit mines of any kind.

Extracted ore is crushed, ground, and separated by flotation. Smelting and further processing creates a blister of 99% copper. This is further refined by heat or electrolysis to create the end product, 99.99% copper.

In the United States in 2007, ten percent of copper came from recycling rather than mining. Copper is relatively easy to recover and refine, while alloys can be recycled by reprocessing at brass mills and the like.

Properties and Uses

Copper has many useful properties. It is a soft ductile metal, meaning it can be easily worked into a variety of shapes. These include coins, tubes, plumbing, and wire. Copper is the best electrical and thermal conductor after silver and gold. This makes it a favorite choice for electrical contacts and wire. This bears repeating: copper wire is everywhere. Household appliances, small electric motors, cords, and cables all depend on copper to function.

Copper is lustrous, and so used in decoration. It oxides slowly when exposed to the elements, forming a protective green patina such as is seen on the Statue of Liberty. Contrast this with iron, which rusts and flakes off until nothing is left.

Brass and bronze have already been mentioned as useful alloys. Brass is harder than copper, but still malleable, so that it is used for doorknobs, hinges, and other fittings. Brass has low friction, making it a favorite choice in bearings and valves. Bronze, the alloy of antiquity is still employed in window frames and other architectural elements. Bronze is heard as well as seen in bells and cymbals. Brass, by contrast, is an entire category of musical instrument.

Copper is still used in coinage when the intent is utility over investment. Modern copper coins are actually hardened with zinc or nickel, because pure copper won’t survive wear and bending. The rising price of copper drives it to represent smaller fractions of a coin’s metal content, lest the metal cost more than the face value of the coin. The US penny is 2% copper plated over zinc, the US nickel is 75% copper and 25% nickel, the euro coins are copper alloyed variously with other metals, the Australian kangaroo is 92% copper with aluminum and nickel.

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V Winner Post #2-J Gallium

History of Gallium
The existence of gallium was predicted by Dmitri Mendeleev, inventor of the periodic table. His table had a gap below aluminum where a new metal ought to reside. In 1875, French chemist Lecoq de Boisbaurdran detected an unknown element spectroscopically in a zinc ore. He isolated the metal later that year and named it gallium after his native country (“Gaul” in Latin).

Mining and Production
Gallium only occurs as a trace element in ores of other metals. It can be extracted from bauxite (aluminum ore), coal, zinc ore, and other minerals. Bauxite is the most common source.

Gallium can be extracted from mineral ores by conventional industrial chemical means. Most gallium goes for use in the semiconductor industry. Therefore, standard extraction is often followed by melting and crystalizing the gallium, which produces the very high purity (99.9999%) required.

The principal gallium exporters are China, Germany, Japan, and Ukraine. World production in 2007 was estimated to be 80 tonnes.

Properties and Uses
Gallium is a silvery metal with an extremely low melting point; in fact, it melts in the hand (30E C). Gag spoons were once available for stirring coffee – the bowl of the spoon would melt in the cup, leaving one holding the stem.

Gallium has several properties that make it inconvenient to store. It wets glass, it expands when it freezes, like water, and it leaks into the crystaline structure of other metals. Viewed another way, this last property makes it a useful component of metal alloys. For example, gallium is a component of low-melting point alloys such as solder.

Gallium can replace toxic mercury in high-temperature thermometers.

The two largest applications of gallium by far are in photoelectric devices and electronics. Gallium arsenide is a high-performance semiconductor used in light-emitting diodes (LEDs) and integrated circuits. Gallium nitride is the key component of blue LEDs used in Blu-ray DVD players.

Gallium can serve as a dopant (trace additive) in silicon or germanium transistors.

Gallium is used in solar cells in the form of gallium arsenide, indium gallium arsenide, and other compounds. Silicon is cheaper, but pure crystalline silicon has been in short supply for several years. Gallium is also a component of new copper indium gallium diselenide solar thin films.

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V Winner Post #2-K Indium

History of Indium
The discovery of indium is very similar to that of gallium. German chemists Ferdinand Reich and Hieronymous Theodor Richter in 1863 detected an unfamiliar spectral signature in zinc ore. Richter isolated the new metal four years later and named it after the indigo spectral line.

Indium was primarily a laboratory curiosity until it was used as a lubricant in aircraft engines in World War II. It has also been used in fuses, solders, and other low-melting point metals.

Mining and Production
Indium is not particularly rare. It is found as a trace element in ores of copper, iron, lead, and particularly zinc. It can be isolated by standard refining methods.

World production of indium is about 500 tonnes per year, half from China and 17% from the Republic of Korea.

Properties and Uses
Indium is a soft, lustrous, silvery metal. It is in many ways similar to gallium, which is above it in the periodic table, and in other ways similar to zinc. A pure indium wire will emit a noise when bent, like pure tin.

Indium is still used somewhat for its historical purposes in solders and lubricants. A new thin-film flexible material for solar power includes indum.

The compound indium tin oxide is a transparent conductor. Thus, it is the substance that makes possible liquid crystal displays (LCDs). LCDs are used in flat-panel televisions, computer monitors, and hand-held devices such as cellphones. Over 80% of the indium produced each year goes into LCDs.

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V Winner Post #2- L Iron and Steel

Iron and Steel

History of Iron
Iron is a metal known from antiquity. Iron in its metallic form was probably collected from meteorites in the earliest days of civilization. But, smelting iron from hematite and other ores is more difficult than working with copper and tin. It requires a hotter furnace that must include a bellow or other means of forced air. Thus, a civilization’s Iron Age follows its Bronze Age. We find smelted iron in Anatolia around 1500 BC, India 1400 BC, China 500 BC, and so on.

The simplest products of iron smelting are wrought iron, tough and malleable, and cast iron, hard and brittle. Cast iron requires a hotter furnace and for centuries was made only in China.

The creation of steel from iron requires adding controlled amounts of carbon. Some forms of steel are nearly as old as iron itself. A variety of steels was produced during the Middle Ages. Cheap mass-produced steel began in Sheffield, England, in 1855. Modern steels are carefully alloyed with small amounts of other metal for a huge range of properties. Chromium and nickel produce stainless steel, molybdenum hardens steel, manganese increases strength, and tungsten adds toughness.

Mining and Production

Iron is the second-most common metal in the earth’s crust, behind aluminum. It occurs as an oxide in hematite, magnetite, and other ores. Significant mining (more than 1% of the total) occurs in at least a dozen countries, led by China (32%), Brazil (19%), and Australia (17%). An estimated 1.9 billion tonnes were mined worldwide in 2007, many times more than any other metal.

Iron ores are typically processed by crushing, grinding, and separating by flotation or magnets (magnetite is magnetic, hematite is not).

Once the iron oxide is separated from its surrounding rock, it must be smelted in a blast furnace. The oxygen is stripped away by exposing it to carbon monoxide (CO) obtained from partially-burned carbon (coke; treated coal). The resulting iron can be poured into molds and used as is; this is cast iron. Otherwise it is termed pig iron and moves to the next stage of production.

Most iron is destined to become steel. As described above, steel is produced from iron by carefully controlling the amount of carbon and alloying metals. Steel can be rolled into sheets, drawn into wire, and shaped into complex forms.

Properties and Uses
The variety of uses for steel can only be sampled here. Mild steel with about 0.2% carbon is simple and economic enough to manufacture that it has almost completely replaced basic wrought iron itself.

A harder steel with more carbon is used to form the beams, girders, and rails that are the skeletons of buildings and transport systems. Though the visible surface might be aluminum sheets or concrete, the strength comes from steel.

The major disadvantage of steel is that it easily rusts and eventually rusts completely. Stainless Steel with 10% chromium is resistant to corrosion. Steel can also be plated with nickel or bonded to zinc (galvanized steel) for the same purpose.
Tool steel contains cobalt or tungsten for hardness, used in drill bits. Manganese steel with 12% alloy is very hard for extreme-force cutting blades. Vanadium and especially molybdenum are also used to harden steel.

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V Winner Post #2- M Lead

History
Lead is one of the seven metals of antiquity (along with copper, gold, iron, mercury, silver, and tin). It rarely occurs naturally, but is easily extracted from its ore, galena (lead sulfide). Being soft, dense, and easily melted, lead has been used throughout history for weights and molds.

The Romans used lead for water pipes. The Latin word plumbum gives us our word plumbing. Lead is toxic, though, and it is conjectured that lead in drinking water contributed to the decay of the Roman Empire.

Stained glass windows in the Middle Ages were crafted from shapes of colored glass separated by strips of lead. Slightly later, movable type was cast from a lead-tin alloy and separated into rows by strips of lead called leading.

Lead toxicity has caused the metal to be abandoned for some uses in modern times. Lead no longer serves as a paint base in the Western world, is not used in gasoline, and is being phased out of some other uses. Substitutes for lead are generally more expensive or less effective, so traditional lead chemicals are still found in poorer countries.

Mining and Production
Lead mine production totaled 3.5 million tonnes in 2007, with the major producers being China (37%) and Australia (18%). Galena and other lead ores are separated from surrounding rock by crushing and flotation. The sulfide is oxidized by roasting and then reduced to the metal in a blast furnace.

Lead ores also contain bismuth, silver, and other trace metals that must be removed and recovered. Lead also occurs with zinc and copper and so is produced as a byproduct of those metals. Lead is the end product of radioactive decay of uranium, radium, and thorium. Those metals therefore always contain traces of lead.

Significant amounts of lead are recovered by recycling, particularly from car batteries. The amount of recycled lead produced in 2007 in the United States amounted to 75% of consumption.

Properties and Uses
Lead is a soft and malleable metal with poor conductivity and low strength. Pure lead is silvery, but the surface rapidly oxidizes and becomes dull gray. Lead is the least expensive dense metal and so is used in weights, bullets, and radiation shielding.

The low melting point of lead (327EC) allows it to be melted and poured with very simple technology – a kitchen stove, for example.

Lead is used in lead-acid car batteries. Most other kinds of rechargeable battery are more convenient in terms of weight and size, but lead-acid can generate a very high current. Pewter and solder are lead-tin alloys that are being phased out in favor of safer metals.


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V Winner Post #2- N Manganese

History of Manganese
Two metals with similar names are magnesium and manganese. These originate in ancient times with two minerals from the region of Magnesia in Thessaly, Greece. One mineral, called magnesia alba by medieval alchemists, was eventually found to contain magnesium. The other metal was called magnesia negra (note the two “n”s), later contracted to manganesa. (Yet a third mineral from Magnesia, magnetite, gives us the word magnet.)

By the middle of the 18th century, manganesa (which we know as manganese dioxide) and other manganese compounds had been used for centuries in glassblowing, for either coloring or decoloring glass. Many new elements were discovered in this era, and as part of that effort, manganesa was identified as the compound of an unknown metal. Swedish Chemist Johan Gottlieb Gahn isolated the reduced the oxide to a metal in 1774.

The current main application of manganese, hardening steel, was discovered forty years later, but wasn’t put into practice on any significant scale until greater advancements in metallurgy toward the end of the 19th century. When Henry Bessemer developed his revolutionary method of inexpensive steel production around 1860, it was a small amount of added magnesium that made the process possible.

Mining and Production
Manganese is a hard brittle metal. It is mined in many countries, particularly South Africa and Australia, as a variety of ores.

Ores of manganese are typically reduced with coke (charcoal) and then purified by electroplating. Because almost all manganese is destined to be alloyed with steel, it is normally sold and transported as ferromagnesium, a steel alloy bearing excess amounts of the metal.

Properties and Uses
Fully 85% or more of manganese goes into steelmaking. About a third of this is used to remove undesirable sulfur from crude steel. The balance is as an alloying component to harden steel. Most steel contains some manganese, from 1% to 15% or more, depending on the required hardness.

Manganese is also used as an alloy with aluminum to resist corrosion. Most commercial aluminum (i.e., beverage cans) contain around 1.5% manganese.

Manganese dioxide is used in electrodes in dry cell batteries. Potassium permanganate, recognized by its distinctive purple crystals, is a reactive salt used to purify water and eliminate strong odors in industrial areas.

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V Winner Post #2-O Molybdenum

History of Molybdenum
Molybdenite

Molybdenum is a transition metal identified in early modern times. Historically, the main molybdenum ore now called molybdenite was often confused with graphite or galena, the ore of lead. (“Molybdos” is Greek for “lead”.) In 1778, Swedish chemist Carl Wilhelm Scheele determined that molybdenite contained the sulfide of a new metal. This metal was isolated five years later.


The new metal had no actual use for another hundred years. European factories began using molybdenum alloys to make armor plates before World War I. This application was expanded and refined in the 1930s, just before demand exploded in World War II, leading to the current molybdenum industry.

Mining and Production
World production of molybdenum is relatively small, less than 200,000 tonnes per year, most of which comes from the United States, Chile, and China. Molybdenum ore is mined alone (40%) or as a secondary metal with copper (60%). In either case, it is always accompanied by small amounts of rhenium, which can also be extracted and sold.

Molybdenite is molybdenum sulfide. The ore is crushed, ground, and separated by flotation from any copper minerals. The metal is then converted to an oxide (MoO3) by roasting in oxygen to drive off sulfur dioxide. Some manufacturing applications can work from this, or the pure metal can be obtained by exposing molybdenum oxide to hydrogen.

In recent years, a large increase in demand for molybdenum has caused the roasting stage to be a bottleneck. Moly roasters are expensive, specialized power hogs that are not built very quickly.

Properties and Uses
Molybdenum is a hard silvery metal above tungsten on the periodic table. It shares with tungsten many characteristics, including a very high melting point, but has significantly lower density.

Molybdenum disulfide, the purified form of molybdenite, can be used in its own right as a high temperature, high pressure lubricant. It is used, for example, in aircraft engines. This is the mineral once confused with graphite, though unlike graphite, it is chemically inert and does not burn.

The greatest use of molybdenum is as a small (1-8%) alloying element with steel. Molybdenum steel encompasses a wide variety of alloys manufactured for different combinations of hardness, temperature tolerance, and corrosion resistance. And, although the molybdenum content is small, the steel market is very large, leading to very high demand for this fractional additive.

For example, stainless steel containing nickel and chromium may also include molybdenum to resist additional kinds of corrosive substances. High-temperature molybdenum steel is used in drive shafts, boilers, petroleum refineries, and various stress-critical components of automobiles, aircraft, and other vehicles. Case hardened steel is used in engine blocks, rollers, and construction cranes. Tool steel used in drill bits may contain molybdenum in place of tungsten.

Pure molybdenum is occasionally used for high-temperature elements that must be drawn or shaped, such as heating elements, electrodes, and heat sinks.

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V Winner Post #2-P Nickel

History of Nickel
Nickel is a silvery-white metal related to iron and cobalt. Although it is not one of the metals known in antiquity, it was used in the form of naturally-occurring copper-nickel alloys. Nickel-bearing weapons and coins made by China and its trading partners date to the first century BC and before.

Until early modern times, nickel ores were often mistaken for copper-bearing ones, hence the name kupfernickel (“devil copper”). Since nickel melts at a much higher temperature and has very different chemical properties, attempts to smelt the false copper were unsuccessful.

In 1751, the Swedish chemist Axel Fredrik Cronstedt working with a supposed copper mineral extracted the white metal now called nickel. The identity of the new metal was in doubt for a generation – it was, perhaps, some whitish copper alloy – but eventually, the new element was confirmed.

Mining and Production
Nickel occurs in some iron-bearing ores and separately in sulphide minerals. It is not very common in the Earth’s crust. The largest concentrations are in Russia (mined by Norilsk Nickel) and Ontario, Canada (mined by Vale Inco). The Ontario location is believed to be the site of an ancient strike by a nickel-bearing asteroid. Nickel is also mined in Australia, Indonesia, and other countries, often in conjunction with iron or cobalt. Nickel is extracted by both surface mining and deep tunneling.

Sulfide ores are concentrated by flotation and then roasted to drive off sulfur dioxide, leaving an impure (75%) metal. This is reacted with carbon monoxide (the “Mond Process”) to produce a gas that can be easily decomposed, depositing pure nickel. Alternatively, the impure nickel can be purified by electroplating, particularly if plating is the intended use.

Properties and Uses
Nickel is lustrous and doesn’t oxidize or tarnish. It is hard, malleable, and fairly conductive. Nickel atoms are about the same size as iron atoms, meaning they can be substituted in alloys and also alloy with each other. Nickel responds to magnetism.

By far the largest demand for nickel (65%) is in making stainless steel. Nickel is also used to plate steel, molybdenum, and other metals because of its silvery appearance and resistance to oxidation. Nickel alloyed with copper makes cupronickel, a hard metal resembling bronze that does not corrode in seawater.

For use in circulating coins, nickel is cheaper than silver but more expensive than copper. Modern mid-range coins that would traditionally be silver now commonly use some combination of copper and nickel. For example, the 1 euro coin is primarily copper over a nickel core.

The majority of rechargeable batteries are based on nickel cadmium or nickel hydride. Although lithium batteries have greater performance, their greater cost is a significant factor. Therefore, nickel is in demand for powering everything from camcorders to hybrid automobiles.

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V Winner Post #2- Q Tin

History
Of the metals known in ancient times, tin may have been in the shortest supply. Tin alloyed with copper makes bronze, a hard metal that improves weapons and tools. But, tin is difficult to find in the Mediterranean area. The Phoenicians brought tin from the “Tin Isles”, thought to be Cornwall in England. Other deposits important in antiquity occur in modern Iran and China. The need to bring tin and copper together motivated trade.

Mining and Production
Tin is not very common in the Earth’s crust. It is usually mined in the form of tin oxide, the mineral cassiterite. The largest tin producers in 2007 were China (43%) and Indonesia (28%). Several countries in South America also mined significant amounts. The ore is reduced to metallic tin in a furnace by relatively simple metallurgic techniques.

In the United States, where tin is not mined, some tin is recovered from recycling, mostly from tin-coated steel cans. Recovered tin in 2007 accounted for 20% of U.S. consumption.

Properties and Uses
Tin is a malleable and ductile silver-white metal. Located next to the semiconductors on the periodic table, it has some metallic and some nonmetallic properties – very pure tin at cold temperatures will turn into a gray powder.

A tin wire will make a crackling noise when bent.

Tin resists corrosion. “Tin cans” (or “tins” in Britain) are steel cans plated in tin. Tin foil was once common, but has been replaced in the kitchen by aluminum foil.

Tin is used in a variety of alloys, including bronze, pewter, and solder. In alloys that traditionally contain lead, the current trend is to reduce the lead content in favor of tin.

Molten tin is used as a surface on which window glass is formed (“float glass”).

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V Winner Post #2-R Titanium

History of Titanium
Titanium is a strong, lightweight metal that occurs in several minerals and is not especially rare. It went unsuspected, however, until it was identified as an unknown oxide around 1790 by English geologist William Gregor and confirmed by German chemist Martin Heinrich Claproth.

Titanium the metal is extremely difficult to extract from its oxide. This was first achieved in 1910. After World War II, William Justin Kroll developed a commercially viable process involving titanium tetrachloride. Until then, titanium had been at best a laboratory curiosity. It became a space-age wonder metal.

Mining and Production
Titanium is the ninth-most common element in the Earth’s crust. It occurs in many minerals, but only two are economical ores (ilmenite and rutile). Australia (25%) and South Africa (19%) are the leading producers. Titanium is generally surface mined.

Titanium refining by the Kroll process works commercially, but not so much as the refining of other metals. It consumes costly magnesium. The more recent Hunter process uses sodium, a minimal improvement. Thus, titanium remains expensive because of the production cost.

Most titanium ore (over 95%) is actually not reduced to the pure metal, but turned into titanium dioxide (TiO2), a much easier task.

Properties and Uses
Titanium dioxide, the main use for titanium, is a bright white powder. Millions of tonnes per year are used as a paint base, in plastic, toothpaste, and paper where brilliant white is called for. TiO2 also absorbs ultraviolet light and so is used in sunscreen. Yes, the space-age metal is most commonly used in the most basic consumer goods.

Titanium the metal is lightweight and strong. It has the highest strength per weight of all common metals, 60% heavier than aluminum but more than twice as strong. It has a high melting point. Titanium is ductile and, as usually manufactured, has a high tensile strength similar to steel. It is very corrosion-resistant.

Titanium is not as hard as steel, so will survive less wear and scratching. It is difficult to machine and very difficult to weld. Like aluminum and magnesium, it will burn if heated to high enough temperature (600EC).

Titanium is used where light weight is critical and cost is not, such as aerospace vehicles – missiles, aircraft engines, airplane frames. The Russian Alfa-class submarine had an innovative titanium hull that reduced vibration noise. The SR-71 “Blackbird” reconnaissance jet also had an early titanium hull (titanium from the Soviet Union).

Titanium is a vanity metal for watch cases and laptop computers. It is also found in costly backpacks, tennis rackets, racing bikes, and other sports equipment where strength must be balanced against weight. Because it resists sea water corrosion, titanium is used in propeller shafts, desalination plants, aquariums, and marine instrumentation

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V Winner Post #2- S Uranium

History of Uranium
Uranium is a dense silvery-gray metal well known for being radioactive. Uranium oxide was used to color yellow glass in the first-century Roman Empire. The practice was recommenced using pitchblende (uranium ore) in central Europe in the Middle Ages.

German chemist Martin Heinrich Klaproth is credited with identifying a new metal in pitchblende in 1789. He named it after the recently-discovered planet Uranus. Uranium was first isolated in 1841 by French chemistry professor Eugène-Melchior Péligot. Uranium continued to be used to color glass.

In the early 20th century, after Marie Curie discovered radium in pitchblende, the ore was mined primarily for its radium. Uranium itself was an unimportant byproduct used as a cheap glaze for pottery and tiles.

When Antoine Henri Becquerel discovered radioactivity in 1896, it was from a sample of uranium fogging an unused photographic plate. Uranium was therefore known to give off some kind of invisible ray.

By the beginning of World War II, some of the causes and effects of radioactivity were understood. Itallian physicist Enrico Fermi was just finishing work on the theoretical concept of a fission chain reaction in uranium. Uranium became the central element of two research projects in the United States during the war, a controlled nuclear fission pile and the atomic bomb.

Post-war, these two technologies have evolved into the two main uses for uranium, power generation and nuclear weapons.

Mining and Production
Uranium occurs naturally in small amounts everywhere, but only the concentrated ores such as pitchblende are commercially interesting. Uranium is extracted from both open-pit mines and underground, depending on its occurrence. The major uranium mining countries are Canada (25%), Australia (19%), and Kazakhstan (13%). Total world production in 2006 was about 46,000 metric tonnes of uranium oxide (U3O8).

Being mildly radioactive, uranium decays into other radioactive elements, eventually resulting in lead. Therefore, natural uranium ore will always contain small amounts of radium, lead, and other decay products. Uranium ore after mining is crushed, ground, and treated with a leaching acid or alkali to dissolve the uranium oxide. The leaching solvent is then concentrated and dried to a powder called yellowcake. Yellowcake is about 80% U3O8 and is traded commercially as an intermediate uranium product. (Yellowcake is actually black, but early versions of it were yellow.)

Uranium consists of two main isotopes that differ in their nuclear properties but are chemically almost identical. Most (99.3%) is U238, which is radioactive but does not fission. Yellowcake for use in some nuclear reactors can simply be converted to uranium dioxide (UO2) and fashioned into control rods. U238 can also be converted to plutonium in a breeder reactor.

For weapons purposes and some reactors, the remaining 0.7% of uranium, which is fissionable U235, must be concentrated through costly efforts. This is called enrichment. Enrichment is a large enterprise that cannot easily be disguised and has only one purpose. When a nation begins its own nuclear weapons program, uranium enrichment is often the indicator.

Uranium is enriched by one of two favorite methods. Uranium converted to hexafluoride gas (UF6) is separated by many iterations of centrifuges or gas diffusion. The result is enriched to 3-5% U235; what remains is depleted uranium.

Properties and Uses
Uranium is a silvery white metal with high density (19 times water, similar to gold) and mildly radioactive. It is usually stored and used as an oxide rather than the pure metal. Uranium has the highest atomic weight (238) and atomic number (92) of the naturally occurring elements.

Depleted uranium is only marginally radioactive and is shaped into high-density projectile weapons. It is also a component of tank armor and is used in counterweights and inertial navigation systems.

Fissionable uranium is not commonly used in weapons now. Countries with advanced nuclear weapons capability now typically use plutonium in place of uranium for triggering fusion bombs.

The main civilian use of uranium is in nuclear power plants. Most power plants use enriched uranium; however, a few use normal uranium. The naval vessels of major navies are also powered by nuclear energy. A breeder reactor converts U238 to plutonium (P239), which is itself fissionable.

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V Winner Post #2-U More About Metals

We have now concluded our base metals tutorial. I have left out a few of my favorites, as well as the specific ways to trade or profit from these metals going forward- but I have done my best to educate people as to what they are and what they do.

For more detailed information on both base and precious metals feel free to visit:

Base Metals:

http://www.empirestateventures.com/basemetals.shtml

Precious Metals:

http://www.empirestateventures.com/index.shtml

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VIRTUAL WALL STREET- PHASE 1 AND 2 COMPLETE

Here is the order of my posts on this site:

POSTS 1-25 - My personal views on the future of the US and global economy and the importance of owning resources/metals going forward.

POSTS 1 A- 1 N- Peak resources, the two-tiered society, and coverage of precious metals, methods of investing in metals, and mining/mining claims.

POSTS 2 A- 2 U- Base metals (minor and major), and 'Taminite'.

If you recall from my earliest post- I maintain that metals are a 'proxy vehicle' to virtually all growth industries that will feed, fuel, and provide energy to our rapidly growing planet. This is the path I have taken. For obvious reasons I cannot provide my best ideas, strategies, or choices. I have, however, contributed what I believe to be very solid information that will help you understand this particular market. Hopefully you will find it helpful.

Feel free to visit our other blogs:

http://www.visawinners.com/

http://www.southamericanstocks.com/

Also- stay tuned for our upcoming investor website, market center, and investor forum.

Should you wish to reach me directly feel free to e-mail me at:

jonathan@empirestateventures.com

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