Musings 21 5-30-2011 from oftwominds.com
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For those who are new to the Musings: they are basically a glimpse into my notebook, the unfiltered swamp where I organize future themes, sort through the dozens of stories and links submitted by readers, refine my own research and start connecting dots which appear later in the blog or in my books.
The New Gold Rush
I was in California Gold Country for a few days with my brother-in-law F.R. last week, as his family's cabin was "base camp" for our hike to Hetch Hetchy in Yosemite National Park.
The property is riddled with old gold mining shafts, most dry holes, but a few go down well beyond the point of safe entry. F.R. reported an interesting observation: he'd noticed that all the quartz outcroppings along the old gold-rush era ditch that borders the property had been recently chipped: people are actviely searching for gold again.
Gold is like oil: it's not that "there's no gold left" in California, nevada and Alaska, it's simply that the easily accessible gold is gone, just as the easily accessible oil has been depleted.
If gold marches up to $3,000/oz or $5,000/oz as some analysts predict, then the New Gold Rush will gather momentum.
Speculative thought: somebody owns the mining claims being bought up by speculators. What if someone bought those claims before the mining company, and then sold them for a profit when the mining company sought to consolidate a large enough claim to work?
I have no idea what's involved in buying a mining claim, but it might be an interesting side speculative project to explore.
In a similar vein (bad pun), so-called common stock in small pink-sheet (unlisted) "junior miners," small, often-inactive mining companies that own claims, might offer some potential speculative gains. According to the NYT story on the Yukon, shares in these "penny stocks" can rocket from 6 cents to a dollar if the company's claims are suddenly deemed valuable.
Such companies are notoriously speculative, as their actual value is so difficult to assess. How much gold might be in the claim? Is it recoverable? Nobody knows. In "Roughing It," his account of California's Gold Country, Mark Twain wrote that some mining shares he owned very briefly made him a millionaire, but just as quickly returned to zero value. Still, fortunes will be made by those on the right side of various gold speculations.
The Power of Hetch Hetchy
This was our first visit to Hetch Hetchy, a valley that in John Muir's opinion was a smaller version of Yosemite Valley. San Francisco gained the right to build a dam there, and the valley is now covered with 300 feet of water which is the primary source of water to San Francisco and the San Mateo peninsula.
Setting aside the ongoing controversy as to whether there really was no alternative to flooding Hetch Hetchy (clearly, there were alternatives), the 4.5 mile hike along the reservoir to the valley's great water fall is remarkable, and much less crowded than Yosemite Valley's trails.
One of the signs on the Hetch Hetchy Dam stated that the hydroelectric power generated by the system replaced 39 million gallons of oil a year.
Since I write frequently about oil, all sorts of statistics are lodged in my brain, and my mind quickly went through this calculation:
1 barrel of oil = 42 gallons.
39 million gallons = roughly 1 million barrels.
US consumes roughly 18 million barrels of oil per day.
One hour's consumption = .75 million barrels of oil
So the entire annual power generated by a huge dam and hydroelectric system equals 1.3 hours of the nation's oil consumption. If we tossed in coal and other energy consumption, it would be less than one hour.
That calculation helps reveal just how dependent America is on oil for its status quo.
Cycles point to late 2015 as the turning point
The chart suggests the SP500 could decline to around the 400 level from its current perch above 1,300. That's about a 70% drop.
"That's impossible." In financial matters, very little is impossible. The housing bubble and the Global Financial Meltdown were also "impossible," as is the dissolution of the euro. I think history warns us to be very careful about assuming that unsustainable systems cannot possibly fall apart.
All this suggests (to me, at least) an investment strategy that favors capital accumulation (savings) which can be deployed to great profit when things finally bottom out four years hence. Four years goes by in a flash, and those with cash will be well situated to take advantage of bargain prices in various assets.
That is, of course, if you see any value in these cycles.
Memorial Day Photos
The photographer/author added this comment in response to readers' comments:
"I also went back to Vietnam after the war, and found that the men I had fought against not only respected me, but had an odd kind of love for me. I think they considered us pampered children sent off to war by a large, governmental machine, who under the circumstances that existed, in some ways, lived like them, under their own deprivations. Post-war, I had some very good, and very sad times with some men I had fought against. They treated me like a long lost brother, and made it clear they wanted us (Americans) back in their country, but this time as friends, not adversaries.
What I came away from Vietnam with was a very overriding sense of how a government I had thought until then as infallible, could screw things up so very badly. It took me three months in Vietnam to understand that we were fighting the wrong war. Of course, I had an advantage over many of the guys over there - I had been raised in Asia as a kid.....so knew the mores, and understood that the "domino theory" that drove Western policy was bogus. But, I was hired to fight a war, and I loved my country, so fight I did."
Thanks for reading--
charles
