December 2005 Archives

Andy Webb-Vidal in Caracas of the Financial Times wrote an article Chavez and allies enjoy clean sweep (subscription required) on Chavez's recent political victory.

Hugo Chavez, Venezuela's president, on Monday awoke to hear the type of election result usually reserved for the most power-hungry of dictators: 100 per cent of the seats.

The unofficial result, from polls held on Sunday to select the composition of the single-chamber legislature, signals a victory of sorts for the militaristic, left-leaning ruler of the world's fifth-largest oil exporter.

William Lara, director of Mr Chavez's Fifth Republic Movement party, claimed 114 seats in the expanded 167-member National Assembly, with its allies occupying the remaining 53. "This is a triumph that belongs to the Venezuelan people," he said.

But critics said it was a hollow victory that left Venezuela in a twilight zone between democracy and dictatorship - and a result that would catapult the country towards Mr Chavez's model of "21st century socialism".

Preliminary results from the National Electoral Council (CNE), which on Monday was still calculating the final tally, showed that only 25 per cent of eligible voters cast ballots in polls boycotted by opponents. A fifth of ballots cast were blank.

At some point, this will all end badly. At some point.

Gold and silver prices were strong last week. Will gold and silver continue to run this week?

In a Financial Times article Main page content: Metals prices still refusing to buckle (subscription required), Kevin Morrison wrote that gold and silver had hit multi-year highs.

Gold bugs were out in force as bullion prices reached a 23-year high of $506.50 a troy ounce on Friday, having moved through the $500 level earlier in the week for the first time since 1987. "In the short term gold is likely to oscillate around $500, but the next test will be the February 1983 high of $509.30. If that is broken it could attract another bout of buying," said Martin Stokes, vice-president commodities at JP Morgan.

The investment flows into gold, trickled down into silver, which struck a 18-year high of $8.60 a troy ounce on Friday. Platinum also reached a long-term milestone when it burst through $1,000 an ounce on Tuesday for the first time since January 1980.

However, Jeffrey Christian, managing director of CPM Group, a precious-metals research and consulting company based in New York, said the situation isn't that different from 18 years ago.

In 1987, "the dollar was bottoming out and people were rushing into gold and out of the dollar. Even banks were buying significant amounts of gold. We are seeing a very similar situation now," Mr. Christian said.

According to a recent study by the World Gold Council, an industry association of the world's leading gold-mining companies, investment demand for gold rose 56% in the third quarter and is expected to increase further.

As of this writing, Kitco shows that both gold and silver prices are up from last Friday's close, about 0.84% and 0.23% respectively.

What is interesting is that usually the U.S. dollar goes down when gold and silver go up. This time, however, the U.S. dollar has shown strength against most major currencies and both commodities are rising. I am curious to see what this week brings.

I am long Streettracks Gold Trust (GLD) and Pan American Silver Corp. (PAAS).

I wrote prior articles on Capstone Turbine Corporation (CPST) here and here. Recently on 15 November 2005, Jim Cramer on his show Mad Money commented favorably on Capstone. The stock rocketed up $1.13 to $4.29 for an about 36% gain on the day. Since that time, the stock has continued to soften. On Friday, 2 December 2005, the stock closed at $3.35, down about 22% from after Cramer had recommended the stock.

I do not have any strong opinions about Capstone one way or the other. I hope that the company does do well, and that these prices present a bargain to investors. However, the point that I wanted to make is that investors should be cautious when getting involved with a small company that has just made a large move up on a well known commentator's comments. Another point is to do your own homework so that you fully understand your investment.

I like Jim Cramer and I think he has been and continues to be a strong positive influence for investors. That said, you should still do your own homework and not rely on a quick snippet of information to base your investment decisions.

I have no positions in Capstone whatsoever.

I urge you to read Dr. John Rutledge's article Must Read; Genetic Sequencing of the 1918 Influenza A Virus on the Bird Flu. In reading John's article, I appreciate how he separates hysteria from facts. Once you have read this article, I encourage you to read his prior articles as well.

In a Financial Times Article GM and Ford suffer new sales setback in the US (subscription required), Bernard Simon writes the following.

Paul Ballew, GM's sales analyst, put down November's "very weak" results mainly to consumer fatigue after a surge in sales last summer spurred by an `employee discount for everyone' scheme. Both GM and Ford expect an improvement in December.

Several Asian and European carmakers posted sizeable sales increases last month. Toyota's sales grew 10 per cent from a year earlier. Honda set a November record. Toyota's performance was boosted by a 34 per cent increase in sales of its Prius petrol-electric hybrid sedan.

"The holiday buying season is off to an encouraging start," said Jim Press, head of Toyota's North American unit.

Those are the problems with incentive programs: the programs reduce the selling price per vehicle and hence profit per vehicle, and the programs from steal future sales, making future sales that much more difficult.

I find it interesting that Kirk Kerkorian has remained relatively quiet recently. Perhaps there are not a lot of options to pursue. In any event, GM remains in a difficult position.

Disclosure: I remain short GM shares.