“The Happy Noodler”
November 14, 2006
Security Shares Origin Price Cost Current Price Current value Gain or
FXI 300 85.12 25543.00 91.75 27525.00 1982.00
ICF 300 96.20 28860.00 96.50 28950.00 90 .00
BHP 400 41.96 16791.00 41.27 16508.00 <283.00>
NEM 400 43.63 17459.00 44.83 17932.00 473.00
PREMX 726.2164 13.77 10000.00 14.03 10188.26 188.26
.IKILF 3 4.00 1188.00 8.30 -2490.00 <1302.00>
.ICVLN 3 3.10 -930.00 4.85 -1455.00 <525.00>
.BHPKH 4 2.70 -1068.00 1.45 -580.00 488.00
.NEMKI 4 1.00 -389.00 .45 -180.00 209.00
Dividends and Interest
Cash position 5064.07
Portfolio Gain or
Portfolio Value $101,462.33
In spite of the market top indicator we discussed last week, all we have had this past week is buy signals, so we will roll our market sensitive stock options higher. This will cost us some of the cash we generated last week but will give us more upside potential. Also this is options expiration week so all November options will be rolled to December.
Bernanke’s comments on November 10, concerning management of the money supply seem designed to confuse and play down the discontinued publication of M3 statistics. By saying M1 and M2 doesn’t give an accurate picture of the money supply he is implying that trying to manage inflation and the economy by the money supply is not a good way to operate. He is correct M1 and M2 do not give an accurate picture of the total money supply, but M3 did give a better understanding of the money supply and thus made predicting inflation more transparent. There are too many people today that understand the relationship between growth of the money supply and inflation for the Fed to operate in the obscurity that it needs to be successful in the coming time of rising interest rates and inflation if they continued to publish the M3 figures. I had to laugh when I read one article that said Bernanke’s speech clarified Fed policy when it was obvious that his speech was designed to obscure and confuse people’s understanding of what the Fed does and how it operates.
The price of gold was about $450 an ounce the day the Fed announced they were discontinuing publishing M3 statistics. It had been drifting down from about $500 when it turned on a dime and went to almost $800 an ounce over the next couple of months. One of the things anyone that invests in gold looks at is the future of inflation. Gold is often cited as a hedge against inflation but that is true only when inflation is rising. When inflation is falling but there is still inflation, gold returns to being traded as the commodity it is and price is based on demand for use. If the price of gold from its high in 1980 was adjusted for inflation it would cost $2500 an ounce now, so much for being a hedge against inflation in the long run. Currently the Chinese are buying gold as a hedge against the dollar falling in the future. They are stuck right now because if they stop buying U.S. assets the dollar will fall and result in rising interest rates and reduce the value of their current holdings of U.S treasuries and other assets. Their currency is tied closely to the dollar so if the dollar falls significantly that erodes their purchasing power for all the commodities they are buying from out of the country from iron to oil and everything else they import. But if they buy sufficient gold reserves the rise in gold prices would offset the falling dollar, rising inflation, and rising interest rates that would result from their pulling assets out of the U.S. and allow them to decouple from the dollar. Gold and other precious metals are about the only asset that can be bought with dollars in the U.S. and be untied from the dollar. If they buy U.S. stocks, bonds or real estate they are still tied to the dollar. Real estate is a hedge against inflation because it all goes up in price as inflation goes up. If you also have a long term fixed rate mortgage on that real estate, inflation is your best friend. If the Chinese quit buying treasuries the dollar will fall and that would offset any inflation based gains they might make in real estate. If you examine our portfolio we only have one holding that would not benefit from the falling dollar and inflation. We plan to sell that holding when inflation starts up significantly. Anyone that can tell me which one that is wins a year’s free subscription to “The Happy Noodler”. There are several clues in this discussion. Oh I forgot, it’s already free, so I guess it would have to be an honorary free subscription.
Noodling is catching fish with your hands. The catfish found in America spawn in underwater holes. These holes might be under rocks, under trees in the water, in holes on mud banks, or in holes under roads that were built before the lake was made and were not removed prior to the lake being filled. While the catfish are spawning they will sometimes defend their nest by biting whatever comes into the hole or nest. We noodlers go under the water and stick our hand in the hole and try to get the fish to bite it. The only part of the fish you can hold is their bottom lip. On a big fish grabbing their lip is like grabbing a broom handle. Of course you get scratched up and sometimes loose a little bit of hide and if you get bit by a big Blue cat your fingers may be numb for a few minutes. Blues bite much harder than flatheads; they are the pit bulls of the lake. Those things are all part of the fun and excitement of Noodling. My son Josh who also does some Noodling refers to it as extreme fishing. This is a picture of a 41 pound flathead I noodled in late June. This fish was rather docile. I have got better fights and been bitten much harder by some 20 pound fish. We only fish under rocks and submerged road beds. Tree roots pose too great a risk of entanglement, and there is no telling what will be in a hole on a mud bank that could extend up above the water line.
I am back to feeling good, my ability to eat is increasing and I am gaining weight after having lost 15 pounds from the first round of chemotherapy. I think the sores that extended from my lips all the way through my intestinal tract inhibited my ability to ingest food because while my eating decreased, I don’t believe it decreased enough to lose that much weight in 2 weeks. Little Josh was born this morning at a little before seven. We will have a website listed were you can view pics next week.