To read the extract from Basic Points click on the following link:

Don Coxe on Gold – Basic Points, February 2010

Jim Slater

Digital Look also offers a wealth of other information with updated statistics on all of my shares together with definitive details of all dealings on a trade-by-trade basis.  In addition, any announcements including vitally important directors’ dealings are highlighted promptly.

For a closer and more detailed check on financial statistics, I find online Company REFS invaluable.

Click on the following link for Digital Look.

Jim Slater

This was easier than usual due to an inspired Christmas present, Too Big to Fail by Andrew Ross Sorkin, the story of the global financial tsunami outlining the fate of Bear Sterns, Lehman, Merrill Lynch and AIG.  It is written like a gripping novel and is unputdownable.

Here is an example of the writer’s style:

‘We just hit an iceberg’, Jamie Dimon, CEO of JPMorgan Chase, warned his men over dinner just 24 hours before Lehman Brothers would file for bankruptcy, Merrill Lynch would sell itself to Bank of America and the insurance giant AIG would teeter – all within one afternoon.  ‘The boat is filling and the music is still playing’.  There’s not enough lifeboats.  Someone is going to die’, he said with a wry smile, ’so you might as well enjoy the champagne and caviar.’

Too Big to Fail makes you realise that the skill level of most of the US bankers leaves a lot to be desired and has an inverse relationship to their salaries and bonuses.  I found this book very informative and I enjoyed it so much that I have added it to my Recommended Reading List.

Click on the following link if you wish to purchase Too Big to Fail.

Jim Slater

To read my advice on gold shares either click on the Gold Shares page under Investment or click on the link below:

Gold Shares

Jim Slater

Jim Slater

From Return to Go:

On 17 December 1970 the Evening News organised a Monopoly game at Browns Hotel, which was covered in the press and also on The Money Programme.  The other contestants were Oliver Jessel, Vic Watson, Sir John Cohen, Nigel Broackes, David Malbert and Robert Morley.  The idea was a bit of fun, and each of us was televised as we went into Browns to engage in mortal combat.  I have always liked Monopoly, which I used to play a lot as a boy.  Although there is a great deal of luck in it there is also a modicum of skill.  For example, it pays to buy the light-blue sites: Pentonville Road, Euston Road, and Angel Islington, and also the orange sites: Vine Street, Marlborough Street and Bow Street.  The highest rental return on hotels in relation to the capital investment is from the light-blue sites, which average 159%, followed by the orange sites at 141%, falling gradually to the lowest return of only 101% on Bond Street, Oxford Street and Regent Street.  The way to work this out is to take the total cost of buying the sites and building hotels, which in the case of the orange sites is £2,600, whereas the rental on the three hotels would total £2,900 giving a return of 141%.  As it happens, I prefer these to the light-blue ones because I think that the difference in yield is more than made up by the increased likelihood of opponents landing on the orange sites.  Firstly, there is a card in Chance which says ‘Go back three spaces’, and from one position this lands on them on Vine Street.  Secondly, the orange sites are a dice-throw away from Jail, which means that opponents coming out of it are likely to land on one them.  Thirdly, there are two other cards in Chance, one of which directs the player to ‘Take a trip to Marylebone Station’, and the other to ‘Advance to Pall Mall’.  Following these directions by-passes the light-blue sites and leaves the player with the possibility of landing on the orange ones with his next throw.  It also pays to build quickly once you have a complete site, even at the expense of mortgaging other isolated sites to do so.  For example, the loss of rent on the Strand would only be £18, but £100 out of the mortgage proceeds of £110 could be used to buy an extra house on, say, Bow Street.  The first house takes the rent from £14 to £70 to give a gain of £56; and this rises to as much as £350 when the third house is added.  Subject, therefore, to keeping a prudent cash reserve you should mortgage all isolated sites, and use the proceeds to build rapidly.  As you can see I had thought it all out and was well prepared for the game.  I even managed to get the orange sites and build hotels, but no one came to stay at them.  It was Sir John Cohen who won easily, only to tell us that he had learned to play from his chauffeur the night before.

Ten days ago Mervyn King said that you could almost write the script for the next banking crisis while there were banks that were ‘too important to fail’, which could engage in risky activities knowing they would be bailed out by governments.

The extreme vulnerability and fragility of banks due to the leverage in today’s market instruments was clearly flagged in 1995.  The City’s oldest merchant bank, Barings, was brought to its knees by a 28 year old trader, Nick Leeson, who made a loss of £827m, enough to put them out of business.

There were several minor frauds of a similar nature during the next few years but it was not until 2007 that Nick Leeson was out-shone by 31 year old Jerome Kerveil.  Societe Generale in France was crippled by his trading losses of an astonishing €4.9bn!

In both cases it can be argued that the two traders were trying to make profits for their banks but when they turned into heavy losses they got out of control.  The trouble with futures trading and other forms or proprietary trading is that they can be very highly leveraged, an easy prey to dishonesty and very subject to human error.  For example, after a heavy drinking session the night before, a trader would only have to mistakenly put an extra zero on a transaction and his bank would be committed to ten times the figure he had in mind.

A further problem in recent years is the increasing complexity of derivatives, some of which are becoming so exotic that they are very difficult to understand.  It is no wonder that the directors of many of our banks do not have the faintest idea of what they are all about and the risks that are being taken by their traders.

The Governor warned that urgent steps should be taken to rebuild the Glass-Steagell firewall between commercial banks that take deposits and investment banks that engage in risky projects including speculative futures trading.  I believe that he has never said a truer word.

The bank bonuses scandal highlights the ridiculousness of the present position.  Traders are being rewarded massively for taking massive risks.  If they fail miserably they do not share in the losses, they just do not get their bonuses.  Meanwhile their bank may have become insolvent as a result and taxpayers’ money would have to be put in to save it.

Old-style commercial banking should be a very good business.  Much stronger regulations could be put in place to limit property loans in relation to security and earning cover.  There is no need for the 125% Northern Rock style mortgages and there is certainly no need for the banks to gamble on futures with, in the last analysis, taxpayers’ money.

Equally, well-controlled investment banks could be very successful businesses.  If they did well their shareholders would benefit and management would receive substantial bonuses.  If they failed shareholders would lose their money with no hope of a bail-out and management would lose their jobs as well as their bonuses.  Hopefully management would then find it more difficult to find another investment bank to ruin.

Critics of Mervyn King will say that he is over-simplifying the problem but at least his proposal would be a big step towards hiving off the most dangerous parts of the major banks.  It would also result in those speculative parts not being ‘too important to fail’.  You have to start somewhere unless you want it to happen again.

Jim Slater

Many people believe that if we leave the EU we would be worse off because they argue we would lose a lot of our trade.  This is absolute nonsense.  The UK has a substantial trade deficit in goods and services with the EU.  For example, in July it was £2.6bn and in August £2.3bn (source: Office for National Statistics).  If we left the EU, the member countries would do everything possible to preserve the present trading arrangements with their biggest customer.

Our current net contribution for being a member of the EU is about £3bn per annum.  This will rise to over £6bn per annum as the special arrangement negotiated by Margaret Thatcher comes to an end.  I cannot see what we get in exchange for this massive sum by being a member of the EU other than interference in our domestic affairs, our law and our way of life.

The Tories seem to be in favour of staying in the EU arguing that David Cameron will stand up for our interests and help to change Europe.  He is no Margaret Thatcher and I believe that he would be hopelessly out-gunned by Angela Merkel and Nicolas Sarkozy.

Jim Slater