TWST: Would you tell us about your firm and your investment philosophy?Mr. Puplava: We are a money management firm and run our own Registered
Investment Advisor business, Puplava Financial Services, Inc., as well as our
own broker dealer, Puplava Securities, Inc., and our educational arm, Financial
Sense. We manage in the neighborhood of about $300 million today with about 75%
of that managed accounts and about 25% in brokerage accounts. If I were to
describe our philosophy, I would say we're more from the value side of
investing. We try to buy things when we think they're cheap and offering
compelling values.
On the other hand we also believe in long-term themes. We think that if you
dissect the markets over periods of time, there are definite trends that drive
the markets; stocks from after World War II to 1966, commodities from 1966 to
1982, Japan in the 1980s, US technology stocks in the 1990s, and then in this
decade it's been commodities. We try to identify long-term themes in the market
and then we try to buy the best values in those markets and hold for the long
term.TWST: Is it still your long-term theme that commodities are the way to invest?Mr. Puplava: Yes, I believe that we're going through a corrective cycle here.
You've got two forces that are opposing each other right now. You have the
private sector that is, to some extent, deflating investment pullback, and then
you have a pullback in consumer demand. On the other hand you have an expansion
of government intervention in the economy and the markets, whether it's fiscal
policy, rebates or bailouts. I think these two opposing forces are fighting
against each other and I think it helps to explain a lot of what you see taking
place in the markets today, where stocks are up one day and you think you want
to be long, then the next day they're down and you think you want to be short
it's almost a rotation that takes place every day.TWST: The prices of commodities are as volatile as the market and the stocks.Mr. Puplava: It doesn't matter where you look today. If you're trying to find a
safe haven from the double-digit losses in the US market, if you look to Europe,
the Dow Jones Euro STOXX Index is down 26%, if you want to go to Asia you've got
the Hang Seng down 26%, the Nikkei down 19%, and even areas that were once doing
well such as Brazil and even Mexico, those markets now are down 22%.
If you want to look at some of the all-stars, some of the individual markets
that did so well last year, you've got the China market down nearly 60% and
individual markets in Europe down equally as bad. It's been one of those markets
that has been difficult to play and I think part of that is due to these two
opposing forces that I'm talking about: the deflationary forces in the private
sector and the inflationary forces that are coming from government intervention.
I think the market is trying to sort this out right now and I think that's what
you're seeing play out on a daily basis. My belief that the commodity bull is
intact and has never been stronger and the reason for that is we're seeing a lot
of discrepancies between what's actually going on in the paper price of
commodities and what's going on in the physical market, whether it's in energy,
whether it's in base or precious metals, or whether it's in foodstuffs.
There is a lot of talk that there has been a commodity bubble, which has now
burst, but I don't buy that. Most bubbles follow a pattern: prices keep rising,
then supply comes on very strongly, and eventually the supply gets to be so
large that it eventually begins to weigh down on price. This time around, I
don't see the typical "bubble" supply-side response to increasing prices. If
you're looking at inventories of copper or inventories of base metals or other
commodities, yes, you're seeing a little bit of a rise in supply/inventory, but
we're down probably 75% from where those inventory builds were at the beginning
of this decade in 2001. What we haven't seen in the commodity space is a huge
buildup of inventories in nearly any commodity.
One example of the apparent lack of supply-side response to rising prices is in
the energy sector. I find what is going on in energy right now to be remarkable,
but I think there is an explanation for a lot of the sector's extreme price
action. One thing we saw is that as the price of commodities energy, metal,
the CRB Index broke new records toward the end of May, a lot of speculative
money came into the commodities complex right near the peak in prices. Small
speculators on the COMEX and other leveraged investors invested at that time. As
the rapid run up has been correcting, what you've been seeing is a deleveraging
process out of those positions that helps to explain much of what you see taking
place in a lot of these stocks and contracts. To see energy stocks selling at 5
and 6 times earnings with another hurricane heading into the Gulf of Mexico, you
have to scratch your head and think, "Why would the price of oil be down now?"
Goldman Sachs has an index that tracks the major holdings of around 750 hedge
funds, GS Absolute Return Tracker Fund (GARTX), and if you take a look at the
things that were doing very well this year for example, Petroleo Brasileiro
(PBR), Potash (POT), the agricultural sector in general they are exactly what
is being liquidated right now by these leveraged hedge funds.
Unfortunately for many of these hedge funds, when your leverage is 10:1 or 20:1,
and you're holding a lot of things that you simply can't sell, such as mortgage-
backed securities, when redemption requests come in or you need to generate cash
for some other reason, what you liquidate are those things in which there is
liquidity. You don't necessarily want to sell them, but you're talking about
solvency, so you go ahead and sell them. I think this type of activity accounts
for much of the price action you're seeing right now in commodities and
commodities-related stocks.TWST: What sectors within energy and the commodities are you most interested in
at this time?Mr. Puplava: I do expect oil prices to head back up again. I made a prediction
in the first week of January that we'd hit $125/barrel this year; when prices
hit $125, I bumped my forecast to $145 we hit that in two weeks! I think we
could see those prices again this winter because the supply and demand tightness
in the market is so thin that we really can't afford to have a series of
hurricanes hit the Gulf.
One of the areas in energy that I would be looking at is natural gas. That is an
area I think is going to look very attractive; you can see this coming because
actions by both political parties in the US indicate that natural gas has a
definite future.
The other thing I think you have to watch in this market is, with so many of the
large oil companies having difficulty replacing their reserves, you've got to
look at which companies can increase their reserves and increase their
production, so oil companies like Petrobras, natural gas players like Chesapeake
(CHK) and EnCana (ECA), which has a huge exposure to the gas market in North
America, may be strong players. I think that of the natural gas and oil
companies that can increase their production, Petroleo Brasileiro is one of the
few large companies that's probably going to double its production from its new
oil finds.
Then on top of that, I think you have to be in the energy service sector,
whether it's a Transocean (RIG) that operates offshore rigs or it's a
Schlumberger (SLB) that is providing incredible services to a lot of the
national oil companies. Some energy service companies are now beginning to
participate in energy production sharing, with many of the national oil
companies giving Schlumberger a cut of the production if they can increase
output from existing wells. I think the oil service sector is going to be very
important.
Then I think another area that is going to get a lot of play here is the
alternative energy sector, but I want to throw a caveat in here: there are so
many new technologies coming forth and so many players right now, that many of
them are not making money. An investor might be safer playing an alternative
energy ETF for the time being, because you don't know which entities are going
to end up becoming the "gorillas" (the big players) and which aren't going to
make it.
It's kind of like the tech space back in the early 1990s when you had the
technology companies starting to take off. There were a lot of players in that
space, but it was only by mid-decade that you had the emergence of leaders like
your Intels, your Microsofts, your Dells and your Ciscos. I think that same
pattern is going to play out in alternative energy. Right now there are a lot of
people moving into the sector, but since you don't know who is going to survive,
I think most investors will be much safer playing that sector through an ETF
like the PowerShares WilderHill Clean Energy (PBW) ETF.TWST: Are you still interested in the Canadian oil sands? Is that an area that
you think has great potential?Mr. Puplava: I'm still interested in the oil sands. There were two reports that
came out in August that I think are rather significant. One was the "Interim
Report on Crude Oil" by the Interagency Task Force on Commodity Markets (ITF).
Seven government agencies took a look at the rise of energy prices to see what
was behind the recent price upswing, such as speculators or people hoarding.
What they found, which was remarkable, was that there are many bottlenecks in
energy that affect its price. For example, in diesel, we don't have enough US
refineries to produce enough diesel to meet US demand, so we have to go to the
open world markets and buy it. At the same time, this year you had China, which
was hit with earthquakes and power outages, buying large quantities of diesel to
meet its population's energy needs.
In the same week that the ITF report came out, the IEA Medium-Term Oil Market
Report came out; both reports corroborated each other. What I find significant
here is the IEA increased their estimation of annual oil depletion rates from 4%
to 5.2%, which, when translated into production and oil resource discovery
terms, means that we need to find 3.5 million new barrels a day just to break
even. On top of that they looked around the world at demand for oil, and said
that although there is some demand destruction in OECD countries, places like
China, India, countries in OPEC and Latin America are seeing 3.7% demand growth.
If you combine the world's demand destruction and demand increases together,
there is a global increase in demand of 1%. That translates into 1.5 million new
barrels of oil just to meet demand growth. Combined with a depletion rate of 3.5
million, that means we need to be finding 5 million new barrels of oil a day
just to meet existing demand and fuel growth. That's equivalent to finding at
least one Saudi Arabia every two years and I can tell you we're just not going
to be able to do that.
Getting back to the Canadian oil sands, the oil sands are one of those
"alternative fuel" areas like oil shale, or tar sands, or biofuels, or coal to
liquids, or gas to liquids where the energy shortfall due to demand growth is
going to be taken care of, but I think these alterative fuels are only going to
get us through maybe another five to seven years before even they are not going
to be sufficient enough to meet world demand. I think at that point energy
prices are going to start rising exponentially. There's an energy analyst,
Charley Maxwell, who was interviewed in Barron's about "What $300-a-Barrel Oil
Will Mean for You" (September 8th issue). Charley is 76 years old now, and he
started out his career in the Oil Patch working for Mobil; this is one guy,
unlike many of the suits on Wall Street, who really understands the oil
business, and what he is saying is that energy supply is so tight that it's
going to redefine nearly every aspect of society. Like him, I'm a believer in
"peak oil."
Since the data I study seems to show that conventional oil production as we know
it peaked in May 2005, and since we've had these alternative sources of fuel
that have come in to fill the gap since that time, I don't know how long it will
be until we're going to have to go to conservation as a way of staying on top of
our energy needs; conservation may be forced upon us by price. In the future if
you want oil, $300 a barrel may be what you're going to have to pay for it.TWST: What about the base metals and commodities? What is your long-term outlook
for those?Mr. Puplava: I think what we're seeing right now is a slowdown globally; we're
seeing it in the US economy, we're seeing it in Europe, we're seeing it in
Japan, and China is now working on its own stimulus package and has slowed the
appreciation of the yuan to stimulate their exports. I think right now we're
going through a consolidation period and what we're seeing is a pickup in
inventories, but they're not significant. Copper inventories are up over the
last couple of months and since the beginning of the year, but if you look at a
timeline of over 10 years and take a look at where they were in 1994 and where
they were in 2001, we're nowhere even close to that. I think we're going to be
going through a period of base-building, whether you're looking at aluminum,
whether you're looking at copper or whether you're looking at other base metals.
The fact that copper is still holding up at over $3 is amazing.
I think this base-building period is going to last for maybe six to nine months
before central banks around the globe reinflate their economies and restart the
engines of growth again. That's what I think we're going to see here, probably
in the next six to 12 months.TWST: On the precious metals side, have you been surprised by gold's
performance?Mr. Puplava: I've been surprised. Here once again there is another disconnect
between what we are seeing in the paper market for gold on the day you and I
are speaking it's down about $15 and what is happening in the physical
markets. There was a major selloff between July and August, which then
accelerated, but as the price of precious metals came down, it triggered
probably one of the largest buying sprees of physical metal that we've ever seen
in this market. Dealers are reporting shortages, and the U.S. Mint shut down its
production of Silver Eagles. If you want to get a Silver Eagle, you're looking
at maybe a January or February delivery date.
Dealers here are reporting they're out of 1-ounce rounds, 5-, 10-, and even 100-
ounce bars; you can get 1,000-ounce bars, but those are usually for major
players. If this was merely a local event, such as two or three large
refiners/dealers here in the US experiencing shortages, you might say, "Well,
they misjudged their inventory and they mismanaged it," but that's not what
we're seeing. We're seeing the same thing play out not only in the United
States, but in places like Dubai. Last week I had an interview on my Financial
Sense Newshour program with the head of the Dubai Gold Exchange, and he's saying
the same thing is happening there, except that in Dubai, they don't sell their
gold until they have it on their shelves and as soon as they get it on the
shelves, it's going out the front door.
You had a refiner of Krugerrands in South Africa that had an order from one
large wealthy investor in Switzerland for 5,000 Krugerrands, which took out its
inventory. In Mumbai, they've had a 45% increase in gold imports; of course
India is probably one of the major gold buyers in the world. If this were a
bubble in this sector, what we would be looking for is that as the price of the
paper markets came down, there would be a wide-scale unloading of inventories;
instead, you're seeing just the opposite. You're seeing some of the largest
buying waves this sector has ever experienced: many of the refiners and large
gold sellers have published disclaimers on their Websites saying basically that
if you want the metal, they can lock in the price, but they can't tell you when
you're going to get delivery.
Recently I was buying a large quantity of physical silver and I had to work
through three different dealers and I am still looking at probably a seven- to
eight-week delivery date in terms of taking possession or having it transferred
to a vault. So there's a major disconnect here between paper and physical.TWST: What other trends are you monitoring?Mr. Puplava: We're still monitoring the commodity space. We're watching the
Baltic Dry Index, we're looking at the various inventory levels of base metals,
we're monitoring the spot shortages we're seeing in the precious metals markets,
but more important, we're also monitoring fiscal monetary policy. We think that
the next move by the US Fed is going to be for lower interest rates because
we're in the middle of a credit crunch right now. You've got interest rates at
some of the lowest levels ever seen, and yet nobody seems to be lending. How do
you change that dynamic?
One of the dynamics or ways of changing that is to bring down interest rates to
the point where the cost of borrowing becomes so compelling that you regenerate
part of the credit cycle with government support. I think you're going to see
not only monetary reflation, but I think you're going to see fiscal reflation
coming from the government. You're hearing this already from both parties
talking on the campaign stump about implementing policies that would put money
into infrastructure or some kind of fiscal spending to pick up the slack in the
economy since you're not seeing any help coming from the private sector.TWST: Describe the construction of your portfolio with your commodities and
metals. Mr. Puplava: Precious metals and base metal producers one of them is actually
a gold producer as well make up about 15%20% of the diversified portfolios.
We also still own a significant portion of our diversified portfolios in energy,
and that's something that we are holding long term; this space is just too
compelling not to be invested in it. In response to market volatility, we have
built significant cash positions as well as some small index or sector-specific
short positions as a hedge. Moving forward we will be looking to redeploy some
of that cash by picking up or adding to specific sectors.
For example, we have a small position in water we'd like to add to, and we would
also like to increase our position in agriculture/raw foodstuffs because of what
we're seeing in terms of grain supplies. I don't think people are aware that the
grain supplies globally are probably at the lowest level that we've seen in
nearly 4050 years. We're considering holding foreign government bonds; one area
that we're watching, depending on how long this dollar rally lasts, is short-
term Swiss government paper.TWST: You touched on alternative energy sources earlier and I know that you've
been a long-time believer in uranium and nuclear energy and now the candidates
are talking about that. Are you playing that at all?Mr. Puplava: We own a few companies in that area. Cameco (CCJ), which is one of
the largest producers, and two smaller companies, Hathor and Strathmore.
Strathmore is close to six years, almost seven years, into their permitting
process and they own prime properties; they were picked up at the beginning of
the decade at next to nothing.
Outside of that, I think once again in terms of alternative energy, the thing
that we don't know is: what is going to replace oil? Everyone talks about solar,
everyone talks about wind, everyone talks about biofuels and everyone talks
about electric cars, but there is nothing out there right now that you can point
to and say, "That's it, that's what's going to replace oil." Since I believe in
peak oil, I would envision there are a number of things that we're going to have
to do to meet our energy needs. It's kind of like on an exam question where your
choices are "A," "B," "C," or "D: All of the above" I think when it comes to
energy, it is going to be "all of the above," because there is no single
solution A, and there is no single solution B. There are a number of things that
we're going to have to do. We're going to have to look at coal, we're going to
have to look at wind, we're going to have to look at solar, we're going to have
to look at nuclear, we're going to have to conserve.
In terms of providing electricity, I think you're going to see your primary
fuels like diesel be given priority as an energy source for commercial
transportation over electricity production. I suspect energy priority is going
to go to shipping, it's going to go to trains, it's going to go to trucks. I
think you and I as consumers are going to be driving hybrid cars or electric
cars; they're going to be smaller cars, and they're going to have smaller
engines with lower horsepower that are going to help stretch that gallon of
gasoline. I could see in the next decade that many car companies are going to
make a switch to these types of cars; I know Toyota (TM) is working on a plug-in
hybrid, and they're also looking at enhancements to their existing hybrid
models. You've also got Detroit moving in that direction. You've also got people
like T. Boone Pickens talking about using natural gas as a fuel and I think
that's another track we're going to be going down.
In other words you can't sit there and take a look at one particular element of
the energy space and say, "This is going to be the answer to everything." Once
again, it's going to be the "all of the above" answer until we find something
that helps get us through this transition period.TWST: Have your portfolios shifted in emphasis or changed in the past 12 months?Mr. Puplava: The portfolios have changed. One, we've been raising cash; two,
we've added small index or sector-specific short positions both are simply
hedges, given the volatility of the markets while the credit crisis is playing
out. Another thing we've revisited is our metals allocation. Today you can buy
growth companies and producers at price to earnings levels that we haven't seen
in three or four years. We're also concerned about the ability of many of the
smaller metals companies to make it, given the illiquidity of the credit markets
and rising capital costs. So we have made, and will continue to make, a shift
into late-stage development companies and producers.
I think what you're going to see in the precious metal space will be similar to
when this bull market took off in the summer of 2001. At that time there were a
lot of companies that hit the exploration space, and every geologist with a
dream was able to go to either Wall Street or Bay Street and raise money to go
out and finance an exploration project. The sad fact, however, is that there are
too many companies in this space and maybe one out of 100 companies will
actually find a significant metals deposit, and perhaps one out of 200 companies
will actually bring that deposit into production.
So like we saw at the early part of this decade, I think you're going to see
consolidation in this sector. Do we really need 10 silver producers in Mexico
producing 1 million, 2 million or 3 million ounces of silver a year? I think
you're going to see in the coming year or so the next wave of consolidation in
the industry, and what you're going to see in this process is the cream rise to
the top. Those companies that have good management teams, access to the capital
markets and defined deposits and I mean deposits in the neighborhood of 2
million ounces or more are the companies that are either going to be gobbled
up by the majors or by intermediate companies, so I do see a tremendous wave of
consolidation coming to the sector. There are simply too many companies in this
space; not all of them are going to survive, especially at a time when the cost
of credit is becoming so dear and access to credit is becoming limited. TWST: The turnover in your portfolios must be correlated to market conditions.
Is that why you're so heavily invested in cash at this time?Mr. Puplava: It's not only correlated to market conditions, but we also saw what
we anticipated would develop this year. For lack of a better analogy, I called
it the "Oreo theory" I expected a tough "outer shell" of bad market news in
the first quarter, a creamy filling in the middle of the year with earnings and
markets goosed by a possible fiscal stimulus package, a hard "outer shell"
finishing out the end of the year on a wave of bad news, credit problems and
possible Fed rate hikes. The year has pretty much played out like we
anticipated, except the creamy filling turned out to be not as creamy as we
thought it would be. With the rebates, the Fed rate cuts and the stimulus
programs, the market started to respond after March's Bear Stearns bailout, but
I think that recovery was limited by the significant rise that we saw in the
price of energy from about March to July, when oil prices rose all the way to
$147/barrel.
Given those constraints, and also the developing of phase two of the credit
crunch, we had to take appropriate measures in order to protect the portfolios.
We were actually in positive territory up until this recent selloff, but at
least now we have enough cash to allow us to redeploy into the various sectors
that we have on our buy lists at attractive prices. One of the areas we have
been reluctant to play this year has been agriculture. Although we like the
sector, valuations have been too high for attractive entry. The Monsantos (MON),
the Potashes, the Agriums (AGU), the Mosaics (MOS) had been going up almost $7,
$8 a day, or 5% or 6% a day. These are the companies we'd like to own, but we
have been avoiding them because we just simply didn't want to pay an overvalued
price. If this selloff continues, agriculture is an area, and also the water
space is an area, that we're going to want to redeploy. This is because of one
of the themes that we see developing going forward, what I call "the slow death
of consumption."
If you take a look at rising costs, whether in food, or whether in energy, and
you take the salary of an average working person who is trying to raise a
family, that person can't walk into the boss's office and say, "Look boss, my
grocery bills are up, my utility bills are up, my gasoline bills cost me more to
drive to work I need a 15% raise to keep myself even." What you're seeing now
is people are cutting back, they're cutting back on discretionary spending, and
they're trying to repair their personal balance sheets. This is a process that's
going to play out over a three- to five-year period.
I think as a portfolio strategy going forward, you're going to want to be
invested in basics, the things that people need. Because of this, I still would
adhere to a scenario we see unfolding in the future where I think agriculture is
going to be a strong theme, water is going to be a strong theme, energy is going
to be a strong theme, precious metals will still be a strong theme because I see
the cost of energy going up, and more demand for food, water and spending for
infrastructure. For example, the UN issued a report stating that about half the
world's population doesn't have good access to potable water, so spending on
water infrastructure would be a necessity.
I also see the inflationary theme continuing as central banks reflate with both
monetary and fiscal policy.
A final theme I think is going to play out is going to be infrastructure. In the
US we've had problems with levees, we've had problems with bridges, we've had
problems with airports, so we're going to have to rebuild a decaying
infrastructure. The American Society of Civil Engineers gave America a "D" on
their 2005 Infrastructure Report Card, so rebuilding infrastructure is one theme
in the developed markets. In the emerging markets, countries are building out
their economies, they're building roads, they're building airports, they're
building power plants, they're building housing projects, so infrastructure
spending is another strong place to invest. Just as the 1980s and 1990s were
decades of the consumer, I think the next decade is going to be a decade of
infrastructure spending. I think that's going to be one of the key drivers of
economies not only here in the developed part of the world, but also in the
developing world.TWST: What do you think gives your investment approach its edge? Is it your
focus on these long-term trends?Mr. Puplava: We try to focus on long-term trends because as I mentioned in the
earlier part of our conversation, if you were to dissect the markets over the
last half century, there were clearly long-term trends that played out in the
market: the almost 1820 year expansion of the stock market after World War II,
the 18-year expansion of commodities and inflation-type investments in the mid-
1960s to the early 1980s, the equity markets in the last decade or so. So we're
investing in what we believe will be the long-term trends for the next decade or
so, rather than chasing short-term gains.
With the long-term trends we're currently following, the thing we have not seen
(and there's been a lot of people who have commented on this) is the supply-side
response to the tremendous rise in the price of not only energy, but precious
metals.
One would have thought with oil prices going from $20 a barrel to $100 a barrel,
you'd see oil producers pumping as much oil as possible to take advantage of the
increased price, but that doesn't seem to be happening. Believe me, if you're an
oil company, you're spending every dime you can looking for new places to find
oil, and the places in which you're looking today to find that oil are in very
difficult and hostile regions of the world. We know there is oil in the tar
sands, but it's expensive to extract; we know there is oil in the shale deposits
in Colorado and Montana, but we know that's going to be expensive to extract; we
know there's oil in the Arctic, but that's going to be expensive to transport;
and we also know there is oil deep offshore in US waters, but it may be years
before we're able to drill there. All of these areas are very expensive to
develop.
In those areas where there is plenty of energy, such as the Middle East or the
Caspian, companies don't have clear access to this energy and those who control
it may not have the same motivation that outside companies do to deploy or
develop that energy as fast as they can or to produce as much as they can. There
are a lot of dynamics at play in the energy space right now, whether it's
geological constraints or geopolitical constraints. It doesn't matter which one
since it's a fact that both of them are at play here and are going to make this
a very difficult operating market. That's why I think it won't be long before
the price of energy is back up to levels that we can only speculate about right
now in terms of how high it will be. I would expect that by the winter, whether
it's December or whether it's January or February, we're going to be back to
those old high levels again.TWST: Is there anything that you wish to add?Mr. Puplava: I think one of them is this credit crisis we see unfolding. In the
first phase of this credit crisis, you saw large financial institutions such as
Citigroup, Merrill Lynch, UBS or HSBC announcing large capital-raisings before
they announced losses. If we look globally, we've had somewhere in the
neighborhood of about $0.5 trillion of write-offs and $360 billion in capital-
raising.
I think what you're going to see next in this second phase of the credit crisis
is not only more write-offs, but also I think it's going to be a more difficult
period in which to raise capital. One of the things that recently crossed my
desk that really caught my attention was that Wells Fargo issued some debt at
9.75% and this is a bank that's one of the better capitalized banks with fewer
problems than other banks. It's very difficult to make money if you're trying to
raise capital at 9.75%, but you're trying to loan money out at 6.5%; the
economics of that situation don't work.
On Friday, three-year notes for Washington Mutual maturing in 2010 were trading
at a yield to maturity of 40%. I think in this next phase you're probably going
to see the government play a greater role there is going to be more regulation
in this sector and you're going to see a lot of either large investment banks
and large savings banks that are not going to survive. I think you're going to
see a lot of mergers, with weaker players being merged with stronger players. I
think this next phase of the credit crisis is going to be much more difficult
than the first phase and that is something that we are keeping a close eye on
because there is a lot more debt in the system now.
When the government brought in Morgan Stanley to look at Fannie and Freddie, one
of the things that shocked them was that there had not been complete honesty in
terms of marking losses in the portfolio. We know that with these off-balance-
sheet vehicles, whether it's SIVs or other vehicles, that there is a lot more
debt out there that hasn't been recognized or dealt with. Now that these markets
are trying to become more transparent, I think that as we go forward, what
happens in the credit markets will show who the strong institutions are, since
only the strong are going to be standing when this is done.
I've seen reports from either the FDIC or Bank Credit Analyst that estimate that
the number of financial institutions that could go under ranges anywhere from
200 to 700. I think a lot of people simply aren't aware of this because of the
lack of transparency we've seen leading up to this point.TWST: Thank you. (PS)Note: Opinions and recommendations are as of 9/9/08.JAMES J. PUPLAVA
Puplava Financial Services, Inc.
10809 Thornmint Road
2nd Floor
San Diego, CA 92127
(858) 487-3939
General Investing >> Money Manager Interview >> October 6, 2008
Long-term Value Investing
James J. Puplava
James J. Puplava has been President and CEO of Puplava Financial Services, Inc.
(PFS) since 1985. For 12 years, he held a position as Branch Manager for LPL
Financial Services, LLC. In 1996, he incorporated the broker/dealer firm,
Puplava Securities, Inc. (PSI) and is its President. His business experience
includes contributing as a financial writer to various publications and acting
as a TV business editor... More










