May 10
9
After last week’s action, “sell in May and go away” doesn’t look all that bad at the moment. But if one did, where would one go: cash, U.S. Treasuries, U.S. Dollar, gold? And if one did, when do you come back…if at all?
Remembering that I put my pant legs on one leg at a time like everybody else, I will try to paint the big picture and also comment on selected Tracking List stocks and Grandich client companies.
The Big Picture – To long time readers, please excuse me rehashing views that I’ve often spoken about over the years but understand there are many, many new readers who may not be aware of them and/or need a reminder.
For starters, I’ve long stated that traditional financial planning is a flawed process. Whether a plan was created by some computer-driven process that spits out fancy bar charts, graphs and all sorts of redundant data, or like the old days when it is still done with a legal pad and a pen, the actual process is flawed from the start. Why?
There are four key factors to all plans:
1 – Interest rates
2- Tax rates
3- Inflation rates
4- Rate of return
This may come as a shock to you, but neither me, you nor anyone else can accurately and constantly predict the direction of the above and eventually one or more of these factors will have to be recalculated in your plan, leading to an almost certain different bottomline then the plan originally “projected.”
Is there a better way? Yes, there is. Realize the bottomline is not net worth but obtaining the best possible cash flow. Any successful business owner will tell you their key to success was good cash flow. Many businesses with worthy assets but poor cash flow failed. I’m not in that business anymore, but if you live in the U.S. and would like to know someone who’s pretty good at the only financial planning process I believe can work over time, drop me an email and I’ll give you their contact information (I’m insurance-only licensed with the firm that does this process).
The playing field you, me and most other pawns in the unfair chess game called Wall Street must play on is heavily tilted against us. How you ask?
There are numerous points, but let me just mention two since you don’t have to go past them to fully appreciate what we’re up against:
- Back in August 1987, I was a “pup” on Wall Street. I managed to become the Head of Investment Strategy for a New York Stock Exchange member firm called Phillips, Appel & Walden, who really was a new issue penny stock firm dressed up as a NYSE firm. After just a little more than three years in the business, I issued a “market crash” forecast, calling for a 500-1000 point decline (market was around 2600 at the time).
Just one day after making that forecast, the big cheese at the firm called me on the carpet for making such a call and tried to explain to me why such a call was foolish. It went something like, “Peter, no one sells everything as you suggested. The 90%+ who won’t listen to you will never listen to you again when you’re wrong because they will feel you would’ve cost them money if they did. If you’re right and all hell breaks loose, they will be hurting too much to first start listening to you anyway. Now, let’s say 10% do listen. I bet half of them will be too afraid to go back in when you say it’s time. Peter, you can’t survive in this business with only 5% of your clients profiting from your advice.”
Even though I felt our clients would benefit from selling and getting back in at much lower prices, from purely a sales point of view, he was right. And by golly only about 5% of my clients listened and sure enough, the day after the October crash, I don’t think any went fully back in as I had suggested.
That experience and 25+ years in and around Wall Street has absolutely convinced me that even if the Arch Angel Gabriel came into the typical Wall Street Market strategist bedroom one evening and said God is telling them to sell everything and they believed the vision, the firms they work for will never allow such advice to be told. Therefore, without all the hoopla we’ve learned about what really has gone on at financial firms, we can never expect total objectiveness even if it’s God-inspired. Hence, the playing field is tilted against us.
- The total hypocrisy of it all, bar none, was the enlightenment the other day that the very people we count on to make the laws to protect us in Washington, were not only betting against the market but are free to use information which, if we did the same, would make us criminals. So while you watched Senators and Congressmen attack the vultures on Wall Street before them, many of these same lawmakers have and can bet against you and use info you legally cannot. What’s that saying about all is fair in love and war?
I can list numerous reasons I believe will show exactly how much we’re up against in the financial world, However, knowing the advice you’re receiving is never totally objective 100% of the time(that includes my biases and potential conflicts, too), and the fact that the people responsible for ensuring a level playing field have and will continue to be able to tilt the field to their advantage and your disadvantage, should make you realize at best you’re gambling (not investing) and at worst you’re in a can’t win (or at least reach legitimate goals) in the long run scenario.
One Hand Tied Behind our Backs – Moving forward with the realization that the rules of the game are not expressly in favor of us, and other players have better equipment and coaches, let’s proceed forward on the basis that our only hope is knowing that the cards we’re dealt may come from a partially stacked deck and see if we can be among the small minority who turn lemons into lemonade.
It’s been my long standing experience/belief that a “Don’t Worry, Be Happy” club exists on Wall Street and the vast majority of strategists and advisers are card-carrying members. The cup is always half full in their eyes and like the many realtors I met over the years, it’s always a good time to be buying. These “happy campers” receive lots of support from many in the financial media whose financial lifeline comes from the advertising the financial world. I would sooner risk my life trying to find a needle in a haystack than a negative article in Money magazine about a family of mutual funds who just so happen to advertise in their publication. Please, this doesn’t mean all financial publications and news services are not objective, but there’s a built-in bias for many that may not be openly discussed or disclosed but never-the-less exists. And, to be fair, two different financial media outlets that have the same advertisers can still have dramatic differences in their reporting. You only have to watch Bloomberg TV and CNBC-TV to appreciate what I’m saying.
Reality – So we’re all on the same page before I bring out my crystal ball, Ouija Board, rabbit’s foot, four-leaf clover and lucky underwear, we understand and appreciate it’s an uphill battle from the get-go and we’re clearly the underdogs. Throw in my potential biases and conflicts of interest despite a burning desire to do the right thing and you need to always remember Caveat emptor.
What Have You Done For Me Lately? – In my 25-plus years in and around the financial industry, never has it been more of “what have you done for me lately” than now – and that’s just with my wife-LOL.
Back when I started in the brokerage business (1984), the typical research report used a three to five-year period for long-term. Now, 12 months is usually long-term. Returns that were once appreciated if it took years are now expected by some in just weeks, days or even hours. This has caused the advisory community to take far more risk and also corporate managers to sacrifice potential long-term moves that could take away from short-term gains and instead seek faster results to the bottomline. This and other factors have led to far more volatile markets. The pressure to perform in any and all advisory or soothsayer capacity has grown exponentially ever since.
I took driver’s ed. in Manhattan, NY 38 years ago. On the very first day, the instructor had me drive from 72nd Street and 12th Ave back to the school on 57th Street near Broadway. While I always say if you learn to drive in Manhattan you can drive anywhere, a valuable lesson on markets and life was given to me that day when the instructor told me to look in my rear-view mirror. He said to always look back first before proceeding further.
Glance in the rear-view – Back in October 2007, with the Dow Jones Industrial at an all-time high, I made my most profound forecast. I not only suggested one sell all stocks except those related to precious metals and bullion, but to actually short the U.S. Stock Market. I maintained an extremely bearish stance until early March 2009, when (much to the chagrin of many) I announced I was removing my bear suit. Even my wife questioned my decision as for months she heard me speaking about how we were approaching and then standing over the abyss and now I was suggesting at the very minimum, several steps back.
As the rally took hold, I began to speak about a 10,000+ DJIA and then even 11,000+ with a potential market peak in the June/July 2010 time frame. My belief was (and still is) whatever the peak was up until this summer, it would be the top of a range that the market could go into for years with the lows of March 2009 as the bottom. As the rally grew stronger, more pressure was put on me since I was not a new-found roaring bull, but rather a believer that we were in the eye of a storm and the second half could be as bad as the first…if not worse. “Peter,” for the love of God; get out now before the end of the world returns. That was the underlying theme to more emails, calls and sage advice I was receiving and that was just in my household-LOL.
While tempted to the point that I took the bear suit out and hung it up ready to pull the zipper off the cover and get back where many of my friends and colleagues remained (albeit badly bruised), I resisted doing so on the belief the “happy” people still had a few tricks left in their bag.
Hence here we are.
U.S. Stock Market – As noted in my May 6th update, Friday was not a day in my book to make any major decisions. Given what took place since, I don’t think first thing Monday morning is a good choice either. I say this from what I view as a position of strength. The fact that I rode virtually the entire ride down and up on the right side until this past week affords me the luxury of erring on the side of caution.
What took place last Thursday is at the bare minimum, a significant disruption to the virtual straight up run we’ve had since March 2009. Whether it’s just a correction or a watershed event is just simply impossible for me to determine at this point. I learned in my professional and personal life that decisions made in highly-charged, emotional mind frames usually end up to be poor choices.
I do think, however, there are some factors I’ve identified that are worthy of carefully watching and one is some key technical support areas. If the following levels are breached on a closing basis, I will need to think long and hard that we simply fell a couple months short of the top and that multi-year (if not decade long) trading range has been established:
- DJIA 9835
- S&P 500 1,044
- NASDAQ Composite 2100
Until such time this or some other factors to consider become reality, I’m going to give the “happy” people the opportunity for the umpteenth time to tease and then punish my old friends in the bear camp.
I do agree with this person that Thursday’s decline was not Greece suddenly becoming the end-all after weeks of bad news from there, and there is now a fight between Washington and Wall Street that the media is not widely covering but playing a significant role in the markets.
U.S. Dollar – At least for the next several days (if not weeks), the U.S. Dollar is going to be a key factor for most markets.
While I called it “terminally ill,” I had the good fortune of foreseeing its temporary recovery and am now charged with timing its relapse. As noted late last week, it’s up against a major downtrend line and fairly overbought. A correction/consolidation in the very near term is likely but is not likely to be the relapse. Europe is a basket case and even though poor Uncle Sam is actually much sicker, his bleeding is internal and not being recognized for the sicker of the two for the time being. But as day turns into night, a cloud far darker than the one over parts of Europe at the moment is, IMHO, going to engulf the United States and cause far worse storms than the one presently on and approaching the PIGS.
Depending on the pause/pullback here, we could get new projects for the U.S. Dollar Index to as high as 92 so stay tuned.
Gold – If I said it once I said it a thousand times:
- 99.9% of the financial arena participants are never ever going to “love” gold because to do so would fly in the face of their lifeline-financial assets. You’re never going to get across the board support for gold ownership from the financial services industry and the media that covers it.
- Gold has, is, and is likely to continue to be, in the “mother” of all secular bull markets. It has, is and is likely to continue to eat up and spit out gold perma-bears, bears and weak-kneed bulls (who say sell in hopes of buying back lower but never get back in).
While there are numerous fundamental and technical reasons for my “extreme” fondness for gold these last many years, three key factors I often noted are:
1- Central Banks, who were once large-scale net sellers, left that camp a few years ago and are now either net neutral or net buyers.
2- Gold miners, who once cut their noses to spite their faces by being large sellers of future production (hedging) and helped cap the price of the main asset, now consider aggressive hedging “evil” (or at least feel their shareholders will revolt if they become big hedgers again).
3- While many in North America and especially the U.S. have yet to recognize it, many other people worldwide have realized no single “paper” currency is worth its weight in gold and only gold is worth its own weight. That’s why I was so bullish on gold and a believer a U.S. Dollar rally wouldn’t kill the goose and its golden egg.
I very much would like to see gold correct/consolidate under its old high around $1,225 for several days if not a couple of weeks. Such a move will for the umpteenth time allow the likes of “Tokyo Rose” and other gold “haters” to wipe the dust and blood off themselves and once again tell us gold is in a bubble, heading for $800, $500… Or, still my favorite, they say gold is not in a bull market but the U.S. Dollar is in a bear market and therefore allowing gold to rise (Tokyo Rose is one heck of a punching bag. no?).
My target of $1,300 to $1,500 remains intact.
Silver – Last Wednesday, the silver manipulators did their thing for the umpteenth time and silver came back to $17 or so. I noted in my humorous manner that this presented a tremendous buying opportunity, and one should back up the truck. While silver does take a back seat to gold most times, it still remains attractive as a precious metal. The other two precious metals, platinum and palladium, have done even better. They are not as attractive now but remain in a bull market trend. This news could be the big one so stay tuned.
U.S. Bonds – I know it’s very frustrating to watch bonds rally as America mortgages its future more and more, as it is to know that our children and their children are going to pay an awful price for our multi-trillion-dollar sins. One thing that is most likely in the near term and something that can provide the equity market some support is the almost certain asset allocation switch financial institutions are likely to recommend/implement of selling bonds here and buying equities. Not even a gun to my head could make me lock money up for years to come at current yields. Yes, it’s been that way for a while now but the ability to artificially keep rates so low is going to be paid for down the road in even worse pain than it may have a year or so ago.
Oil and Natural Gas – I’ve been neutral on oil and quite bearish on natural gas for quite some time. I do think oil could be a trade to the upside out of the gate Monday and continue to believe it can get to $90+ this year. The only light at the end of the tunnel for natural gas is another bear train heading its way. Under $3 and even close to $2 is possible this summer so I remain firmly in the bear camp on gas.
Once again I ask long-time readers to allow me to note something they’ve heard many times that some newer readers may not. In any case, a refresher is in order.
After spending the first half of my career in and around Wall Street as a broker, market strategist and fund manager, I’ve for many years now acted as a corporate development/investor relations consultant to publicly-held companies, mostly in the junior resource business. Separately, I’ve maintained an insurance license here in New Jersey and spend a good part of my time in Christian sports ministries.
Because of my love for the financial markets, I continued to publish The Grandich Letter, which was first published back in October 1984. While the clients I work for became a significant part of my writings, my love for the markets has always been included in my publications. When I switched to a blog in October 2008, I also began a Tracking List separate from my client companies. (A few of these companies became clients after first being included in my Tracking List but stayed on the list because of that).
I’ve made several factors known continuously (although a few Inter-Nuts who have you think otherwise) that are critical to grasp about my work:
- In the junior resource business, failure is the norm. No matter how “interesting” or bullish me and/or anyone may be on a typical junior company or companies, about 9 out of 10 won’t make it the whole nine yards. That doesn’t mean they/I are dishonest in our hopes and projections but for every company that finds an ore body and turns it (and/or sells it) into a producing mine, 9 or so won’t. This means sooner or later me, and others like me, will have spoken highly about companies at one time and that have since fallen to just pennies (if not out of business). The Inter-Nuts will remind you of that.
- Wall Street created the word speculating in order for it not to actually say what we’re doing, especially with junior resource stocks: that’s gambling. When one gambles one must be prepared to lose part and all their capital.
- Far too many junior resource players not only seem to fail to grasp the two points above, but have far too much exposure to these type of stocks and end up suffering financial losses and mental anguish that literally impact their daily lives.
On the basis you fully understand the above, I, Peter Grandich, gamble/speculate mostly on high-risk stocks and am strictly seeking large capital gains opportunities knowing I will also end up with a kennel of dogs over a long period of time (giving fodder to my critics who operate in the safety of anonymity and darkness in cyberspace).
The junior resource market is but a pimple of an industry compared to most others. Using caution is not only a must, but it is extremely prudent to seek out advice given by a totally non-biased individual or group. Junior resource companies are almost always raising money over time and people/groups in and around the industry are forever involved with participating in private placements in these companies. While I’ve no doubt somewhere out there are newsletter writers and/or advisers who simply recommend buys and sells, the vast majority in this business profit somehow in other endeavors. It may simply be that a company pays for their newsletter to be circulated to certain people/groups, or that they receive some sort of fees for services of different types. Caveat emptor in this business is wise.
One last point before I review my Tracking List and client list of companies: the feeling that these types of stocks seem to have hundreds of reasons to fall and only a few to rise is a legitimate feel. To think somehow that in a general market sell-off, someone is going to tell their adviser to sell their IBM shares and municipal bonds but buy some junior resource stock is fool-hearty. Yet, that’s basically what some want you to believe and/or some speculators/gamblers think is going to happen. An example of this is a newsletter writer/broker, who for years has predicted an economic “winter” (bad economic times) yet he specializes in raising money for juniors and buying and selling them. I, for one, don’t ever think I shall see the day when the DJIA has fallen thousands of points yet my junior portfolio is up double –digits. Fortunately for me, I don’t see anything on the horizon to suggest such a melt down and therefore I shall continue to hold many juniors for now.
Tracking List Review
As previously noted, I seek pure capital gains and one must be willing to not only lose part or all their capital, but also be able to fully handle the mental anguish that comes with the territory. (Most don’t, even though they say otherwise, and for those who can afford the financial risks, the mental anguish ends up too much for them).
Because precious metals (mainly gold and silver) were the one area I felt the most bullish on, my concentration in the model portfolio has been largely in metals-related equity plays. While I continue to be a roaring gold bull, there may come a time when even metals-related equities may need to be reduced or eliminated from the Tracking List. Nothing remotely on the horizon suggests such a case anytime soon but it should be in the back of the mind of everyone.
Among the positions in the Tracking List, the following comments are made:
I’m pretty much as bullish on silver now as I am gold and therefore believe some silver stocks are of interest here. Hecla Mining (HL) and Silver Standard Resources (SSRI) are my two favorites.
A laggard emerging producer is Great basin Gold (GBG), while Nevsun Resources (NSU) appears to be firing on all cylinders again on the belief commercial production by years-end is now a realist target.
I’m becoming more convinced that while not yet ready to “explode” (pun intended), uranium prices are putting in a significant bottom. I continue to like (and especially on any sustained weakness) Hathor Exploration (HAT), UR-Energy (URE) and Denison Mines (DML). In fact, I’m going to make two new additions to the Tracking List by suggesting Uranium Participation (U) and Cameco (CCJ) on the opening Monday.
Grandich Client Review (Companies with an * indicate they were in the Tracking List BEFORE becoming a client of Grandich Publications).
Alderon Resources (ADV) – I hope to have a report out soon.
Anooraq Resources (ANO) – New management has been kicking butt and turning things around. We should get an update on how much further things have progressed in a teleconference set for May 12th.
Crescent Resources (CRC) – It’s my understanding that the company is deciding whether or not to move forward on the private placement it had previously announced. I’m told it shouldn’t be long before the decision is made.
Crocodile Gold (CRK) – The overall weakness in the equity market and concerns about a new taxation plan for Australian miners has been the recent culprit to weakness in the share price. Meanwhile, exploration and production results have been very encouraging.
Crosshair Exploration (CXX) – The Labrador moratorium and the hope of its removal before 2011 is still the hope while the company continues to progress on other fronts.
Donner Metals (DON) – The Rodney Dangerfield of juniors continues to move forward towards a production decision. Drill results are due out soon.
Evolving Gold (EVG) – I own 1,030,000 shares as of this writing (I could sell part or all Monday or sometime in the future) and they’re a client so I’m biased even more than usual. Having said that, I didn’t buy a million plus shares because I can toss it down the drain. I’ve done so because as noted earlier about failure being the norm, this company has in my biased but honest opinion, potentially two world-class projects. With Tookie Angus’s arrival on the scene recently, I believe the talk of the “Gang that couldn’t shoot straight” in charge was done away with. I also don’t think Tookie is going to be the only changes on the management front.
The announcement of the major land acquisition in the Carlin Trend strong suggests management thinks they made a major find last February. With drilling underway there and to start on the Rattlesnake soon, I’m speculating/gambling that the shareholder value can have a major bump up this summer and fall.
You’ve heard me say countless times management is key. Take some time and look at Tookie’s resume and see why I began sleeping much better with his arrival.
Farallon Resources (FAN) – This is purely my own assessment and guess- FAN is either an acquirer or and acquire candidate.
Formation Metals (FCO) – I’ve yet to have a discussion with management regarding their latest financing just announced. I will update once I do.
Garibaldi Resources (GGI) – Juniors feed off news and there’s been none of major significance here so hopefully I can say more in the not-too-distant future.
Heatherdale Resources (HTR) – A private placement done before its IPO is coming due and I suspect we’re seeing some of it come into the market. I point you back to a recent Q & A I did with HTR.
*Northern Dynasty Minerals (NAK) – Seemingly struggles with a double-digit share price. Because of that, I had it as a hold and buy only under $9 recently. I think that suggestion remains prudent at this time.
*Oromin Explorations (OLE) – See past comments
Rodinia Minerals (RM) – While going no where’s fast on the share price, it appears to be having good success on the corporate development side of things.
Silver Quest Resources (SQI) – Again, noting what I said about junior resource stocks and the fact that I own 2 million shares and work for the company, if you put a gun to my head and said I must say what my heart feels about this stock, my answer would be this.
Spanish Mountain Gold (SPA) – See previous comments.
Strathmore Resources (STM) – Knowing what I said earlier about uranium, I’m very pleased with the progress at STM.
Sunridge Gold (SGC) – The Eritrea geopolitical factor doesn’t appear to be harming it anymore. The company continues to have good success from the drill bits and in the end, that’s usually what makes or breaks a junior.
*Taseko Mines (TGB) –Gift from God under $5.
Timmins Gold (TMM) – Production and exploration stars are all aligned. Outside of something unforeseen and a sharp drop in the gold price, my biggest fear is TMM becomes a takeover target and we don’t get to see it blossom into even a bigger producer (but hopefully cry all the way to the bank).
Final Thought – When I first started on Wall Street back in April 1984, my manager at the time said, “Peter, if you want to be a successful broker, don’t discuss three things:
1- Politics
2- Religion
3- Other men’s wives.”
While little or no time has been spent on number 3, I’ve spoken often about number one and over the years incorporated number 2 into my work.
During periods of trial or uncertainty, people find religion that otherwise wouldn’t … or at least consider it for a change.
Go to any bookstore and you will find 100 or more books in the business section about investing, finances and how to handle money. In a few years, those books will be gone and another 100+ books will be there. Such has been the case for many previous decades. So with literally thousands of books published, why hasn’t even one of them become the one book we‘re handed in school or at home and told this has the answers you’re looking for?
Yet, there is one book that tens of billions of people have read part or all of and its authors have been more influential in life for thousands of years than all the other authors combined. It’s called the Holy Bible, and in it the second most discussed topic is money matters.
So, whether it’s the word of God or fiction, the fact is if you’re going to read the current cure-all book(s) why aren’t you at least reading one that has knowingly impacted far more people than all the other books combined? The truth shall set you free!
