Jul 10
5
At 54, I feel time is flying by and my mortality becomes more evident. They say that memory is the second thing to go. I feel like many things are going or already gone. Dizzy Dean once said, “I ain’t what I used to be, but who the hell is?” Amen, Dizzy!
One of the first things they teach you in driving school is never to go forward without first looking back. In order to “prophesy” (make a good guess), I’d like to first look back at what I’ve said and try to honestly self-evaluate my performance. No matter what grade I give myself, I put my pant legs on one leg at a time, too (and more slowly as each year passes).
As the year 2007 progressed, I continued to talk about how America was robbing Peter to pay Paul, but Peter was tapped out. I was waiting for the Fed to make one more easing move that I believed would be the last silver bullet in their arsenal to hold up a house of cards built on insane mortgage lending and borrowing beyond our means. I went so far as to point out that singer Shania Twain was bang on in her assessment made in her song “Ka-Ching.”
Finally, on October 14th, I issued a commentary entitled “Man Your Battle Stations.” I dare suggest just a couple of days after the U.S. Stock Market made an all-time high that one should sell everything except precious metals-related investments and even dared suggest shorting the stock market. I think it’s just as important to look at what was the general thinking at the time when such a forecast was made as to the actual forecast. The crisis about to unfold was not a widely-held belief nor was how close the world would come to find itself facing the abyss.
It wasn’t long before the house of cards came crumbling down. I didn’t completely escape, as I held junior resource stocks that got crushed and also suffered serious illness to the point it became truly life-threatening (we’ll discuss this in detail when I finish the book I’ve been writing).
By early 2009, the world seemed on the brink of economic Armageddon. Thankfully, my illness would leave me almost as quickly as it came. By early March, the stock market became so oversold that my technical work suggested we could see one of the biggest bear market rallies of all time. While I bid farewell to the bearish camp, I by no means was embracing the “Obama Mystique” that was engulfing the nation at the time. In fact, I openly stated (to much criticism via email and other means) he would prove to be the worst President ever. On March 6th, I left the bear camp. The market would end up bottoming just one day later.
As 2009 progressed and the market began to seriously rebound, I began to focus on a couple of numbers and time frame. I said my work suggested a run to 10,500 - 11,000 on the DJIA and both a market an economic peak by June/July 2010. Again, keep in mind what the current thinking was at the time.
Throughout the rally, I continued to say that while not in the bear camp (betting on a decline), I was in no way suggesting a new bull market was born such as the “Don’t Worry, Be Happy” crowd on Wall Street was peddling. My argument throughout 2009 and up until most recently was that we were in an eye of a storm, and at best that eye could last until June/July 2010 before the second part of the worst-ever economic, social, political and spiritual storm to hit America took hold again. It was my belief throughout this time period that the U.S. stock market was going to trade similar to that of the Japanese market from 1989 on.
As noted about a zillion times over the last couple of decades, I believe the vast majority of people who work in the financial industry are heavily tilted in their views to the “always positive” side of things. I truly believe you could toss them off the top of the Empire State Building and all the way down they would say the same thing: “so far so good!”
Per my June 29th commentary,whatever delusion of grandeur the “Happy” people had been able to muster to the sheep that always seem to follow them, died on this date. With that, my belief stated for months (if not a year or more) that the highs made earlier this year and the low made on March 9, 2009, could prove to be the top and bottom of the market for years to come (aka the Japanese market 20-year trading range).
Bottomline – It may seem too simple to some (and in this business many seem to need a long, drawn-out commentary in order for it to be a satisfactory conclusion), but at the end of the day America has lived way behind its means, has too much stuff and can never truly make any real headway until it comes to grip with this. The fact that our problems have grown acute during a period when we moved away from who our forefathers placed their trust in is no coincidence.
The list of troubles is a mile long and while I will discuss some key factors in a moment, I once again state that we can’t and won’t solve decade’s worth of economic, social, political and spiritual problems in a week, month or year. There’s no quick fix (Obama’s misguided bailouts have and/or will prove that).
When it comes to the U.S. stock market, I feel pretty darn good about soothsaying its direction over the years and in particular the last two or three.
U.S. Stock Market –
At best, it should seem like it’s stuck in neutral. At worse, it can greatly underperform. In the one-size-fits-all world on Wall Street, I think if one must have any real sizable exposure to general equities, one of the last places to do so would be the home of the terminally-ill Uncle Sam.
Key Issues – Like I said earlier, the list of economic, social, political and spiritual woes are long but here are a few key ones, IMHO:
- After being hailed by some as the “second coming,” Obama’s total lack of work experience and his heavily tilt towards socialism has put him in excellent position to surpass Jimmy Carter as the worst president in modern times (if not ever). It’s been my opinion that the November elections should begin to grip the markets no later than late summer/early fall and be a net negative to the stock market. Personally, I believe there’s going to be a massive “throw the bums out” vote and when the dust settles, we can have a horrific president who went from the penthouse to the basement in record time. Whatever political progress Washington could have mustered will be gone and it shall grind to a virtual halt.
- The Middle East is a ticking time bomb. I believe Israel may wait until after our elections before attacking Iran (it realizes the present administration is not a fan of theirs but with a big loss in November, they should be mortally wounded and the pro-Israel lobby could take center stage again in Washington).
- The next war for America could be a war of classes here. If and when America as a whole wakes up to the fact that it’s up the creek without a paddle and serious hardship for a long period of time is the only answer, the group that has been most hurt in this—the empty nesters/seniors—could wave a big stick.
America now has more people over 65 than under 18. This group also controls by far the lion’s share of what wealth we still have. In the last decade, this group has seen two of its three main stays go bye-bye:
1- Their ability to live off income disappeared and caused many to “chase yield.” This led many to lose serious principle or at least greatly lower their ability to generate income with little risk.
2- Their two biggest assets, stocks and their homes, which were once touted by Wall street as two sure things they could count on to increase in price over a long period of time, have turned from fantasy to a living nightmare.
3- Their last bastion of security was medical coverage. At the very least, Medicare is going to cost more and deliver less. Counting on Uncle Sam to pay the bulk of the cost is going to go the way of the buy and hold myth.
- The Judeo-Christian way of life continues to become more and more of a memory at a time when a dramatically different religion grows rapidly around the world and begins to butt heads even here in America on several fronts.
Bottomline – “I tremble for my country when I reflect that God is just; that his justice cannot sleep forever.” Thomas Jefferson
U.S. Bonds –
As good as I feel about how I did on the stock market’s ups and downs, I think I did badly on the belief that interest rates would have risen sharply by now. For now, at least, it seems economic weakness keeping rates low is more palatable to most versus a debt level so high that it can only lead to hyper-inflation down the road and falling bond prices.
Since I got this one wrong and still believe the same way, maybe this is the part by which God has chosen to keep me humble…that, and my golf game.
Bottomline – Even with a gun to my head (honey, put the revolver down, our junior resource stocks can come back), I couldn’t buy a 10-year Treasury at 3% or less. I would say shoot me if I end up wrong but someone(s) may take me serious and my daughter needs her father to walk her down the aisle someday.
Metals –
Choosing to be heavily overweighed in precious versus base metals has been the right choice for quite some time now and I don’t see any change to that on the horizon. That doesn’t mean avoid base metals but instead have your main focus on the precious – gold, silver, platinum and palladium. And within the precious, gold continues to be my favorite.
So not to be a broken clock and rehash over and over the same bullish factors, I invite anyone who isn’t familiar with my reasons to own the yellow stuff to visit the gold and precious metals categories to see what I’ve said in the past. I think I’ve been pretty “spot-on” when it comes to the metals.
Bottomline – I noted last week that with July and August being the two most seasonally-weak months for gold and the current price being quite above its 200-Day M.A., there was risk down to $1,185. I said I would welcome a base-building period and that’s what I think we’ll have for a few weeks. $1,300+ remains my 2010 target and as I already have noted, I don’t envision the end of the mother of all gold bull markets ending until gold has a “2” handle ($2,000+).
U.S. Dollar –
I began calling the U.S. Dollar “terminally ill” a couple of years ago, but at the beginning of this year I called for a bear market rally with a target of 83-84, then 88-90 basis the U.S. Dollar Index. I said all along this was not a new bull market but a countertrend rally in a secular bear market. I also said that the surprise to many would be gold rallying in the face of this countertrend rally. (Remember one of the many wrong forecasts from Tokyo Rose was that gold wasn’t in a bull market but was rising because the dollar was in a bear market. Funny how he forgot that claim once gold and the dollar rallied together).
I feel pretty good on my dollar forecasts.
Bottomline – It looks like we’re now forming a classic H & S top. Look for at least a few more weeks of sideways action in order for the right shoulder to take hold. I’m not looking for a collapse in the dollar, but once the world fully awakes to our problems being far worse than Greece, Spain and the other little pigs, the dollar should head back to 70 or below.
Canadian Dollar –
I absolutely love the Canadian dollar (Loonie). I see it not only going to a premium over its sickly neighbor to the south, but eventually holding a 10%+ premium over it. Who knows, maybe Canada will have a border problem with Gringos going north someday.
Oil & Gas –
I don’t pay too much attention here and neither one tickles my fancy one way or another right now.
Tracking List–
While I don’t purport to provide investment advice nor should you consider anything I say to be investment advice, I do provide a Tracking List of stocks I personally like. I track how well I do.
*** These companies were originally in the Tracking List but became clients of Grandich Publications afterwards. They will be addressed on client updates only.
GDX – This ETF is about 40% in just ABX, GG and NEM (all three are in my Tracking List) and about 60% of companies are based in Canada. It’s a decent way to have exposure to major and mid-tier producers.
XGD – Like GDX, it’s about 40% in ABX, GG and NEM. Quite useful for Canadian-based speculators.
SSRI and HL – I suggest gold over silver but like these two a lot for silver plays.
KMK – It’s now July and still HD is virtually dead silent on KMK. It’s just not their style, so I have to think something has been going on for them not to do any typical promotion. But I’m all ears at this point on any other thoughts.
NSU – Vague takeover talk apparently helped drive the share price over $4, but it has since come back hard with the market. The more it’s under $3, the more I find value in it.
HAT – A depressed uranium market has taken much of the wind out of the sails of the continuous good news this company has managed to put out. On the belief things can’t get much worse and someday uranium can “glow” again, HAT is a core uranium play. DML and URE are also worthy uranium-based speculations. CCJ is the premier uranium play. U is a good way to play the uranium price itself.
EAS – I think this is more a question of when, not if, someone comes knocking on their door. The more it’s under 6, the more attractive it becomes.
GBG – Every time it looks like its gaining traction, the stock slips back. One of these days…
EGI, RIC and WDO – Three low-priced producers that offer speculative appeal.
ER – A former Grandich client that to some has taken the turtle approach to the brass ring but such a deliberate course is what made it what it is today: a potential takeover target.
AUY, ABX, GG, KGC, NEM, AEM, and IAG are all worthy producers that still offer value to those like me who think gold can end up with a “2” handle on it before all is said and done.
While I don’t see any world market worthy to own at this time, I do think places like China, India, Brazil and some others could become worthy down the road (most likely not before 2011 at the earliest).
Depending on risk tolerance, 5% to 20% in mining and exploration shares with an overweight towards precious metals over base metal plays. 5% to 25% in physical metals with gold as the largest single holding. The rest in cash but for some, the Canadian Dollar (and dare I say) shorting U.S. bonds as a possible fling.
Grandich Client Companies –
I will issue updates as I receive data from clients. But in the meantime, you must remember what I always say – failure is the norm in the junior resource business. 9 out of 10 are not going to make it all the way, including clients of mine (despite all the best intentions). Sooner or later, many companies I speak about are going to greatly disappoint some. I will say it until I’m blue in the face – you must be prepared mentally and financially to lose part or all your capital in these companies. Don’t fool yourself otherwise. All the good intentions are not going to change the historic facts about these types of companies.
Despite all the good intentions, many of my current, past and future companies will not go all nine yards and some people will blame me for that. It comes with the territory.
Now here’s exclusive video of me watching my junior resource portfolio lose more on paper these last several weeks than I ever thought I could make in a lifetime.
“We have two classes of forecasters: Those who don’t know and those who don’t know they don’t know.”-John Kenneth Galbraith.
