Sort of ironic in another day of currency debasement the gold and silver stocks are down. I am taking this opportunity to add a good amount of exposure to both Kinross Gold (KGC) and Silver Wheaton (SLW) - both charts are identical - stocks in solid moves up which have pulled back to a first level of support (20 day moving average). Both risk falling further to 50 day moving average where I would buy more.
We'll get another 50-75 basis point cut in a month and a half. Or a government bailout - either of which add a flood of US pesos to the system.
Kinross Gold is now up to a 2.6% stake (bought today just under $25), and Silver Wheaton 2.2% of the fund (bought today in $17.90s)- the largest stake I've had in both names. The risk to these positions is the dollar starts to rally on (a) faith in the US system or (b) Europe cutting rates in concert with Fed to prop up global financial system but the latter will just put more fiat money into the system so it's not as much of a concern as point a. Even at $1000 gold, these miners are printing money. Due to the heavy speculation by hedge funds certainly we could see a pullback to mid $900s or so, but the trend remains in place.... Currency debasement.
So today while the Ultrashort exposure and commodities suffer, the long exposure benefits. When the next shoe does fall (although the shoe will be saved by the Fed of course), equities will fall some and then commodities and Ultrashorts will be working. Always trying to have something working, and biding time. Once we get through this whole credit mess we can start to focus on the earnings implosion coming in 2nd half for most companies who rely on the strapped US consumer. We've been so focused on the financials that we forget little things like that. :) All in good time. Bailouts first.
Long both names in fund; long Kinross Gold in personal account
5 comments:
Agree about mining stocks; not sure why they are getting hit today; metal stocks remain bullish for following reasons: 1) gold to XAU ratio > 5; 2) negative real interest rates; 3) dollar has far from stabilized; 4) lastly, I believe the Euro zone will start cutting rates; at least, this is what the EURJPY cross rate is predicting and this will support metals. None of these trends are likely to change in near future.
hey mark - thoughts on DBA and other commodities recent action? DBA's chart and some other commodity-related charts look like they may be starting to roll over. I own a smallish position in DBA. It looks to me like the 50-day ma is the line in the sand, a lot of stops are probably set just below. I'm sure Jim Rogers would just say "buy more!" but wondering your thoughts. Thanks.
Hi Mark:
This is my first comment here. I have enjoyed your blog for the last several weeks and as the day was closing today I had two stocks on my radar screen to buy.. and just before pulling the trigger I logged in here and you were doing exactly the same thing I was: bottom fishing the precious metals!!!
I had two different stocks: AEM and AUY in the gold mining area, but the same overall approach. I thought: great minds think alike,huh!!
Do you mind if I ask you a quick question on the coal names in a precious metals post? How do you distinguish between the 3 or 4 coal names you monitor? I know there are two different types of coal and some cos have more of one than the other -- and some coal cos export coal overseas more than others do.
Do these factors weigh in to your choices of coal investments? Do you consider reserves or spot pricing or location? Just wondering about methodology you use in coal selecting... Also have you ever looked at Alpha Natural Resources (ANR) in addition to ACI, BTU and the rest?
Anyway, thanks much and keep up the good work!!!
Jeffrey C
guy, its just there turn
ben, I don't like to advise people what to do with their money since that begins to cross over to an area where I have liability :) Instead invest in my fund haha. But in a general sense it depends on your time frame. All the commodities have been due for a pullback but if you pull up a longer term chart you can see similar situation at lower levels... if your time frame is 2-3 days you are probably at risk. If your time frame is 6-12 months then nothing has changed and those trends remain. When I see legislation passing that restricts corn ethanol than maybe I change my views. The food shortage issue is a multi year, and probably decade issue. I think we are entering a period of higher food prices period. That said, hedge funds have played havoc with these markets so you will have to ask hedge funds if they are selling off crops to go buy Merrill Lynch to tell you what the next few days will hold. All I can answer is agriculture is my #1 bull market for the foreseeable future - that is why I was getting frustrated the fertilizer stocks did not pull back further.
Jeffrey, you don't want to share a wacky mind like mine, trust me ;)
As for coal, I've probably owned nearly every coal name at some point in the past 5 years incl ANR. Only one I didnt know about a reader sent to me (WLT) in the past week. You have high BTU, low BTU, Appalachian, Wyoming, and metallurgical. A lot of distinctions. I simply build a basket in things I like on the long side since there are people who this full time as sector analysts and get things wrong 50% of the time. I try to find a trend, and ride it with my macro views - I'm a generalist. There could be some skeleton that Arch Coal has that I would never know, nor would an analyst etc. So it could be a terrible investment in the group, or the best. So I buy a mini basket. There is an ETF called KOL if you want the easy way to play the macro trend. Basically in my world CNX is the east coast player so as China sucks up more coal, and our dollar sucks win Europe looks to CNX to begin to export. BTU is my play with Australian exposure (direct to China), MEE is the metallurgical (steel) play, and ACI is the other major US player. There are a handful of smaller ones. You can click on the history for each name on the coal and aside from Arch Coal I laid out a company specific reason, but those are the ones I am also the most familiar with. A lot of it is just familiarity of knowing these sectors and trading them for 10+ years.
Honestly I follow so many sectors I cannot know the ins and outs of reserves and the like for this sector, natural gas, oil, etc etc - entire research departments filled with hundreds of people are in some firms doing this and they still get it wrong half the time. THis is different than buying say Apple which is company specific - when I buy a commodity it's a different mind set - that said in oil I like Petrobras due to potential huge reserves they've discovered as opposed to say an Exxon so its sector dependent. But I just looked at 15 natural gas companies and to be blunt they almost all looked the same to me. Fertilizer was an easier group to analyze because there are just a handful of companies and I could differentiate to focus on what I wanted to very quickly. As for reserves, the US has 100+ years of reserves supposedly so I don't think you need to worry much.
Anyhow that goes to the title of my mutual fund - get the theme right and then the rising tide should life all boats. I still try to pick the best names in each theme, but if I am wrong on the specific name but right on the trend I should still do ok in the end. Thanks for the comments.
Mark:
Thanks for your comments. I agree with you that in this market sector bets are the key determinant to success... that is, picking the right sector at the right time!!
BTW, for what its worth, I used to have a very rough rule of thumb that the market's initial reaction on a Fed Decision day (trading from 2:15 to the close) is almost always wrong, meaning that whatever direction it goes that day it almost always gets reversed the next day or at the latest the day after. Its the Fed Head Fake theory... it used to work under Greenspan, and still works pretty well under Ben. Lets see if the Headfake mojo still works now or if the PanicPalooza has brainwashed the scrubs on the trading desks....
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