"I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime." Jim Roger, Legendary Hedge Fund Manager.
The above quote sounds easy but it's hard to do. Our trading and investing is often dominated by our emotions and the madness of the crowd. Rogers' phenomenal success in the investment markets is in large part due to how selective he has been with his trading disciplines. He's as deliberate as a tree sloth and as patient as a great-horned owl.
It's not easy being comfortable doing nothing and sitting on large piles of cash until the opportunities are obvious to him, but Jim Rogers made his billions doing just that. He likes the trades that are overlooked or unrecognized by the "herd." At times he waits until days like Friday, September 7, 2012, and then he'll make his move.
Having scoured the weekend editions of the major financial newspapers and online investment news sites, the only article I could find that even touched on the big opportunities that are "lying in the corner" was U.S. Jobless Rate Drops for the Worst of All Reasons. Yet no specific investment ideas or trading suggestions were mentioned. That's when I realized it's time to "... go over there (to the money lying in the corner) and pick it up."
The first big clue concerning the kind of stocks which have finally turned around and appear to have begun a major rally is found in the question, "Which stock in the S&P 500 was the biggest gainer on September 7th?" The answer: Alpha Natural Resources (ANR) which soared 17% on more than double its 3-month average daily volume. It's the largest U.S. supplier of metallurgical coal used for making steel.
ANR had been down nearly 45% in the past 3 months as the world's hope for a coordinated international monetary easing and bond-buying spree by the major central banks faded as did the prospects for more economic expansion. But the announcements from last Thursday's meeting of the European Central Bank (ECB) and reports that China's central bank will soon ease their monetary policies to lift an economy mired in its softest period of growth in three years has changed hope to exuberance.
Back on Tuesday September 4th in a news story and interview with none other than Jim Rogers we read and heard the kind of insights that the "Smart Money" has been waiting for. The report claims, "International investor Jim Rogers says that the Federal Reserve is secretly printing money to avoid 'getting egg on their face again' after previous attempts to kick-start the faltering economy with more than $2 trillion of quantitative easing failed."
Thursday September 13th Dr. Bernanke's long-awaited quarterly report of the Federal Open Market Committee (FOMC) we'll hear more clues that should help us understand what's going on under the radar and behind the scenes. Is the global economy struggling more than we've been led to believe? A Reuters report on Sunday September 9th about China's factory growth slipping certainly indicates that the worldwide economy is in trouble and needs financial help.
"Chinese President Hu Jintao urged Asia-Pacific nations on Saturday to speed up infrastructure development to help face the 'grave challenges' from the global economy" claimed the Reuters story. "Qiu Xiaohua, former head of the National Bureau of Statistics and now a senior researcher with the China National Offshore Oil Corporation - CNOOC - (CEO) told a forum in the city of Xiamen on Sunday that the government still had room to act to bolster growth - and urged it to do so."
This adds more evidence that monetary easing has been ongoing. Stories from this summer reminded us that China's central bank has been engaged in an ongoing program of lowering interest rates. Many have wondered why gold and silver have skyrocketed over the past two weeks. Then the explosive upward move on Friday the 7th in the industrial mining and steel companies peaked this analyst's curiosity.
Back on July 13th I wrote an article at this site titled, "If a "Lehman Moment is Coming, Buy These Stocks." My suggestions turned out to be effective, but what I didn't realize was that a "Stealth Lehman Moment" was happening right under our noses all summer long.
The financial disaster that the ECB faced in the Eurozone and the shock-waves that spread around the monetary capitals of the world had created such a potentially devastating scenario that all the major central banks (including the Federal Reserve) had to quietly but quickly respond. As the report and interview above pointed out, "Two previous rounds of quantitative easing (QE1 and QE2) pumped a collective $2.3 trillion into the economy and Fed officials say they remained poised to roll out a third round (QE3) if recovery doesn't gain steam."
Then this same report made a surprising admonishment:"Don't wait for that announcement to occur (italics added)"! "I do not know if they will announce it. I know they are going to print more money. They already are," Rogers told India's Economic Times.
"If you look at (the major banks') balance sheets, you will see that something is happening, assets are building on their balance sheets and they are not coming from the tooth fairy," said Rogers, who co-founded the Quantum Fund with George Soros." Billionaires like Rogers, Soros and Warren Buffett are the "Smart Money" and have insight and connections most investors don't even know exist.
"I do not know whether they will announce it (QE3) or not. They are a little bit embarrassed because they announced QE1 and QE2, and it did not work. So they may try to discuss it," Rogers said. "They may just continue to do it without getting egg on their face again, but they are going to print money, they are all going to print money. It is the wrong thing to do, but that is all they know to do."
Rogers also told Britain's The Daily Telegraph: "They probably have learned how to do things off balance sheet. I have nothing to confirm this but everyone else has learned how, so they probably have too. This is just a comment on human nature."
No wonder companies like ANR and Cliff Natural Resources (CLF), which high-jumped almost 15% in one session on Friday are reacting so potently. In addition to the apparent impact of the ongoing benefits of the FOMC opening the monetary flood-gates, CLF received some good news in its labor union negotiations that will keep workers on the job.
CLF pays a savory 6.3% dividend and is trading at only 4 times current earnings and 5 times forward earnings. Its trailing-twelve-month revenue is $6.7 billion, which is almost $47 of revenue per share.
The main caveats I see with CLF is unresolved issues with the United Steelworkers of America and its $4.29 billion in debt. If its labor issues are resolved, its earnings and operating cash flow (currently at $1.53 billion) should take off like a race horse.
CLF trades below book value and at a PEG ratio (5 year expected) of 1, meaning its shares are selling with little premium to its current growth rate. Here's a 1-year chart comparing CLF and ANR. You can see the move higher is only in its infancy.
Besides the precious metals stocks which I've written about previously, did you see the move Freeport-McMoRan Copper & Gold (FCX) made last Friday? It finished the day up 8.5% on more than double its daily average volume. These kinds of moves on heavy volume are very significant.
For more conservative traders (if there's such a creature), the companies that make mining equipment like Joy Global (JOY), which was up almost 7% Friday on heavy volume, is another smart idea. Caterpillar (CAT), a member of the Dow Jones Industrial Average, is another more conservative way to play this massive trend which has just begun to catch on.
Remember, Friday's huge rally in both the mining stocks and precious metals was triggered by what appears to be an increase in the velocity of money and stealth injections of fresh capital into the world's commercial enterprises. The FOMC has a mandate not only to keep inflation under control, but to keep employment as high as possible.
Friday's payroll numbers made it clear the FOMC faces a huge challenge. They've repeatedly pledged to make good on its promise to provide all the additional monetary stimulus needed to promote what it called a "sustained improvement in labor market conditions."
Don't wait for panic, because the "Lehman Moment" has been dressed up like a pig with lipstick. And if you wait until "The Announcement" this Thursday you may be left in the dust wondering what happened.