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Since childhood I have followed the markets as my father had done, turning a school teachers salary into over one million dollars when he retired by investing in the top mutual funds. I think mutual funds day has come and gone, with ETF's now the best way for an investor to trade. I am a... More
  • Beginning of 2011 - market moving fast! 0 comments
    Jan 8, 2011 2:35 PM | about stocks: GLD, GDXJ, SLV, SLW, PALL, REMX, USL, USO, OIH, FCX, XLE, XES, XOM, QQQ, PSQ, DBA, JJG, ADM, MON
    My friends, the market is moving very quickly in the start of this new year.  The extreme volatility of last year will be with us again unfortunately all through 2011, and I'm predicting maybe even more so, if you can imagine that.  
     
    I've divided this notice by asset class but urge you to read the entire blog as it will point to important trends and good to know information.  

    US Equity Market
    Our market has done very well the past 6 weeks, primarily from the QE2 stimulus and the mounds of cash US corporations are sitting on.  If you remember from my last blog that they got fat by cutting employees, inventory and every expense they could find the last 2 years.  They now have a record high stack of cash but aren't hiring yet, so that's still a problem and will be for a while I'm afraid.  Because they hold so much cash, watch the Mergers and Acquisitions take hold this year.  If you buy a company for $1 Billion and they hold $200 Million in cash, your cost is really only $800 Million.  Wow what a deal!  The market may continue to go up for a bit, but watch for a severe correction!  If you hold US stocks, make sure you are ready to bail out.  I'm already seeing profit taking and it's hard to time the markets.

    Precious Metals
    The pullback I have talked about is now occurring.  Gold will probably pull back from the high of 1450 to 1325 or even 1250.  Silver lost 5% in one day! There are 3 actions you could take in order of ascending risk and ascending profit opportunities:
     
    1) Hold on, for as soon as this pullback is over, Gold, Silver and Palladium will shoot much, much higher.  Sean Broderick is forecasting $2500 for Gold and I've heard many say over $2000.  I think this is VERY realistic.  Silver is predicted to go to $50 or more.  Wow.  
     
    2) Sell for now, wait the pull-back and then rebuy.  This means you need to 'time the market' which is ALWAYS risky
     
    3) Short Gold and Silver with ETF short funds now while the market pulls back and then when it hits bottom, sell your short positions and rebuy GLD, SLV, or PALL.  Again, requires timing of the markets but you get the change twice.
     
    As usual, I will put my money where my mouth is.  While I sold off (~40%)  some gold and silver a few weeks back, I am holding onto what I still have and waiting to buy more when the bottom or as close to the bottom is hit.  I watch this stuff every day and I admit, you can NOT time the absolute bottom, just be as close as possible.  Once this is reached, I will be buying the following: GLD, GDXJ (Gold Junior Miner Index), SLV, SLW (Silver Wheaton, a great Silver miner as well as some gold), PALL (Palladium) and FCX (Freeport
    McMoran mines copper, gold and molybednum which is an important Rare Earth). I will be putting 40% of my assets into precious metals. I will discuss Rare Earths in a section below with some more detail.

    Hard Commodities, Metals and Rare Earths
    Rare Earths have had a lot of press recently. Currently I hold REMX (rare earth and metals index), but Lynas would have been a better bet in hindsight as they are currently the largest producer outside of China. An exciting play came to light last week which I urge you to research. A new miner has found the worlds largest deposit of rare earths and metals in of all places, Greenland. It is estimated that they may have more than 25% of all the known rare earth deposits in the world. If true, they will have a game changing property on their hands and will rival the current Chinese monopoly. BTW, the Chinese announced last week that they will reduce exports by 35% this year. Everyone from the US Government (military) to the tech manufacturers are screaming. Rare Earths and metals are used in everything from smart bombs to cellphones. This company is an Australian company and are listed on the Australian exchange, but you can buy OTC shares in your regular brokerage account using the GDLNF symbol. I am watching them for a pull back before I go ahead and invest a little bit in what could be an explosively profitable mining operation. Their full name is Greenland Minerals and Energy - GDLNF. They can be googled and there are some very interesting 3rd party reports on their find. Even their prospectus is interesting!

    Platinum is often talked about as a precious metal play, but when put on a chart with Gold, Silver and Palladium, it is mostly flat. While a rare and hard commodity, it doesn't have the flash of the other metals, so I do not recommend it at this time with so many other better plays to make.

    Copper is an exciting metal which has had an amazing run so far this year which rivals Gold's. It is rare, it is used mostly in new construction and manufacturing which goes to show that while the US has had a bad recession with little new building or manufacturing, (I would argue
    we're still in it), the rest of the world, especially China and India have been busy building cars and buildings, and will continue to do so for the foreseeable future. As I mentioned above, I will be buying FCX - Freeport McMoran who is primarily a copper miner but also mines other
    precious metals as well. There are lots of ways to play copper but FCX seems to be doing the best in the current market.

    Energy
    As I've mentioned before, get ready for $5/gallon gasoline. While oil is in a brief pullback mostly due to the temporary increase in the value of the US Dollar, and a bit of profit taking from investors, you can see the run up in pump prices the last few weeks. It is hovering around $90/barrel now and is definitely going above $100 in the next few weeks, and I predict somewhere close to $150 by the end of the year. This will produce $5/gallon gas for us (OK, $4.79, feel better?), and potentially hurt our slowly recovering economy. The reason is that while oil supplies were up the past 2 years due to the US recession, we are now recovering and using more. Add that to the explosion of cars in China, Brazil and India, as well as the rest of the developing world, and you have a classic shortage of crude which will potentially cause a lot of strife and even wars in the coming years. China is busy buying up every oil well they can get their hands on, while we just announced a stopping of oil permiting in the Gulf and the Atlantic after we reopened it after the BP spill, and are now getting only about 33% of the crude we were getting from the Alaskan pipeline because Prudhoe Bay is drying up! We can't drill in ANWAR because it might bother the polar bears and Elk, and Mexico, which is one of our major suppliers is finding that their major oilfield is also drying up and the new one they found and had great hopes for is way less of a field than they first
    thought. If it wasn't for Canada, we'd be in BIG trouble.

    The way to play this is by buying ETF's which move with the price of crude. You can buy USO or USL which are actual crude futures contracts, or even better OIH, XLE or XES which are ETF's holding the oil companies and the suppliers, refiners and service companies which move with the cost of crude. My 2 favorites are OIH and XES. These 2 have done better than crude the past 6 months and should be part of your core holdings. If you want to own part of an oil company, my pick would be
    XOM-Exxon/Mobil. Just remember that what happened to BP can happen to
    them as well (remember the Exxon Valdez spill off Alaska some years back?) I sold my USO, and own a bit of USL but plan to buy XES when the pullback is complete.

    Technology

    Tech has done better than the S&P and the best, easiest way to play this is with the
    Q's - QQQQ. It is an ETF which tracks the major NASDAQ tech stocks as an index. Buy it when tech is going up. When tech is falling, buy PSQ to short the tech stocks. You just need to know when the market turns around to get back out. Right now it continues to go up but who knows for how long? At some point in the next month or so, this market may have a very serious correction but will then recover for quite a few good months. That's all assuming no nasty surprises which occur in nature randomly.

    Emerging Markets
    There has been a big pullback the past couple weeks. The best I can figure is investors have seen the US market get better and are pulling their money out of the riskier Emerging Markets, and bringing the cash back to the US. I still believe in the Emerging Market theme and own indonesia, China, Brazil, Singapore and India. Small caps are doing the best in these markets.

    Soft Commodities
    Yikes! Between grains, soybeans and cotton, their value has exploded this year. Right now it's in a pull-back which was most deserved. This will jump up again next year with grains being the star this year. Several ways to play. Highly recommended is DBA. It holds a basket of soft commodities with futures dates. JJG is a pure grain play. Grains are supposed to be the hot one this year for several reasons so if you feel confident, go for it. Right now, world food prices are at a record high and rising faster than the inflation rate.
    www.bbc.co.uk/news/business-12119539


    Another way to play the Ag theme is with ADM - Arthur Daniel Midlands Corp.  They sell more food globally than anyone.  Their stock has not kept pace with pure commodities this past year however.  MON-Monsanto is another with their genetically modified seeds.  The world is rapidly running out of food and this is a crisis that is just beginning. 
    Price rises from Nov 2010 to Dec 2010
    • Sugar - 6.7%
    • Cereals (including wheat, rice, corn) - 6.4%
    • Oils - 8%
                        Source: UN's Food and Agricultural Organization - FAO


    Who says we're not in inflation?  Add oil, energy and now food, the American consumer is in trouble.  Debt is killing our municipalities and our currency.  Bonds and pension funds are going bust.  I urge every one of you to watch the 60 minute piece from Dec 19th, on states going broke: 

    www.cbsnews.com/stories/2010/12/19/60min...

    If this doesn't scare you, nothing will. 

    Corporations are flush with cash and the government is methodically continuing QE2, but unemployment is still very bad and all these undercurrents are making for a very volatile year.  Let's try to navigate our way through it.

    My Best,
    Bob



    Disclosure: I am long GLD, SLV, REMX, USL, QQQQ, DBA.
    Stocks: GLD, GDXJ, SLV, SLW, PALL, REMX, USL, USO, OIH, FCX, XLE, XES, XOM, QQQ, PSQ, DBA, JJG, ADM, MON
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