(Fed Chairman at Work)
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Let’s not get overexcited about such things as green shoots and bamboo leaves, shall we? Don’t get me wrong, I’m still not convinced this whole basket of cats in not going to just roll over and die here anyway, but what’s going on in the market has almost nothing to do with visions of recovery and everything to do with the continuing decline of the dollar.
Let me tell you, I’ve seen ugly charts for UUP before, but this might be one of the uglier, in terms of the sharp declines taken by the oscillators, that I’ve seen in a while. This tells me that the Fed and our trading allies know that credit is tightening again, and that the dollar spigot will be awash to get us through the tight September months again. Check it out:
Look at that accumulation/distribution line… what the heck? In any case, my first “back to work” market thesis reminder should be a familiar one — this is no time to get shaken out of your precious metal, hard commodity positions.
I also believe U.S. company buyouts will increase as our weaker currency provides better values for our overseas (and cross border) friends, especially those countries who specialize in commodity provision, like Canuckistan and Oz. China, of course, will also be a player, and she has shown she’ll be a willing buyer of commodity assets.
Hold tight, and watch that double bottom target area as marked on the daily UUP chart. Cheers and thanks for your patience.
But really not a horrendous day for the Jacksonians, which gives one pause, no?
Now the PM’s are resuming their slide, and I can’t help but think it’s “of a piece” with the Treasury’s desperate need to sell bonds here. Again, we continue to see opportunity, as I think it’s unlikely that gold will fall much below $890-ish on a per oz. scale, and I would be shocked to see it claw back to $850. In the event it does, however, I will be manning the one man oompah-band, complete with bass drum, polka accordian and egregiously long slide trombone in order to advertise to the world — via drum majorette high kicks — that this is the time to back up the truck and buy.
In the meantime, I will continue to convert my more esoteric picks (non-Jacksonian) and hedges of large positions into cash for additional rodent-like hordings of shiny metals. In fact, should gold break $900 again, I will “do my part” and for the first time since 2001 start buying physical again. If the Comex geeks want to “play that,” Homey will be obliged.
I have included a “weighted return” in today’s review (from yesterday’s close), so you can see how much each individual position actually returns. As you can see, the actual $150,000 original investment is up a little more than the “pick alone” number, thanks to cashing out on a few loser, and thereby having them a lesser portion of the portfolio. As a result, I will likely add to some Jacksons soon with the cash and hedge amounts ( [[TZA]] and Cash are equal to almost $23K at this point — or 14% of the portfolio) when the time is right. That may be soon, fwiw.
A reader asked me about Silver Wheaton (SLW) on the pull-back today, so I figured I’d take a second to show you why I like silver here for the “secular bear run.” Let’s start out with an interesting chart {$SILVER:$SPX} which plots silver against the S&P 500 since the start of the dot-com meltdown:
As you can see, silver has been on a bull run since about April of 2002, when it crossed over the 200-week moving average. Even through the subsequent four year bull cycle of 2003-2007, it continued to outperform the S&P 500 on a trending basis. What’s more, this ratio has never become oversold on an RSI basis (below 30), with only two trips in that period below 40. The ratio is also showing a possible turn (vs. the $SPX) on the slow stochastic as well. Silver is also cheap compared to gold, with gold currently priced at 73 times the price of silver (as of 3:00 today). The traditional “classic” gold/silver ratio was that held from the 17th to the 19th centuries was 16 times, and in 1980 the ratio at their respective heights was about 17 x, when silver spiked to $48 an oz, and gold to $850. Inflation adjusted, we’d need to get back to $129 and $2,200 an oz. respectively to re-acquire those heights. At double the 16 ratio (ie, 32x), however silver would still trade at almost $28 an oz. even with gold remaining at it’s current price!
Now to a silver mining stock dear to my heart. Let’s face it, most publicly traded silver mining companies are run by inbred families of feuding Romanian dwarves more interested in “Friday Night Rasslin'” and trading silver shaving for Natural Light 30-packs than they are those boring “balance sheets” and “income statements.” As a result most silver mining companies tend to frustrate investors even in good times for precious metals.
Silver Wheaton is different. It’s run by the same cockney Canuckistanian cads that brought us Wheaton River Gold, the successful gold startup that eventually took over Goldcorp (GG). The Wheaton River Gold guys have done what they’ve said they’d do now for almost ten years running, which in precious metal mining circles is the equivalent of a weekend full of “36, Winnah!”s on the roulette wheel in Vegas. It so much doesn’t happen that I’m researching the theory that they are in fact, Raelians sent to make those of us worthy enough (and who purchase the proper sneakers), rich. Ack! Ack! Ack-Ack!
See the annotated chart below — where SLW has finally filled that gap that’s been driving me crazy for weeks:
CAUTION! Investing in Precious metal miners is NOT for the faint of heart. While I think that SLW and PAAS are two of the best out there, that’s like saying I find the Phillipino black mamba and the South Rhodesian Stuttering Asp the most appealing of deadly poisonous snakes. I recommend a basket of miners in both gold and silver, as well as a core position in SLV and GLD, and the “fizzical” metals themselves. These are shelters in the storm, but they must also be watched. Build positions judiciously, and sloooowly. I will go over additional miners as we move forward with the Silver Surfer. Best to you all.
