Excerpt From The January, 2010 Issue No. 1-10
Nothing has changed
Still using a bottom up approach
Nothing much has changed since last Issue. If you recall, the market commentary led off with a decidedly negative title;
“The future really looks bleak”. If anything, I’ve seen similar comments from people I personally have great respect for. More and more cagey people are saying; 1. that they have little faith in the economic “recovery” and, 2. that they recognize the economic time-bomb coming around 2013 that I won’t let you forget about. One of the strongest such statements came from one of the best performing hedge fun managers around; Eric Sprott. His fund has returned 495% over the past 8 years, an average of roughly 62% per year. And this over a period when the S&P 500 lost 67%.
And his forecast is at least as dire and more specific than mine. He says that the 67% rally since March reflects investors misinterpreting economic data. And he’s predicting a 40% decline to below the March lows. How do you argue with someone who has performed so well?
“Mr. Sprott said the Federal Reserve has kept bond yields and interest rates artificially low through its program to buy agency debt and mortgage-backed securities....Expiration of the program would reduce demand for fixed-income securities, forcing up bond yields and interest rates and hurting economic growth, Mr. Sprott said.” (National Post, December 30, 2009).
So after rising another month or two as the market tends to do this time of year - we should be prepared for weakness by the end of the first calendar quarter. For this reason I continue to take a bottom up approach to investing. I am picking companies I believe have a shot at succeeding in spite of economic conditions. See 3 picks for 2010 on pg. 2-4.
Using sell stops
Another smart guy I am listening too lately is David Burrows, of Barometer Capital. I was fortunate enough to take in a presentation he did at Canaccord Capital in December. He tries to position his fund according to big important trends. But he doesn’t try to “forecast” per se - he doesn’t try to “pick” market tops or bottoms. One thing I have noticed from people who have done very poorly in the markets lately, it they were people who thought they knew where the markets were headed. To and extreme. I find David’s approach intelligent. He’s smart and humble enough to realize what he doesn’t know. But how does he defend his assets and decide when to sell? Easy - two words: “Sell stops”.
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Excerpt From The September/October, 2009 Issue No. 8-09
Gold pauses at $1,000
Higher inflation looming, could drive the next leg up
Gold has spent the last month teasing the bulls -
moving back and forth over and back under $1,000 as if trying to decide
what to do - make a decisive break out or pull back. Not a big problem
for long term investors, but a pain for traders who don’t know whether
to hang on or step aside. Fully convinced that I have no idea what
the price of anything will do day to day or week to week for that
matter, I place myself into the former group saving myself the agony
of trying to decide what to do.
Looking at recent history shows the October seasonal correction can’t
even be counted on. Last season - it not only gave back some of its
September gains as it tends to do in October - it collapsed into November
along with everything else. Look at the year before and it’s an entirely
different story. In 2007, Gold soared in September, October and November.
Trying to be too cute would have had you leaving major profits on
the table. So I can’t follow the October dip too much. I figure I
am real lucky to get in and out anywhere near the major seasonal highs
and lows. A few core positions such as Newmont, I’ve held from the
very beginning (previously Franco-Nevada).
I hope to sell these closer to the end of the secular bull market.
In theory this could be around 2020. Why then? Because gold tends
to run up and down in 20 year secular bull and bear markets. This
secular bull market began in 2001, so I simply add two decades which
takes it to somewhere close to 2020. In the meantime we should stop
adding to positions when the bull market reaches the manic stages
(see page 4). Meanwhile, what’s it going to take for the Gold price
to make new highs and begin the next big leg up? How about inflation
finally setting in.
The Deflation/Inflation debate has been ongoing for some time now
with Deflation winning so far. Many are predicting higher inflation,
but when? I figure it all has to do with credit creation. Yes, Central
Banks are issuing gazillions of dollars to stimulate economies around
the world. However the commercial banks that get the money are not
turning around and lending it out. They are using it to bolster their
own capital reserves.
Sooner or later, this bolstering of capital
reserves will end, banks will loosen up and start lending again, and
I figure that is when the inflation people have been expecting will
be unleashed. And that will push up interest rates, hit the economy
and the US Dollar and Gold will start running up once again. I think
it is only a matter of when this happens.
This Issue:
- Gold pauses at $1,000 Page 1
- Two emerging industrial stock picks that are building shareholder
value by saving customers money Pages 2 & 3
Updates: CPDV, OOO & CSC Page 4
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From The June, 2009 Issue No. 6-09
Mid-Year Review
Many conference speakers sceptical of recovery
I was interested in observing the demeanor
of everyone attending the World Resource Investment Conference in
Vancouver earlier this month, since this was the first conference
I attended since the market put in it’s double bottom in March. Fortunes
have been lost and many people are still understandably traumatized
by the devastation to their net worth.
Mind you, conditions have improved dramatically since the second sharp decline
in global stock markets took place in March. North American stocks have rallied
40%. The CRB Index, a key sign of economic health has rallied sharply. The pace
of decline, of home prices, of layoffs, and fear levels have all subsided. Nobody
is claiming a robust recovery is underway. But if one waits for full recovery
before investing, it is already priced into the stock markets. The true bargains
are found during periods of uncertainty. The question on everyone’s mind, and
the topic of discussion by many speakers was whether the recovery is for real,
or was there a second shoe to drop.
Of the veteran speakers I heard, both at the conference and outside of it, most
were negative and sceptical of the recovery. Most felt that the credit bubble
which took decades to form would not be resolved in a matter of a few weeks or
months, but years. This isn’t some kind of inventory recession that could be
solved with a few interest rate cuts, but a far more serious balance sheet recession
that consumers would take years, maybe a generation, to recover from.
S&P 500 Since 1970
Like other previous secular bear markets,
I suspect stocks could be range bound for
at least two decades
Doug Casey (The
International Speculator) compared
the demise of America to fall of the Roman Empire, and we all know
how long the subsequent Dark Ages lasted (I suspect he exaggerates
to make the point that he believes the situation is quite serious
and lasting). Other speakers I’ve heard elsewhere are also sceptical.
Market historian Bob Hoye suggests a potential parallel between the
current economic and stock market rebound and the dead cat bounce
that took place in 1932, still early on in the Great Depression. Another
analyst, Martin Weiss, believes we are merely in “the eye of the hurricane”
that will rise up again once interest rates go up and sites the $14
Trillion in liabilities as proof trouble lies ahead (read: New
hard evidence of Continuing Debt Collapse! June 15, www.moneyandmarkets.com).
If there was a divide of opinion,I found it along
the lines of age. More youthful speakers, such as John
Lee (Mau Capital)
David Skarica (Addicted to Profits) and Jim
Letourneau (Big Picture
Speculator) were more optimistic. Siting stock market recoveries in
Asia of up to 70%, and anecdotal such as full stores and restaurants,
either these guys are naive and too optimistic, or the older ones
are being too negative. Only time will tell who is right. The other
thing I noticed, what how uncertain everyone has become.
My Outlook
I would describe what we are experiencing now as a cyclical bull market that
within the context of longer term secular bear market that began in 2000. I
believe it’s a bull market for 1 - 3 years because;
1. The charts are saying it is
2. Because of all the government stimulus, and,
3. Because the demographics are still positive.
That is because the number of people aged 45 to 54 is still rising. Until the
year 2012 that is.
Then in 2013, the secular bear market should resume as the demographic trend
turns negative, and stays that way until 2025. That is, the number of high spenders
begins to contract and keeps falling until the year 2025. I realize that is a
grim long term outlook. But I am here to tell you the truth based on the facts,
not what you or I want to happen. And like Mark Stein says, demographics may
not explain everything, just about 90% of everything.
I suspect the recovery and cyclical bull market will be muted at best. A 1 to
3 year reprieve before the big bad bear returns for certain in 2013.
Nor would I rule out some shorter term sluggishness, given the huge 43% run up
that the TSX has had since March, the time of the year, and the fact
that gold and now oil, at least temporarily, seems to have reversed their upward
trend.
Long term subscribers who want a refresher of the demographically
driven bust lying ahead, or new subscribers who aren’t aware of Dan
Arnold’s book
which explains
this very well should visit www.TheGreatBustAhead.com,
read the article and listen to
the interview he provides
free of charge,
spelling out
what lies ahead and why
nothing is going to stop it.
This Issue: (#6-09)
