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Well, today is August 16, the anniversary of many important events.

The day Ringo Starr replaced Pete Best in the Beatles (in 1962).

The day Elvis Presley died (in 1977).

The day John Diefenbaker died (in 1979, a great opposition leader, buy a lousy Canadian Prime Minister).

And of course my father’s birthday (every year). Happy Birthday Dad.

Oh yeah, and the day the stock market crashed last year.

Remember what we were all thinking last year? I remember, because I was on vacation last year. I capitulated in my August 10, 2007 commentary. Then I talked about my August 2007 vacation.

Then, on August 25, 2007 I confessed that I was an idiot.

One of my reasons for writing this blog is so that I can go back and see what I was thinking, and therefore hopefully not continue to repeat past mistakes.

Alas, my portfolio is down again this year, gold is getting hammered, uranium is down, and it’s looking exactly like it was looking on this day last year. Of course we remember what happened last year: August 16 was the low for the year, and a perfect buying day. Buying on August 16, 2007 was a great play, in hindsight.

Here we are today with gold having fallen from over $1,000 in February 2008 to under $800 today. Gold is trading below it’s 50 day moving average for the first time since this bull market started in 2001. This is very serious technical damage.

But:

Gold is the most manipulated market in the world, so technical indicators only tell half the story.

Gold rose when the U.S. dollar fell. It got so low that traders started switching back into it, out of gold and the Euro, causing a temporary spike. But the U.S. dollar, and the Euro, are paper currencies, backed by nothing. The tide will turn again, probably soon.

And, lest we forget, the economy sucks. U.S. inflation is very high, probably around 5% using government numbers, and more like 13% using accurate numbers. It’s equally bad in Europe, with increasing unemployment in many countries. Foreclosures are setting records in the U.S. An implosion is nearing.

It may be time to panic and sell everything, but I’m not going to. The pendulum swings both ways, and my crystal ball tells me that gold will rise again, and probably sooner than later, so I’m sitting tight.

(And with continued flooding problems at Cigar Lake, uranium will probably be a good better over the next few months as well).

For some additional perspectives, read what punter had to say this week (and here as well), and check out the silver chart posted by Depleted.

My final thought: remember last year. Bottoms are good times to be invested. Only time will tell if this is a bottom, but it’s starting to feel like that, isn’t it?

Comments always welcome on the Buy High Sell Higher Forum. See you next week.

Seth Godin is, according to the dust jacket on his latest book, “one of today’s most influential business thinkers”. I happen to be a fan of his work, so I have to agree. He writes one of the best blogs on the internet; it’s in my RSS reader, and I read every post (he has learned the art of brevity, a skill that I have yet to master).

This week he wrote a blog titled Complicit, where he made the point, correctly I believe, that we the people are responsible for what goes on in this world. Why is there spam? Because people respond to it. Why do the big box retailers, in many cases, sell the cheapest goods possible, with the lowest level of service? Because we the people let them. If we shopped only at smaller, local stores with great service, the big box stores wouldn’t exist, or they would have to change. We allow them to get away with poor service. We are complicit.

Isn’t that exactly how it works in the stock market as well?

The flavour of the month stock goes up, so we all jump in to buy. That makes it go up, and we are all thrilled at how well it did. We are proud of ourselves. We are happy. We buy more.

On margin.

Then it starts to drop, and we sell. It crashes. We are sad. We are angry. We blame ourselves. We blame our newsletter gurus. We blame the bloggers. We get a margin call, so we sell some more.

Our over eagerness to buy and sell causes huge volatility, which leads to more volatility.

We are complicit. We the people make the market go up and down.

So what’s the solution? Seth Godin says that we have the power to support what we want, and again, I agree.

If I researched the fundamentals of a stock, crunched the numbers, evaluated prospects for the industry, and so on, and decided that Stock X was a good buy at $40, should I not be thrilled that is has fallen to $35? Should I not be buying more at this bargain price?

No, I get upset that I bought at the wrong price, so I sell the stock I bought for $40 for $35. Then it bounces back, so I jump back in at $42, just as it’s peaking. I wait until it falls back to $36, I get scared, and I sell again. I then buy back at $43, sell at $37, buy at $45, sell at $40, and so on.

Lather, rinse, repeat.

Who’s fault is it that I bought at the wrong times?

Mine.

I am complicit.

So here’s the plan for this week, and next week, and the weeks and months after:

I will do my homework, and buy at good values. If nothing has changed and the stock falls, I will hold. If it goes up and I can take some money off the table for a profit, I will take a profit.

I will not watch my computer screen every minute of every day.

I promise.

I was down big on Tuesday, then up big on Wednesday, Thursday and Friday, not great. I don’t panic on the downs, and don’t get too excited on the ups.

That’s it. Brief and too the point.

Are you complicit? Let us all know on the Buy High Sell Higher Forum. See you next week.

Well, Friday was a bad end to a bad week. Golds, silvers, and uraniums were down on Friday, and down on the week.

I guess the highlight of the week was the return of Punter on the Buy High Sell Higher Forum on July 29. Apparently Punter had a great vacation in Maui, and said that he still sees a capitulation, and therefore is keeping cash and buying selectively. (You can read the post here).

Many of you chimed in with your thoughts, and most are in agreement that there will be many bumps ahead.

Some of the bumps are caused by market manipulation, where short sellers drive the price of a stock down, then cover by participating in a private placement at lower levels, so that they can then drive the price back up. Another common tactic is to sell a stock at the close to drive the price down, which may then trigger technical indicators causing the rest of us to sell. (Here’s the discussion from back in June we had on this topic on the Forum).

My take?: it’s the summer doldrums. Just like last summer, the volume is low, there are no new buyers, and if there is little buying, prices fall.

On the weakness this week I increased my holdings in K.TO - Kinross Gold Corp., AEM.TO - Agnico-Eagle Mines Ltd., and G.TO - Goldcorp Inc., and I bought some DML.TO - Denison Mines Corp.

Did I buy too early? Who knows. On the Forum Depleted posted a Denison chart that shows we are at a critical juncture here; if the lows don’t hold, we will probably see the same type of capitulation we saw last August.

My plan? Monday is a holiday in Ontario, so the Toronto markets will be closed, so nothing will happen on Monday. If we don’t see strength shortly I may assume that I did in fact jump in too early, and I will start selling again and raising cash.

However, it’s also important not to worry about day to day, or even month to month fluctuations. Gold will rise again, and it will be sooner rather than later.

The U.S. government continues to run massive deficits, and even the resource rich Canadian government slipped into the red for the first two months of this year. Interest rates will have to rise to keep foreign money piling in; the dollar will continue to be devalued, and therefore by the end of this year I fully expect gold to be much higher than it is today.

And that’s it.

It’s the summer. Let’s not over-think it, but if you do have thoughts, feel free to post them on the Buy High Sell Higher Forum.

Ever had one of those weeks where your portfolio did really badly? Me too. This week.

After I started buying last week, the senior gold producers got hammered;

K.TO - Kinross Gold Corp. was down 16.5% on the week, AEM.TO - Agnico-Eagle Mines Ltd. was down 14.6% after disappointing results, and G.TO - Goldcorp Inc. was the star of the bunch, only down 10.9%. I guess I didn’t exactly pick the bottom when I started buying, did I?

Here’s a quote from Bottomfeeder on the Buy High Sell Higher Forum on Thursday:

Picking the bottom is almost impossible.  So you must buy in “pieces of positions”.

Anyway, I have caught more than a few “advisors” say that this is the way you have to play the commodities, and to me these stocks are to be played as commodities.  The good news to me is that my goal is to invest not trade, so as long as I sell them higher than I bought them I will do just fine.  But when a nice rip is there I try and take them, again selling partials.

Exactly.

You can’t pick the bottom. You can’t pick the top. So don’t try to time it exactly. Decide what you want to own, and begin accumulating. I have never seen a stock go up for 100 days in a row. They go up, they pull back, then they go up again, and so on. Decide what you want, and buy “pieces of positions”.

Last week I mentioned that I increased my holdings in K.TO - Kinross Gold Corp., G.TO - Goldcorp Inc. and AEM.TO - Agnico-Eagle Mines Ltd. They rose after I bought them, but as I mentioned above, they got hammered this week. I don’t get excited when they go up, and I don’t cry when they pull back; that’s just the way it goes.

Here’s how I think you play it: Let’s assume I’ve decided I want 1,000 shares of Company X in my portfolio. I look at the chart, and if it’s currently trading at the high end of the range, with a relative strength over 70, I won’t buy it now. I’ll wait until we have a down day or two, and then I’ll buy perhaps 300 or 400 shares to establish my initial position. If it falls the day after I buy it, I’ll buy 200 or 300 more shares. If it stabilizes, I hold, but put in some bids at below market prices. Eventually I get to my 1,000 shares. I may even get to 1,200 if conditions look good.

Then, when we have a few strong days and I’m well into the money, and the RSI is up over 70, I start selling. 200 shares today. Perhaps 200 the next day, until it stops advancing.

If Company X is a core holding in my portfolio, I will probably not drop below 500 shares unless I’m ready to sell and get out for good.

What do I do now? Gold got hammered on Tuesday and Wednesday, falling from almost $980 to below $920, before bouncing back on Thursday and Friday to close the week at $936.90. We know gold is volatile, so big drops are buying opportunities, and that’s what I’ll do this week. I’ll continue to increase my core holdings.

Our Friend Mr. Dines

I can’t pass up the opportunity to quote James Dines from yesterday’s The Dines Letter. He spends most of the letter explaining that markets go up and down, so even if markets go down for a few years that’s no reason to sell. Here’s the classic quote:

“Our recommendation of PNP.TO - Pinetree Capital Ltd. at 0.795 cents (Cdn) subsequently rose 1,931% to $16.15 (Cdn) nearly two-thousand percent in only 17 months, such that a $10,000 investment would have risen to $203,145.”

Unfortunately he didn’t finish the thought, which should have gone something like:

“Ever since that peak I have had a Buy recommendation on Pinetree. I even moved it from my speculative list to my “good grade, moderate risk” portfolio. As of today it is trading at $1.82 (Cdn), so if you had followed my advice and bought it at $16.15, you would have lost 89%, such that an investment of $200,000 at that time would be worth $22,538 today.”

Even better, there’s a letter to the editor in this edition from some guy who spends the first 20 lines of his letter praising Mr. Dines, but then asks why one would continue to hold a stock that adds no value to the companies it invests in (Pinetree is basically just a venture capital firm), has no technical indicators to recommend buying, and has no truly great assets.

Dines then spends have a page explaining that yes, some companies go down, but if their investments start paying off, it will go up. He ends with the classic “You have lost nothing if you own the stock and the price fluctuates.”

Yeah, I guess that’s true. But if you had sold a few dollars ago, the money could have been redeployed and earning you money. It’s called opportunity cost, and it is real.

Oh well, I haven’t owned Pinetree for a long time, so it’s all academic to me at this point.

It’s not a profit until you sell, and if Dines had recommended selling after a 2,000% rise he would be hailed as a genius. Holding a stock all the way back down isn’t that impressive.

Enough about Mr. Dines. That’s two weeks in a row we’ve discussed him; it’s probably time to stop mentioning him for a while.

As always, I’ll leave it to you to set the agenda by posting your thoughts on the Buy High Sell Higher Forum. I expect better weeks ahead, so I’m buying the producers at these levels.

Well, overall, this was a week pretty much as expected.

Two week’s ago, I said that gold was looking over bought, so I sold a bunch of my holdings (at a nice profit).

Then last week, in My Strategy Backfires, I scolded myself for saying that I sold out of the gold’s too soon, as they continued their run.

Well, maybe I’m not as ignorant as I think. After peaking around $990, gold dropped big on Wednesday and Thursday, and then closed Friday at 954.87. So here, then, is my fearless prediction:

Gold is finishing it’s consolidation, and is heading upward. This week was the first try at breaking the magical $1,000 level (which happened for one day in March of this year, before correcting down to around $850. I think the next try, which could be as early as next week, will be successful, and this time it may hold.

Since the May bottom, gold peaked around $930 before falling to around $870. Then it peaked again at $950, dropped slightly to around $920, then ran to $990 (intra-day) this week before falling back to $955.

In other words, we have had a series of higher highs and lower lows; that’s an uptrend, and that’s what we want to see.

On Friday I put my money where my mouth is, and bought back all of the gold shares I sold earlier, at a lower price than I sold them, so I’m happy. Quite happy. I increased my holdings in K.TO - Kinross Gold Corp., G.TO - Goldcorp Inc. and AEM.TO - Agnico-Eagle Mines Ltd.

I was also buying silver stocks, including FVI.V - Fortuna Silver Mines Inc. and SVM.TO - Silvercorp Metals Inc.; they are both down significantly recently, so I averaged down my cost by grabbing more.

I even picked up some more UUU.TO - Uranium One Inc., since it’s a uranium producer that’s down, and I grabbed some more WND.V - Western Wind Energy Corp., and alternative energy company.

Finally, I added to my holdings of HND.TO - HB NYMEX Natural Gas Bear+ , a play on a drop in the price of natural gas. All energy stocks, including oil, have been very high recently, but now the summer is here and high prices have curbed demand, I’m placing a small bet that the price of natural gas will drop over the next month or so. This is a short term trade, with a tight stop loss, since this stock will move at twice the volatility of the underlying price of natural gas. You can track the price of natural gas here.

My buying spree this week has left me holding only 6% cash, my lowest cash holdings in a very long time. I betting, heavily, that the gold run will resume, and I don’t plan on being on the sidelines when it happens. We will see if I am correct.

The Dines Letter

We also had a fun discussion this week on the Buy High Sell Higher Forum about the Dines Letter, prompted in part by an article by Peter Brimelow on CBS MarketWatch. I happen to like Mr. Brimelow’s writing, but he, like most writers, can spin a story any way he wants.

He makes the comment that Dines was the Investment Letter Editor of the Year in 2006, obviously due to the spectacular success of his uranium recommendations. He then goes on to say:

“The Dines Letter is up 28.2% over the past 12 months vs. 15.1% for the dividend-reinvested Dow Jones Wilshire 5000, according to the Hulbert Financial Digest. And over the past 10 years, Dines is up an even more impressive 19.8% annualized vs. 7.4% for the total-return DJ Wilshire.”

Hmmm. So from July 1, 2007 to June 30, 2008 Dines is up 28.2%? What was his return during 2007? Obviously he didn’t win Editor of the Year that year.

Here’s my favourite quote:

“These stocks are rated “buys” in Dines’ top-performing “Long-Term Growth” portfolio: PAA.TO - Pan American Silver Corp., DML.TO - Denison Mines Corp. , LAM.TO - Laramide Resources , FRG.TO - Fronteer Development Group Inc. , MGA.TO - Mega Uranium Ltd. , PDN.TO - Paladin Resources Limited , UUU.TO - Uranium One Inc., and Arafura Resources”

Interestingly, that’s a list of 8 stocks; there are actually ten on that list, with the other two stocks also rated a buy, but not doing particularly well of late.

I’m surprised he didn’t pick the “Low Priced Stocks” portfolio, all of which are rated a buy, and all of which are down between 37% and 87%. Yikes.

However, I guess the point is that you can look at whatever period you want, and draw your own conclusions.

If you started investing with Dines at the start of 2007, you hate him. His recommendations have cost you a lot of money. If you’ve been with Dines for the last 10 years, you are up about 20% per year, so perhaps you love him.

I neither love him or hate him. He is a commentator with his own opinions. Some will be right, some will be wrong. Like many people before him, he has a big ego, and may be tempted to tout a stock that he owns for his own gain. So be it. We all know how the game works, so if you don’t like it, don’t subscribe to his newsletter.

(Obviously I have a big ego as well, or else I wouldn’t be writing a blog every week. Unfortunately my subscriber base isn’t as large as Mr. Dines, and therefore whatever I say has not impact on whether a stock goes up or down, which is probably a good thing).

Another hot summer day is upon us here in Southern Ontario, so I will leave the computer and go outside and enjoy it.

As always, thanks for reading my somewhat less long summer commentaries, and feel free to post your thoughts, long or otherwise, on the Buy High Sell Higher Forum.

Clearly I have no idea what I’m talking about, so after my long-winded commentary last week, I’m going to keep it short this week. It is, after all, the summer, so let’s all get away from our computers and enjoy it.

Last week I talked about the Tampa Bay Devil Rays, the best team in baseball, who promptly went on a four game losing streak.

I then said this:

“In the month of June I had a good run with K.TO - Kinross Gold Corp., G.TO - Goldcorp Inc. and AEM.TO - Agnico-Eagle Mines Ltd. At the start of June I increased my holdings, so at the start of July I took profits and sold. My reasoning, quite simply, was that the relative strength was looking toppy, so I sold them. To be clear, I didn’t sell all of my holdings. I doubled my holdings in early June, and then sold those shares this week, so I still hold a core position in all of the gold stocks.

I then immediately put in buy orders at below the current market price, generally around the 50 day moving average. The gold shares have dropped this week, so so far the strategy looks good, but unless I can get back in at lower prices my strategy will backfire.”

Well, guess what. My strategy back-fired.

Yes, the gold stocks did pull back from where I sold them, but they did not fall to my buy points, so my stink bids were never filled. Then, on Friday, prices exploded upward, with some of the gold stocks making new highs.

Oops.

Fortunately I did not sell all of my gold stocks; I just sold what I bought in early June, and I didn’t sell any silver stocks, which were also considerably higher. However, in hindsight, and unless we have a big correction on Monday, I would have been better off to hold.

My biggest winner on the week was RH.V - Red Hill Energy Inc., which is of course a stock I thinned out on a few weeks back; it was up almost 15% this week. Of course it’s about 1% of my portfolio, so it didn’t help much.

SLM.TO - Silver Wheaton Corp. was my next biggest winner, up 8.3% on the week. With it’s recent great performance it is now my biggest holding, at 11% of my portfolio, so prudence dictates that I should probably take some profits. At this point, I’ll be letting my profits run.

The big gold stocks also did well; the juniors, less well.

The plan for the week? I don’t plan to sit and start at my computer screen all day long. I don’t plan to watch CNBC.

For the last few weeks I’ve been getting up early and enjoying the good weather by going for an early morning run, or weekend bike ride with my boys. It’s the summer; let’s enjoy it.

As for the market, the world is ending, so on any weakness over the next few weeks I will deploy my remaining cash (currently 27% of my portfolio) in gold stocks.

As always, thanks for reading this less verbose missive today, and feel free to post your thoughts, verbose or otherwise, on the Buy High Sell Higher Forum.

Clearly I have no idea what I’m talking about, so after my long-winded commentary last week, I’m going to keep it short this week. It is, after all, the summer, so let’s all get away from our computers and enjoy it.

Last week I talked about the Tampa Bay Devil Rays, the best team in baseball, who promptly went on a four game losing streak.

I then said this:

“In the month of June I had a good run with K.TO - Kinross Gold Corp., G.TO - Goldcorp Inc. and AEM.TO - Agnico-Eagle Mines Ltd. At the start of June I increased my holdings, so at the start of July I took profits and sold. My reasoning, quite simply, was that the relative strength was looking toppy, so I sold them. To be clear, I didn’t sell all of my holdings. I doubled my holdings in early June, and then sold those shares this week, so I still hold a core position in all of the gold stocks.

I then immediately put in buy orders at below the current market price, generally around the 50 day moving average. The gold shares have dropped this week, so so far the strategy looks good, but unless I can get back in at lower prices my strategy will backfire.”

Well, guess what. My strategy back-fired.

Yes, the gold stocks did pull back from where I sold them, but they did not fall to my buy points, so my stink bids were never filled. Then, on Friday, prices exploded upward, with some of the gold stocks making new highs.

Oops.

Fortunately I did not sell all of my gold stocks; I just sold what I bought in early June, and I didn’t sell any silver stocks, which were also considerably higher. However, in hindsight, and unless we have a big correction on Monday, I would have been better off to hold.

My biggest winner on the week was RH.V - Red Hill Energy Inc., which is of course a stock I thinned out on a few weeks back; it was up almost 15% this week. Of course it’s about 1% of my portfolio, so it didn’t help much.

SLM.TO - Silver Wheaton Corp. was my next biggest winner, up 8.3% on the week. With it’s recent great performance it is now my biggest holding, at 11% of my portfolio, so prudence dictates that I should probably take some profits. At this point, I’ll be letting my profits run.

The big gold stocks also did well; the juniors, less well.

The plan for the week? I don’t plan to sit and start at my computer screen all day long. I don’t plan to watch CNBC.

For the last few weeks I’ve been getting up early and enjoying the good weather by going for an early morning run, or weekend bike ride with my boys. It’s the summer; let’s enjoy it.

As for the market, the world is ending, so on any weakness over the next few weeks I will deploy my remaining cash (currently 27% of my portfolio) in gold stocks.

As always, thanks for reading this less verbose missive today, and feel free to post your thoughts, verbose or otherwise, on the Buy High Sell Higher Forum.

Perspective.

It’s all a matter of perspective.

As of the end of the day Friday, the best team in baseball was the Tampa Bay Devil Rays, with a .624 winning percentage, winning 9 of their last 10 games. Last year, they weren’t that good. For the last 10 years they haven’t been that good. But now they are the best team in baseball.

At the start of the year I don’t remember anyone predicting that the Rays would be the best team in baseball. Most people were picking the Red Sox, or some other power house team. Conventional wisdom that a team with solid, experienced sluggers, and solid, experienced pitching would be the best. The Red Sox (and Angels and Cubs and White Sox) are doing well, but not as well as the Rays.

And yet here we are, with the Rays at the top of the heap.

Why?

One theory, which I think is as good as any, is that they have finally taken drugs out of baseball. We all know that steroid use is way down, but probably the bigger change is the elimination of amphetamines. “Greenies” have been used by generations of ball players to increase alertness and energy levels, which can be quite helpful when you have to play ball after a four hour cross country plane ride in the middle of the night after a long game. Amphetamines were banned by baseball in 2006, so now we have a situation where older players can’t easily use steroids to increase performance, and older players can’t use Greenies to give them a boost.

That gives a distinct advantage to younger players, who are more able to bounce back from long road trips and extra inning games, than are older players with older legs.

My perspective is that we really shouldn’t be surprised that the Rays are on the top of the heap. They are a very talented team, but so are the Sox, Cubs and so on. What sets the Rays apart is that they are a talented young team.

In hindsight, it’s quite obvious that we should have been able to predict that the Rays would be the best team at the half-way mark in the season. By looking at steroids, greenies, and the advantage of picking high in the draft for ten straight years should combine to create a great team.

But virtually none of us saw it at the start of the season.

We didn’t have that perspective.

We saw who was good last year, and assumed they would continue to be good this year.

Perspective.

Okay, okay, I know this isn’t JDH’s Baseball Blog; what does any of this have to do with the stock market?

Listening to the perspective of the talking heads on CNBC, you would think that the markets are at a temporary bump in the road, but once we get through this minor set back it will be onward and upward from here. Here’s my perspective:

The U.S. government deficit is freakin’ huge. I did some quick searching, and although there are interesting sites like the U.S. National Debt Clock, there’s not a lot of great information on the U.S. deficit. However, it appears that the budget deficit was $166 billion in May of this year. That’s the deficit for one month, not an entire year, and is a big increase from the $67 billion deficit in May, 2007. Apparently $48 billion of that was the “stimulus” checks, at $600 each, sent out to Americans. (I don’t want to slag Americans on their national holiday, and we Canadians are almost as bad, but c’mon guys: they are buying you with your own money!).

The problem will only get worse. Senator Dodd wants a $300 billion mortgage default bailout, and the war keeps going, and revenues are falling. The aging baby boomers are now the most powerful group in America; they are used to having government do everything for them, so universal health care is just around the corner. That may well be the final nail in the U.S. currency coffin. (Trust me, I know; I’m Canadian; we are used to waiting for hours in emergency; universal health care is only the answer if it’s funded by government but provided by private enterprise, but that’s another discussion for another day).

So Americans get all of this money from the government, and they spend it, which is good, because it stimulates the economy. Unfortunately, a significant portion of the goods purchased are foreign goods, which makes the U.S. trade deficit freakin’ huge. The trade deficit will be around $750 billion this year. We buy oil from the Middle East, and goods from China, and resources from everywhere else, and it’s non-Americans who are lending Americans the money to buy their goods (just like a vendor take back mortgage when you buy a house).

Connecting the dots, this means that non-Americans hold a lot of American dollars. They realize these dollars are losing value, since they aren’t backed by anything, so they gradually want to convert these dollars into something real, like buildings or businesses in America, or perhaps into gold or other commodities. Either way, that depresses the American dollar, and makes it even more difficult for Americans to continue to finance their lifestyle with other people’s money.

But wait, it gets worse.

In case you have been living in a cave for the last few years, the price of gas is going through the roof. The price at the pumps is approaching double what it was a year ago. This is due in part to the concept of Peak Oil; the discovery of new sources of oil peaked in 1960, and even though oil production continues to increase, the world is rapidly depleting it’s reserves, particularly as emerging economies like India and China switch from bicycle power to gas power. Silly government officials can blame “speculators”, but that’s silly; we are using more of a declining commodity, so obviously the price will increase.

As energy prices increase, so do the prices of everything else, because we need energy to grow and move our food and goods, so they are all increasing in price. Corn, for example, is at record highs.

Of course part of the reason corn is at record highs is because we are now burning corn for energy. Yup, that’s right, rather than using food to feed the world, we are burning it so we can drive our SUVs.

And wait, we forgot to talk about the mortgage mess. There are now more than a million U.S. homes under foreclosure. The housing decline will continue, which eliminates the ability for home owners to borrow against their home for more spending, which has been fueling growth for the last few years. There goes the economy.

Specifically, interest rates will go higher to slow the slide of the dollar, but inflation will continue to increase as the government prints more and more money. So yes, we will have inflation and a slowing economy, all at the same time. Stagflation isn’t fun, and it’s not easily solvable, since you need to “suck and blow” at the same time to cool the economy and heat up the economy. The world will continue to flee from the dollar, and as they do, gold will move much higher, because we all need to put our wealth somewhere.

To repeat: in a bad economy, stocks go down, so we won’t be putting our money in run-of-the-mill stocks. (Have you checked out General Motors lately?). Interest rates are going up, so we won’t be investing in bonds, because bonds are inversely correlated to interest rates; when rates go up, bonds go down. The housing market is crashing, so we won’t be putting our money in real estate.

That leaves gold, and other commodities like silver, uranium, and so on.

So what did I do this week?

I sold some gold shares.

In the month of June I had a good run with K.TO - Kinross Gold Corp., G.TO - Goldcorp Inc. and AEM.TO - Agnico-Eagle Mines Ltd. At the start of June I increased my holdings, so at the start of July I took profits and sold. My reasoning, quite simply, was that the relative strength was looking toppy, so I sold them. To be clear, I didn’t sell all of my holdings. I doubled my holdings in early June, and then sold those shares this week, so I still hold a core position in all of the gold stocks.

I then immediately put in buy orders at below the current market price, generally around the 50 day moving average. The gold shares have dropped this week, so so far the strategy looks good, but unless I can get back in at lower prices my strategy will backfire.

I expect volatility, so even though long term I love gold, for all of the reasons notes above, it never hurts to grab some profits when you can.

So what’s my perspective?

I believe that at this time next year we will look back and say to ourselves two things:

First, it was obvious, in an era of no steroids or greenies, that a young team with young legs would be better than an old, slow, drug free team.

Second, it was obvious that with huge deficits, high energy prices, the mortgage mess and a weak economy, and a debased dollar, gold could only go higher. We look back and say “that was obvious”, but very few of us will have loaded up on gold stocks while we had the chance.

My orders are already in, so I hope to own more over the coming weeks. That’s enough for today. The weather looks good, so I’ll be outside for the rest of the weekend, not thinking about the world’s problems.

As always, thanks for reading, and feel free to post your thoughts, whether you agree or disagree, on the Buy High Sell Higher Forum.

News Flash: Madonna wants a divorce.

News Flash: Ice may melt at the North Pole this summer.

News Flash: Scientists find water and key elements of life on Mars.

And that’s just today’s news. What does it all mean?

First, we are all idiots. Why should any of us care if some 49 year old entertainer is getting a divorce from her latest husband? I don’t, but I’m sure it will be one of the top news story on the “news” shows this weekend.

Should we be worried about ice melting at the North Pole this summer? I live in Canada, but here in Southern Ontario I’m actually farther away from the North Pole than are residents of Detroit, so no, I’m not going to spend a lot of time worrying about the lack of ice up north. Yes, melting ice may raise water levels down here, but it hasn’t happened yet. I don’t think flooding in Iowa is caused by ice melting in the North Pole; if it was, Canada would already be under water.

(If I may go on a tangent for a moment, I have no doubt that human activity contributes to climate change, but I suspect it’s only a very small contributor. There have been ice ages and global warmings many times in the earth’s history. Our unusual weather may be linked in part to low sunspot activity, or a host of other causes. We’ll never really know, since the world’s brain power is more worried about Madonna than the sun).

Life of Mars? Probably not, but I’m most intrigued by that story. I’ll probably never go to Mars, so I’m not interested in space travel. (With the price of gas, I’m not interested in any kind of motorized transport at the moment). However, I am interested in the human ingenuity that got a space craft to Mars, because it is that same human brain power that will ultimately solve our energy, and global warming problems.

Too bad we don’t have more human ingenuity when it comes to the news.

Every weekday morning I roll out of bed sometime between 5:30 and 6:00 am and head down to my basement work-out room. Monday I lifted weights (upper body); Tuesday, more weights (lower body); Wednesday, interval training on the elliptical machine (2 minutes at maximum heart rate, followed by a minute of rest, for five sets, plus warm up and cool down); Thursday, cardio on the treadmill; Friday, back to the upper body. Saturday, I’ll go bike riding with my boys, or shoot hoops, or whatever; the early morning, before the rest of the family wakes up, is reserved for writing this commentary.

Each morning while I work out I watch CNBC.

CNBC may not be reporting on the state of Madonna’s marriage, but I find the coverage equally insipid most of the time.

For the record, I quite enjoy watching the morning crew on Squawk Box: Joe Kernen, Becky Quick and Carl Quintanilla are informed and set the right tone each morning. Their guests, on the other hand, are not always on the ball.

There was some guy on Friday morning who kept insisting that now was not the time to sell; “stay the course” he kept saying. Actually the time to sell the Dow was 20% ago, but it seems that most of the guests want everyone to keep buying forever, and never sell, which is of course a mathematical impossibility.

And that, dear readers, is the problem: Too much noise.

We get bombarded from all sides with largely irrelevant information (like what’s happening with Madonna, or what some guy on CNBC thinks), and we miss the big picture.

To review, the big picture is as follows:

First, the economy is in bad shape. There are around a million homes in the U.S. under foreclosure at the moment, and that’s not good. Gasoline prices are at an all time high, and that’s not good for the consumer either. We will start to see a dramatic shift as people move from the suburbs closer to the city to cut down on their commuting costs. That may help real estate prices in the city, but will kill them in the suburbs, further squeezing the real estate sector.

Second, the U.S. dollar is in bad shape. The Americans have been printing money for years know to pay for what we will look back on as an ill-conceived and poorly executed war. This spring the U.S. government printed even more money to send to their citizens to forestall a recession. Unfortunately printing money only defers the day of reckoning, it doesn’t solve your problems. Foreigners now realize that a dollar is simply a worthless paper promise, and they don’t want them anymore. In the short term that may help exports, but in the medium and long term trying to buy goods with worthless paper is a mug’s game; it won’t work.

Third, energy costs are sky-rocketing. I assume that those “evil speculators” have some roll in driving the price higher, based on the law of supply and demand (if they are buying and hoarding, that would increase the price). However I think it’s obvious that the true reason for most of the increase is supply and demand. China and India are only now starting to buy cars in significant numbers, and when 2 billion people start buying gas, that will drive the price up. Combine that with the fact that the U.S. hasn’t built any new refineries in decades, and refuses to allow more oil exploration, and the supply/demand equation will only worsen.

(China will soon be drilling off the coast of Cuba, which is in fact also off the cost of Florida, so drilling will be happening whether the U.S. wants it or not. Too bad that wealth won’t accrue to U.S. citizens. It appears that the new Democratic government to be elected this November will focus on “renewable” energy, so let’s hope they figure out a way to make wind power drive your car).

Fourth, Madonna is getting divorced.

So what are we to do?

First, don’t buy real estate in the suburbs.

Second, don’t hold U.S. dollars, or U.S. dollar denominated assets. I trade in Canada, so I’m slightly more protected, although ultimately the Canadian dollar will prove to also be worthless paper.

Third, start looking at ways to drastically reduce your energy consumption. Combine your shopping trips so you’re not driving as much. Work from home when possible. Turn the air conditioning up, or off. Buy a programmable thermostat. Put a windmill on your car.

Fourth, if you have a hankering for 49 year old, multi-times married, faded pop-stars, give her a call. (I don’t, and won’t).

Oh yeah, one more thing. If the dollar is crashing and you want to own something that will increase in value, buy gold, and gold stocks.

In fact, this week, my large gold stocks were big winners, with K.TO - Kinross Gold Corp. up 18.1%, G.TO - Goldcorp Inc., and AEM.TO - Agnico-Eagle Mines Ltd. both up 12.9%.

Silver stocks also did well, with PAA.TO - Pan American Silver Corp. up 13.2%, and FR.TO - First Majestic Silver Corp. up 9.6%, and SLM.TO - Silver Wheaton Corp. up 8.4% on the week.

But wait, gold and silver were not the big winners this week. The big winner was:

DML.TO - Denison Mines Corp. at 22.4%! Congratulations Denison. The next biggest winner was UUU.TO - Uranium One Inc.up 18.7%.

Yes, you read that correctly; the big winners this week were uranium producer stocks. How long has it been since we have been able to say that?

Whether or not this is a trend, only time will tell. Denison has risen to it’s 200 day moving average, which has proven to be a resistance point in the past, so a slight pullback from these levels is quite possible.

Uranium One is approaching the very critical $5 resistance level, where it has failed twice before, so if it can get through $5, it will be onward and upward from here.

My strategy remains the same as it’s been for the last two months.

I will decide what stocks I want to own (from the list in the Buy-High-Sell-Higher.com Target Portfolio), and I will place stink bids at what I believe are appropriate buy points. I won’t chase a stock. The goal is to have a full portfolio by the end of the summer. I’m currently still holding 27% in cash, the same as last week, so I have a long way to go before I’m fully invested.

I won’t sit around and watch. During the first week of June I was buying the senior gold stocks. This week I will sell those shares I bought earlier this month. They are looking overbought, given the big increases of this week. I will still hold my core positions, and look to buy back in over the next few weeks as prices ease back.

As for the uranium stocks, I may start raising my stink bids slightly so I can continue to accumulate.

This week I did buy two stocks, as they got down to acceptable buy levels:

JNN.V - JNR Resources Inc., a uranium play, and WND.V - Western Wind Energy Corp. my first ever “Wind” stock. Incidentally, Western Wind Energy first came to my attention through a posting on the Buy High Sell Higher Forum, so thanks to you for bringing it to my attention. It was trading as high as $4.25, and it looked toppy to me, so I didn’t chase it. I placed my stink bid around the 50 day moving average ($3), and this week it got filled. If it falls further I’ll buy more, since long term it looks like a keeper.

The summer will be choppy, so I’ll use the down days to buy, and the up days to sell, and hopefully we have many more weeks like this one.

As always, thanks for reading, and feel free to post your thoughts on the Buy High Sell Higher Forum.

Welcome, officially, to the summer doldrums.

Not much happened this week. Some stocks were up, some stocks were down, but overall my portfolio remained about where it was last week.

The biggest winners were my biggest gold stocks, lead by K.TO - Kinross Gold Corp. up 6.7%. This is an interesting one because last week Kinross was my second biggest loser, down 8.5% The next biggest winner was G.TO - Goldcorp Inc., up 4.9%. Since I had stink bids placed on both stocks, I have been purchasing over the last week, so I’m glad to see them increasing.

Does this mean that gold is due to start a new run? Perhaps, but perhaps not.

We are clearly still in a trading range that started with a top in mid April, followed by a bottom at the start of May. I’m encouraged that gold is now above it’s 50 day moving average, but it’s done that three times before in the last two months, stayed there for a few days, then fell. If I was a betting man I’d guess that we will see $880 before we see $940. With that in mind, I’ll probably play the roll of day trader.

Specifically, the extra shares of Kinross and Goldcorp, and AEM.TO - Agnico-Eagle Mines Ltd. that I’ve picked up over the last two weeks will probably be listed for sale at prices above what I paid. If I get it, great. If not, that’s fine too; these are long terms holds for me, so I don’t mind hanging in there with them.

Interestingly, while the gold stocks were up, the silver stocks were down.

My worst performer on the week was SVM.TO - Silvercorp Metals Inc., down a disappointing 9.7%. I’m not going to panic on this one; they announced good but not great drilling (and tunneling) results on June 18, so some investors probably took some money off the table. I’m sitting on a big loss on this one, but I may pick up some more at these levels over the next few weeks.

My next biggest loser was DML.TO - Denison Mines Corp., down 8.2% on the week. While I don’t like to see stocks I own going down, I have been a buyer in the last two weeks, and I’ll be placing stink bids at around the $6.50 level to complete the accumulation of my position.

Going back to the winners again, my next biggest winner was the only non-Canadian exchange traded stock I own, RSW - Rydex Inverse 2X S&P ETF, which is an Exchange Traded Fund that goes up when the S&P goes down. (In theory it tracks the S&P 2 times the inverse, so if the S&P goes down 1%, RSW should go up 2%). This is my insurance stock, to give me protection against a stock market correction or crash. So far, it’s proved to be a good investment.

So, here’s my point (the same point I have been making for the last few weeks):

We are in the summer doldrums. The big guys are starting their summer vacations, and the golf season is in full swing (except for Tiger, but that’s another story). Trading volumes will be lower, so unless there is important news, stocks will drift lower. It’s not the time to panic. Now is not the time to watch your stocks every single day and worry about price swings.

Now is the time to decide what stocks you want to own, and place your stink bids well below market value to begin accumulating. You can see the stink bid list here on the Buy-High-Sell-Higher.com Target Portfolio. The goal is to have a full portfolio by the end of the summer. I’m currently still holding 27% in cash, so I have a long way to go before I’m fully invested.

I expect choppy waters over the next two months, so if some stocks, like the golds mentioned above, go on a short run, I may take some quick profits.

Long term, uranium is going higher, because it’s our only hope for a stable, clean energy source.

In the medium term gold is going much higher, as the flight away from paper currency continues.

That means that I want to own gold, silver, and uranium stocks, so while they are on sale, I will be buying.

Volume also drops on the Forum over the summer, but if you have any thoughts, feel free to post them on the Buy High Sell Higher Forum, and thanks for reading and contributing.