This Week’s Commentary – December 15, 2007 – You Decide

Well, it’s almost official. Unless something dramatic happens in the next two weeks, 2007 could be my worst investing year ever. I am currently down 36.7% for the year, less than a point better than my all-time worst year ever, a 37.9% loss in 2001 after the internet stock melt down.

Here are my thoughts:

The glass is half empty (the pessimistic JDH):

• We are only in the early stages of a massive credit crunch. More people will lose their homes. More financial institutions will go bust. More executives will go to jail for their part in perpetrating this fraud. Companies collapsing is not good for the stock market.
• The federal government will have no choice but to pump billions of dollars of new money into the economy to “save” the banks. That crashes the American dollar, and ultimately takes many stocks with it.
• Stocks are going down: take a look at this chart of DML.TO – Denison Mines Corp., one of the senior uranium producers: The uptrend line in place since July of 2006, which held at the August 16, 2007 lows, has been broken, and that can’t be good news.

• Despite the obvious need for the world to switch to nuclear energy, and despite the large number of new nuclear plants announced world wide this year, the price of uranium is $50 per pound lower than it was in the summer. That’s got to be bad news; the price is moving in the wrong direction.
• With the currency upheavals currently facing the world, the price of gold should be well over $1,000 per ounce by now; it isn’t, and it may never be; it may be that gold is a relic of a by-gone era, and will never move up. We are too sophisticated today to invest in a shiny yellow metal. You can’t eat it; you can’t use it for fuel, therefore it has little true value.
• Our gurus have not helped us much this year. As davidslane points out on the Forum, Dines picks are mostly down this year. Casey’s and the other’s haven’t done much better. If they don’t know what’s going on, how can the rest of us?

The glass is half full (the optimistic JDH):

• As companies collapse, investors take their money out of failing companies. They must put it somewhere. Where do they put it? Into places like gold and other safe havens. The entire market won’t collapse, just the bad stuff, so invest in the correct places and you will make a lot of money.
• New cash liquidity from the federal government will temporarily, at some point, prop up the market.
• The long term trends are still up. Take a look at this chart of DML.TO – Denison Mines Corp., one of the senior uranium producers: The uptrend line in place since July of 2006 is still in place, the RSI and MACD levels are at great buy points, so we should rally from these levels:

 

NOTE: Kind of hard to tell, eh? It’s all how you draw the lines. If you are an optimist, the case can be made that now is a good buy point. If you are a pessimist, the case can easily be made, that the uptrend line has been broken, so it’s time to sell.

• The price of uranium at over $90 today is higher than it was a year ago, when it was trading around $70. That’s a big increase in a year, and it bodes well for the future. China plans to double nuclear capacity over the next ten or fifteen years, Russia is starting to horde uranium, and India also wants to get into the game. Change takes time; it’s inevitable that as fossil fuels run out we will be switching to nuclear energy. It may not happen today, but it will happen, so the time to be invested is before the boom starts.
• Gold started the year under $650 per ounce. It is now trading at around $800 per ounce. How much of a gain do you want in a year? You can’t make gold, so as has been the case for thousands of years, it is the ultimate store of value, and will continue to be so. As we run from paper currencies, which are truly worthless, there is only one place to go, and that’s gold. This is just the beginning. $1,000 per ounce in 2008 should be easily achievable, given the action we saw in 2007.
• The guru’s picks are down, but you can’t look at one month, or even one year, and say “hey, I don’t care about your 40 year track record, you were wrong the last eight months, therefore you know nothing”. We must look at the long term to make our decisions.

So, what’s the answer? Should we be optimistic and stay invested, or run for the hills?

I have no idea. I don’t have the faintest clue.

If I had to guess, I would say that the market does not do what I want. It has it’s own timetable. I can plan a seed in my garden and water it daily, but a tree takes time to grow, no matter what I do. Some years it won’t grow. Other years it will shoot up like a weed.

This year was a bad year. The credit crunch killed everything. If you were getting margin calls on your bank stocks, you had no choice but to sell your gold and uranium stocks to stay liquid. That doesn’t mean those are bad stocks or bad companies, it just means people had reasons to sell them, independent of their potential value.

I do believe nuclear energy is our only hope. So I own uranium shares. (I will however stick to the producers, and near term producers; I’ll get back into the speculative stocks if a mania phase looks imminent).

I also believe that currencies will continue to be devalued and debased, so you must own gold.

That’s the big picture. I was up over 90% in 2006, down over 30% in 2007, but that’s still up over all. Some mistakes were made, but I choose to be an optimist. Time will tell if I’m correct, or naive.

As always, thanks for reading, and please continue to share your thoughts on the Buy High Sell Higher Forum.