June 28, 2008 – Madonna, Noise, Gold, and Uranium

by JDH on June 28, 2008

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.

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