Stock Market Dec. 22-26

[davidslane]

Here's some food for thought from Steve Saville's latest newsletter (www.speculative-investor.com)

The following excerpt from our 18th May commentary, written at a time when the fear of inflation was high, expands on this point:

"Our statement that the US inflation rate is presently in the bottom quartile of its 10-year range may appear to be absurd given that the prices for various commodities and everyday goods/services are rocketing upward, but today's rising prices are largely due to the massive inflation that occurred years ago; specifically, the massive inflation in the US during 1998-2004 and outside the US during 2003-2006. There is often a multi-year lag between the cause (money-supply growth) and the effect (rising prices), which is one reason why so few people are able to see the link between money-supply changes and purchasing power changes.

During any long-term inflation cycle the major beneficiaries of the inflation will be the sectors of the economy where the supply/demand fundamentals are the most bullish, that is, those sectors where there is relative scarcity. Commodities should continue to be the major beneficiaries during the current inflation cycle -- a cycle that's probably nowhere near an end -- because that's where the relative scarcity now lies, but the downward correction in the money-supply growth rate over the past few years creates an intermediate-term hazard for commodity investors.

We expect that wider recognition of the inflation problem will eventually bring about a major decline in Treasury bond prices (a major rise in bond yields), but the temporarily SLOW rate of US money-supply growth over the past 2-3 years could support US T-Bond prices over the coming 6 months by putting irresistible downward pressure on the prices of industrial commodities." [Emphasis added]

The point we were trying to make in our 18th May commentary and in a number of other commentaries during May-August of this year was that even as the general fear of inflation was rising, the relatively slow rate of money-supply growth over the preceding 2-3 years suggested that the so-called inflation trade (bullish commodities / bearish bonds) was set for a reversal. As things turned out the reversal was far more dramatic than we had envisaged, but the fact is that the goings-on of the past few months can be explained by the preceding sharp decline in monetary inflation.

As an aside, the reversal was so dramatic because 'bubble activities' (economic activities that are only feasible as long as the money supply is expanding at a rapid rate) had come to play an unusually large role within the economy.
 
The following chart of the TMS year-over-year growth rate shows the rapid monetary expansion that set the stage for the 2003-2007 boom and the substantial reduction in the rate of monetary expansion that set the stage for the 2007-20?? bust. It also reveals that the seeds are now being sown for the next major upward trend in prices.



Based on the lengthy delays that typically occur between changes in money-supply trends and changes in price trends it could be at least two years before the next general upward trend in prices gets underway. For example, the year-over-year TMS growth rate moved into double digits around mid-2001 and stayed there for three years, but equity and commodity prices didn't commence major upward trends until mid-2003.

In the mean time gold should continue to do relatively well due to gold speculators anticipating the eventual/inevitable effects of the new upward trend in money-supply growth.

[Bottomfeeder]

Who says there is no M&A activity in the mining sector?

Santoy merges with two private companies.

http://www.marketwire.com/press-release/Santoy-Resources-Ltd-TSX-VENTURE-SAN-932703.html

I will call this deal the Dananini special, cause I know he is fond of these little guys like Santoy and Ditem!   

Too tired to analyze the deal, but I am sure it provides great dilution.  Actually that Coles Hill project is pretty high profile land, but from what I have read previously there is a great deal of resistance around mining it.

Heres another: Fronteer all stock offer for remaining shares of Aurora:

http://www.miningweekly.com/article.php?a_id=150010

a cash coup!

[Bottomfeeder]

If I am figuring that Fronteer/Aurora deal right, it would seem that Fronteer is giving up 70M in stock, getting 101M in cash, for a 30M net, plus all of Auroras land holdings.

If I am figuring that right, kind of a quick check, I would be surprised if Aurora takes that deal.  There might be a nice premium to get in buying some Aurora.

What do you guys think, am I thinking right?

[sunseeker]

A very good article. I hope that you all have the time to read it in its entirety.

https://www.golddrivers.com:443/dispatches/tgdrall/ShowArticle.aspx?id=b0c7762f-5e47-4e99-b621-5581b484c167

Just in case I don’t get the chance.

and a very

To all you good folk, and your families.

You’re all stars.


Sunseeker.

[jjj000]

nice work those of you that jumped in on gold miners a bit back... I remember reading it and thinking you were crazy... but it's been a real good run for the past couple months that I totally missed out on!!

[davidslane]

Still not too late.

I think we are very early in the cycle for the next gold and silver mining stock run.

Just buy on the next pull back (probably Monday).


My rec's: producers of any size:

RGLD (okay, this is a trust of producers)
KGC
AUY
GG
AEM
MFN
NGD
NXG
XRA (looks great)

SLW (another trust)
SSRI
PAAS
HL (management sucks, but ride the popularity for a little while)
FVI.V

[punter]

Merry Christmas all. There is a great update on the CDN Uranium situatuion etc on BNN today. Hope springs eternal

GLTA

[sunseeker]

jjjooo,

I don’t think that you have lost too much ground by any means yet. Last year gold started to move up from December, and there where still significant gains to be made from January. I am using the ETFs, and not trying to be too clever for my own good. Spreading the risk is the most sensible strategy especially now. Even the best companies can experience problems, and the floor can disappear under them, and you can do little about it (from bitter experience). The ETFs are also very cost effective for us in the UK as unlike single companies you don’t pay stamp duty on your transactions. A one size fits all policy will perform very adequately in comparison, to individual companies, and with less risk. For my main exposure I hold a UK ETF which is very similar in holdings to GDX.

http://www.vaneck.com/index.cfm?cat=3193&cGroup=INDEX&tkr=GDX&LN=3-03

You then have the option to fill any gaps with any other companies you feel may out perform (DSL’s list). I know that you are a savvy investor yourself, so most of this is aimed at others with less knowledge than yourself who may be reading this.

I always start to build my gold positions in August, building up on the dips, until the end of December. I always plan to be out of everything bar a small amount physical gold before May at the very latest what ever happens. My timing has not always been the best, but I have always walked away in profit. I can live with that.

ATB.

[punter]

SUNSEEKER. You are doing better than I am by making money consistently every year. I am deep into the red on the gold portfolio as I thought incorrectly that gold would provide a bear hedge. First time in 300 years it didn't so I don't beat myself up too badly for the error in judgement.

My advisory buisness has gone down the toilet because of the markets dissaociaiiton with financial/historical norms. I am going back to professional gambling, that at least has a shot at success.

GLTA

[sunseeker]

Hi Punter.
You didn’t pick up on the fact that I was talking in the past tense.

In fact I am about 20% adrift so far. My gold plays are on average in good profit, but that is mainly down to the fact that the GBP is so weak (gold has been at an all time high in £ terms recently). It’s the other areas that have really let me down. I should have kept a disciplined approach and cut my losses early (under normal circumstances I would have), but I thought that I was going in with the bottoms in place at the time. It was shear stupidity on my part not to do it in this of all years. Hope springs eternal that I might claw enough back to walk away with that profit before May. At times like this it is very tempting to take on extra risk in order to meet financial goals, but I know what the likely outcome of that strategy would be. So realistically I think that I will have to be content in just limiting my losses.  It is profit in itself if you can take away lessons for the future, I suppose. Sorry to hear that all is not well on the business front. Looking around me I can’t find many words of solace, exept that contrarians would tell you that's a good thing.

ATB.

[Croaker]

Interesting what some are talking about in Japan on the U.S debt.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aFgHlh.Dn4Lc

[honeytart]

Any chance Punter of you posting the link to the update on the CDN Uranium situatuion etc on BNN ??
Cheers

[maxine]

Interesting times we live in.  I hope you are not giving up on gold
Punter.  I am beginning to seriously consider the inevitable upside potential of PM's.  If China and Japan decide to bite the bullet and let the dollar slide in order to look after their own house as per Croaker's llnk, does gold have any downside?   I should think the opposite that it's rise could be astronomical as many more knowledgable than I have proposed.  US has for a long time been the strongest empire in the world but they've stepped over the line with the mountain of debt they are expecting the rest of the world as well as their future offspring to carry.  I don't believe the situation can continue.  There definitely is a change in the offing and I hope that it does not catch  Obama off guard.  I wish him well but he is only human after all.   Add rising Middle East tension to the mix and anything is possible.
As for that link Honeytart, I don't have it but I watched the program twice and believe it unless the program was propaganda, nuclear power is already well on its way.  It's just that there are no guarantees, the program is costly and the lead time is very lengthy.
 But make no mistake, in spite of the credit crunch there is a ton of cash out there ready and waiting to invest in the next sure thing whatever it may be. Until that becomes clear the dithering will continue.

[jjj000]

couple quick thoughts:

- profit taking on the miners should start soon, so I think if you (I) go into those gold companies now, need to be ready to get out relatively quick.  I think there may be another 20% or so room to run before they turn back down.

- mid-east tension likely to keep some wind behind gold spot price rising though, despite profit taking in miners... so I agree the ETFs are a smart play to balance out

- end of year tax selling???  I guess it happened back in October already, or rather there were more buyers than sellers in December...

- general market... no idea   All I know is, playing the down/bear side has not been fruitful for me the last couple weeks.


Useless post, sorry guys.  Heh... GLTA.

[pinetree]

Nice job to anyone who got into gold at or near the lows.  But these stocks have all doubled or better off their Oct/Nov lows.  Because of that I don't feel comfortable buying in right now. 

Here are some things I'm keeping an eye on for potential big moves:

Oil stocks... DIG and the $OSX have made higher lows while crude has made lower lows.  Divergences like this are worth watching... is it possible that the selling in this sector is finally beginning to wane?  We should see a sharp rally once the selling subsides.

Also watching the bond market... some the bond charts have gone parabolic of late and there will eventually be some opportunities on the short side.  TBT is a short bond ETF that could rally sharply once the bond bubble bursts.
 
As for the general market I have stayed out as it still seems like it could go either way.  Once normal volume returns the market should tip it's hand as to the direction of the next move, should be a good one if I can get it right.