2008 New Year’s Predictions

Welcome to this “Special Edition” of the blog, where I give my 2008 predictions. Here’s a quick summary:

I have no idea what will happen in 2008.

(Aren’t you glad you aren’t paying for this stuff?).

Here’s what I do know:

First, to use the technical jargon I picked up during my university days, where I graduated with a degree in Commerce and Economics: the economy “sucks”. House foreclosures are high; consumer debt is at record levels. The American dollar is depressed. That can’t be good.

But, I also know that 2008 is an election year (in the U.S. and quite possibly in Canada as well), and the party in power wants to stay in power. They will do this by lowering interest rates to keep the broken economy running for as long as possible.

Therefore, it is logical to surmise that 2008 will see big down days, when news of credit defaults hits the airwaves, but it will also see big up days, when interest rates are inevitably lowered.

So my strategy in 2008 will be to take profits on the big up days, and then buy on the down days.

I also believe quite strongly that the “flight to quality” will continue. If I was was a foreigner holding U.S. dollars, I would continue to do in 2008 what I did in 2007: sell U.S. dollars and put the money into something that will hold it’s value, which logically will be either specific companies with hard assets, or gold.

I see no indication in the three year gold chart presented above to indicate that gold will do anything but go up in 2008, and I have no doubt that we will see $1,000 per ounce at some point in the first few months of 2008. I have therefore increased the gold component of my portfolio.

I also predict that uranium will do well in 2008, but not as well as gold.

So what am I doing?

I have updated the Top Picks page, which includes an Excel spreadsheet with the JDH Target Portfolio.

Here’s what I attempted to do:

First, I wanted a portfolio close to these levels:

Gold – 36%

Silver – 19%

Uranium – 31%

Other – 6%

Obviously the portfolio is over weighted to gold, since that’s where I think the profit will be in early 2008, with uranium shares close behind. I am also keeping some cash on hand for opportunities, which is why the above totals don’t add to 100% (cash is around 8%).

Of the uranium shares, the 31% is made up of producers (5%), close to production (2%), advanced exploration (8%), and juniors (15.5%). The heavy weighting in juniors obviously increases the risk, but also increases the potential profit.

Next, I wanted a portfolio heavily weighted to the Canadian market. It is logical to assume that the Canadian dollar will continue to appreciate against the American dollar, so I see no point in holding U.S. dollar assets. Besides, I’m a Canadian living in Canada, so Canadian currency is of more use to me than any other currency.

Also, given the volatility I expect early in 2008, I don’t own 100% of everything now. Any stocks that I currently don’t own a full position in will be accumulated over the first two weeks of January. I have do doubt there will be some down days, which will be used as buying opportunities.

Finally, on some of the stocks I plan to hold longer term, I may buy them and then cover them (by selling near term out of the money options); this gives me a potential extra profit, with virtually no risk, since if the stocks immediately move higher I buy back the options and sell them farther out. Those stocks are highlighted in purple on the spreadsheet. I expect to be doing more covering on any upticks in the coming weeks.

How did I assemble the list?

I started by assembling a list of all uranium stocks (you can find a comprehensive list at u308.biz) and all gold stocks (a good list can be found at gold-stocks.com). I then chopped these lists down to stocks trading in Canada, which is where I want to focus for currency reasons. Then, I took a quick look at the charts and recent news on Google Finance to chop the list down some more. I also consider what others, including Dines, Casey, and members of the Buy High Sell Higher Forum, are saying about these stocks.

Finally, with my further reduced list, I looked at charts, RSI, MACD and Money Flow Index levels to determine appropriate buy points. This list is the result.

For the uranium stocks I also tried to determine who’s drilling and who isn’t, and where they are at in the production cycle.

It’s a long list. Most of the stocks I have discussed previously; over time I’ll post my thoughts on the new ones as time permits.

Is this a perfect list? Obviously not, and no doubt it will be refined as we go on.

I am adding one more component to the portfolio this year: stop losses.

I have considered all the Forum members who contributed their advice about when to sell, and I plan to sell any stock that has dropped 20% from it’s high, and to take profits as stocks are rising.

Thanks for all of your thoughts, and please feel free to continue to post your predictions for 2008 in the 2008 Predictions section of the Buy High Sell Higher Forum, or in whatever category you want.

I’ll return to my Weekly Commentary on Saturday, when we will see how the first three trading days of 2008 have developed. Until then, Happy New Year.