Buy-High-Sell-Higher.com

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.

First, Happy Father’s Day, tomorrow. My father, and 20 other members of my family, will be over today for a barbecue, so I’ll keep my comments brief, as there are preparations to be done (all of which my wife has already handled, so my job, other than working the barbecue, will be to stay out of her way).

As for the markets this week, well, they were down. Almost everything I owned was down this week. The worst performers were the silvers: SVM.TO - Silvercorp Metals Inc., down 13.8 %, and FVI.V - Fortuna Silver Mines Inc., down 12%.

Next on the down list were the golds, led by K.TO - Kinross Gold Corp. down 8.5%.

Am I surprised? No, not at all. For the last month I have been saying that I expect the typical summer swoon, and that’s exactly what’s been happening. A month ago I raised cash, and now, on this weakness, I am beginning to deploy that cash. I have made a list of what I want to own, and I have placed my stink bids on those stocks. On weak days, if they fall to my buy levels, my purchase orders are automatically triggered. I don’t need to watch every day; I just, to quote a famous T.V. pitchman, “set it, and forget it”.

You can see the stink bid list here on the Buy-High-Sell-Higher.com Target Portfolio.

This week the following stink bids were triggered:

AXR.TO - Alexco Resources Corp. at $3.50

AEM.TO - Agnico-Eagle Mines Ltd. at $67.19;

DML.TO - Denison Mines Corp. at 7.64;

K.TO - Kinross Gold Corp. at $19.17

G.TO - Goldcorp Inc. at $39.97 and

UUU.TO - Uranium One Inc. at $4.50

Did I buy too early? Probably, but again, I’m not worried, because I’m not buying my full expected position at these levels. I’m still holding 37% in cash, in anticipation of even better bargains over the next month or two.

My approach next week will be the same: I’ll evaluate my portfolio, determine what stocks I want to own that I don’t yet own, and look at their charts to see where their corrections will likely end. That’s the level where I’ll place my stink bids. If they get filled, great. If not, when the stink bids expire, I’ll place them again. I normally place my stink bids good for a period of two weeks, so every two weeks I can re-evaluate their levels, and adjust up or down as necessary.

The key here is that I am not chasing anything. I will be patient. If it means I go a week or two without making a trade, fine. Many stocks are in trading ranges, and what goes up, comes back down, which is where I’ll buy.

For example, here is a one year chart of G.TO - Goldcorp Inc.:

As you can see, we are in both a short term downtrend and a long term up trend; I’m betting that it will resolve to the upside, so I’m satisfied to slowly build my position on days of weakness. Here’s a short term chart

As you can see over the last month, $39 is very solid support, so I think anything under $40 is a good level for a stink bid (which of course is why I was buying at $39.97 this week). I have accumulated close to my full Goldcorp position, so this week I’ll put in a stink bid for a few more shares at $39 to round out my holdings, although it’s possible that it won’t get filled.

Obviously I have re-entered the uranium market with AXR.TO - Alexco Resources Corp. , DML.TO - Denison Mines Corp. and UUU.TO - Uranium One Inc. , albeit with relatively small positions. I’ll add to them over time with more stink bids. Nuclear fuel is our only hope, so I expect great things over the medium to long term, and at these depressed levels I full expect to see some merger activity over the next six months as well.

Politics

Switching gears, I’d like to make some brief comments on the political discussion that erupted this week over on the Buy High Sell Higher Forum. The discussion was focused on the effect that Obama or McCain as President may have on the markets.

For the record, I’m a Canadian, so I don’t get a vote in this November’s U.S. election, and if I did, I think it would be a difficult choice.

I consider myself to politically be a pragmatist, so I don’t fit into the “conservative” or “liberal” label. I acknowledge that government does play a role in our society. I don’t really want traffic laws privatized, and I think the armed forces are best run by the government, not by private enterprise. I think the government should run the police and the justice system.

Beyond that, it appears to me that government just gets in the way.

In Canada we have “free” health care for all. If I break my leg, the government run health care system will fix it, at no charge to me. In theory this is great, because in Canada your bank balance does not determine whether or not you can get your broken leg fixed.

In practice, resources are scarce, and they must be allocated somehow. In a purely capitalist system, money is used to allocate resources. Whoever has the most money can buy the most resources. In the Canadian health care system, resources are allocated by a waiting list. If I need heart surgery, I may need to wait six months or a year until my situation becomes so critical that I am moved to the top of the list. Of course, I might be dead by the time my turn comes up.

So what’s the solution? Only let the rich people have health care? Or let everyone die equally?

I personally believe the government should pay for all basic health care, but I should be able to choose where I get those services. If private enterprises were allowed to run hospitals, it wouldn’t take long for specialized “niche” hospitals to spring up. There would be hospitals that specialize in heart surgery, or broken bones, or cancer treatment, or whatever. The doctors and staff would get very good at those specialized services. Bloated hospital administrative costs would be reduced. The government would decide what a procedure was worth, and I could have it done anywhere.

The public pays, but the private sector delivers.

I favour the same model for education, but I digress.

Does it matter if Obama or McCain wins? I think not. The economy and stock market grew under Mr. Clinton, and hasn’t under Bush #2. Mr. Bush, the supposed conservative, has spent line a drunken sailor, racking up the highest deficits in U.S. history. He is an embarrassment to all fiscal “conservatives.”

That being said, will Obama be any better? I have no idea. He purports to be a free-trader, but has said that upon becoming President he would “call the President of Canada to re-negotiate NAFTA”.

First, we have a Prime Minister in Canada, not a President, and second, Canada is America’s largest trading partner, so “calling to re-negotiate” will take more than a simple phone call.

My gut feel is that whomever is elected will probably make matters worse, not better. Obama will swing the government to the left, which generally means more government spending and therefore a continued debasement of the dollar. McCain will presumably want to keep the war going until he “wins”, which will have the same dollar de-basing effect.

As an investor, my approach is simple in the face of continued government meddling: buy gold.

And, as we have already seen, that’s exactly what I did this week.

Enough about politics; what I think in that area really doesn’t matter. Politics is a dangerous game, and for the most part it is better to not let political feelings cloud our investment decisions.

Please continue to post your thoughts on the Buy High Sell Higher Forum, and thanks for reading and contributing.

Well, Friday was a big day for oil, and not a great day for the U.S. economy. Oil prices surged for the second straight day, with the July light crude contract closing at $138.54, beating the $135.09 record set back on May 22.

To make matters worst, the U.S. Labor Department reported that the unemployment rate rose to 5.5% in May (as compared to 5% in April), for the the biggest monthly jump in more than twenty years. The economy lost 49,000 jobs in May, marking the fifth straight month of job losses. That’s probably why the Dow was down 395 points

Don’t worry, dear readers; I’m not trying to turn this blog into CNBC or Bloomberg; let me translate for you:

The economy sucks.

We all know that most numbers released by the government are doctored, so if even the government is admitting to a big bump in unemployment, the economy is in very bad shape. Obviously the higher unemployment numbers won’t help the foreclosure mess either; more people will continue to lose their homes.

Even poor old Ed McMahon is suffering through a house foreclosure.

I love this quote from Ed: “Well, if you spend more money than you make, you know what happens.”

And that’s the point, really. For many years we have been spending more than we make, and now the rooster is coming home to roost. The U.S. government has been running massive deficits, and they’ve financed them by printing money. As a result, no-one wants to hold dollars, so the dollar is tanking, which long term will kill the U.S. economy.

Consumers, following Ed McMahon’s lead, have also been spending far more than they earn for many years. Consumer credit has fueled economic growth, but again, at some point you have to pay the piper. And that time is now. Mortgage foreclosures and a declining dollar are not the problem; they are the symptom of the problem. There is no free lunch, and now we are paying for it.

(Hmmm, two cliches in the last two paragraphs; better keep an eye on that).

There is no doubt that interest rates are going higher. As the government continues to print money like drunken sailors (oops, another cliche), the value of the remaining dollars decreases. That’s inflation. To compensate me for lending you money that I know will be worth less when you pay it back, I require a higher interest rate. Hence, interest rates are on the rise. So, what to do?

First, if you have a variable rate mortgage, or a mortgage that is due to mature in the next year or two, call your lender and switch to a fixed rate. If you plan on having a mortgage for at least the next five years, lock in the rate for the next five years.

Second, pay down your debt. Over the last two months, as I have documented many times in this blog, I have been raising cash. A year ago my line of credit was maxed, and I had significant investments on margin (which is fine in a rising market). Today I have none. I have sold virtually all of my non-registered investments (ie. investments outside of my RRSP (retirement savings account, similar I assume to an American IRA), and I have paid off the line of credit I was using for investment purposes. I own no stocks on margin. That way, if the market does tank, I don’t magnify my loses.

As an aside, if you are carrying credit card or other high interest debt, pay it off. In a weakening economy with high interest rates, holding debt does not make sense. I have no objection to a mortgage or a car loan if it’s necessary, but beyond that, get out of debt. Reduce your expenses and conserve cash.

Third, buy some insurance. The only stock I own traded on an American stock exchange is RSW - Rydex Inverse 2X S&P ETF, which in simple terms is an Exchange Traded Fund that increases when the market goes down. Not surprisingly, it was my best performer on the week, up over 5%. If the market does crash, I make a profit.

Finally, buy gold, or gold stocks. My second best performer this week was G.TO - Goldcorp Inc., up 5.2% on the week. If the government keeps printing more dollars so as to make them worthless, what can you put your money in that they can’t print? Gold.

Now, here’s the kicker: I am not fully invested. I am still holding 50% in cash, because I still believe there will be better buying opportunities ahead. As the chart of Goldcorp shows, the argument can be made that we are still in a downtrend that started in March, so until the downtrend line is decisively broken, I won’t be a big buyer.

Here’s the HUI:

The Gold Bugs Index is now about where it was back in April 2006, which I assume will be a significant base at which to continue purchasing. In other words, the time to start buying is probably very soon, probably within a matter of days or weeks.

To that end, I have placed my stink bids on all of my favourite stocks (you can see the list here on the Buy-High-Sell-Higher.com Target Portfolio).

I have put in bids at the prices indicated. In some cases I have only put in bids for half of the holdings I want. For example, if I want to eventually have 8% of my portfolio in a certain stock, I may buy half of it now, and the other half (4%) later in the event of even greater volatility.

I have set my stink bid prices below the market; they may be near the bottom of the current trading range, or near other support levels, such as the 50 or 200 day moving average.

Some of these stocks have already hit these levels, so they are now in my portfolio. Others will be acquired over time. This week I didn’t hit on any stink bids, but the bids are still there.

As I said last week, this strategy could of course back-fire if the market goes on a sustained run for the next few months, like gold did this week. If it does, I guess I’m waiting on the sidelines. That seems unlikely to me, so I’ll play it this way for now. The beauty of stink bids is that I can place the orders now, with expiry dates two weeks out, and then I don’t have to stare at my computer screen all day (I do have a real job, you now).

So, am I being overly pessimistic? Has the gold rally already started, and have I missed it? Let me know on the Buy High Sell Higher Forum, and thanks for reading and contributing.

Well, dear readers, I regret to advise you that I have come down with a very serious physical aliment:

The Common Cold.

(For those of you who are new to this blog, I’m a male, and we human males are not a very hardy sort. When I was young my mother, who raised four children, was never sick. She could be on death’s door but she never missed a beat. My wife is the same; keeps on going, sick or not. As for the modern day male, at the first sign of the sniffles we rush to the medicine cabinet and spend weeks in bed until we are fully recovered. I exaggerate, but only slightly).

As a result of this serious physical condition, my comments this week will be very brief. I will only make two comments.

First, my plan is unfolding pretty much exactly as I have laid it out over the month of May.

Three weeks ago, two weeks ago, and again last week, I advocated a simple plan: start building cash reserves in May, so that I could deploy that cash during the dog days of July and August. Three weeks ago I was 4% in cash; last week I was 49% in cash, and this week I am now 51% in cash, so I am well cashed up for the summer shopping season. However, the small increase in my cash holdings this week does not mean I was selling. In fact, this week I was buying.

Last week I purchased some shares of RIM.TO - Research in Motion Limited, purely as a technical speculation. This week I sold them, which gave me a quick profit, and thus freed up cash.

Second, I did start buying. I believe that the market will continue with the high volatility levels we have observed over recent months. I believe there will therefore be many good buying days on market dips. The plan therefore is not to chase stocks, but to instead put in below market “stink bids” and grab stocks at bargains.

What am I buying? Here’s the list:

Buy-High-Sell-Higher.com Target Portfolio

I have put in bids at the prices indicated. In some cases I have only put in bids for half of the holdings I want. For example, if I want to eventually have 8% of my portfolio in a certain stock, I may buy half of it now, and the other half (4%) later in the event of even greater volatility.

I have set my stink bid prices below the market; they may be near the bottom of the current trading range, or near other support levels, such as the 50 or 200 day moving average.

Some of these stocks hit these levels this week, so they are now in my portfolio. Others will be acquired over time.

This strategy could of course back-fire if the market goes on a sustained run for the next few months. If it does, I guess I’m waiting on the sidelines. That seems unlikely to me, so I’ll play it this way for now. The beauty of stink bids is that I can place the orders now, with expiry dates two weeks out, and then I don’t have to stare at my computer screen all day (I do have a real job, you now).

Thoughts? Are there stocks I have missed, or stocks that should be deleted? Let me know on the Buy High Sell Higher Forum, and next week I’ll be back to my long winded and verbose self.

Two weeks ago, and again last week, I advocated a simple plan: start building cash reserves in May, so that I could deploy that cash during the dog days of July and August. Two weeks ago I was 4% in cash; now I’m 49% in cash, so I am well cashed up for the summer shopping season. As we all recall, July and August in 2007 were brutal months. Why? I don’t know, but the summer swoon may be due in part to the fact that brokers and investors go on holidays, so there is less action, and less news, to move the markets higher.

But wait, you say, hasn’t the summer shopping season already happened? Isn’t all right with the world, and it’s onward and upward from here?

Maybe. But what about Merv?

Early Friday morning (really late Thursday night, actually), whatsupdoc posted about Merv on the Buy High Sell Higher Forum:

Here is another very interesting development in Merv’s U-index chart. http://techuranium.blogspot.com/ On May 21,  Merv’s  daily chart of his index of 50 stocks had a 15dma to 65dma positive crossover.  These crossovers don’t happen very often on his index charts.

Merv if you see this post, thank you so much for your hard work!.  … glta

Then on Friday night Punter, quoting the above, said:

I had pointed this out over the past week but thank you Whatsupdoc for bringing it back to the forum. This is a VERY important point. This is what has excited me to no end and I’m not particularly depressed by the two day swoon in the general  market. GLTA

So, how significant is this 15dma/65dma crossover?

Merv, on his blog, shows the Merv’s Daily Uranium Index chart starting an uptrend. Here’s the link to Thursday’s chart. Merv shows the index bottoming at the start of May, and then increasing from there. More importantly, as pointed out by whatsupdoc and punter, Merv shows the 15 day moving average crossing over the 65 day moving average. This is a bullish sign, because it means that prices over the last 15 days are moving higher than prices over the last 65 days. The last time this happened was back at the start of the last week of September, 2007, and Merv’s index rose to a peak in the first week of November. (Unfortunately November was a peak, and the index then fell from around 525 in November, 2007, to an intra-day low of 252 on April 30, 2008, for an over 50% loss in a five month period).

Is this the start of an uptrend? Maybe. Merv’s index bottomed on August 16, 2007 around the 300 level, so the 252 level at the start of the month is actually lower than where it was during the crash last summer.

Let me repeat: On May 1 of this year Merv’s Daily Uranium Index was still around 25% lower than it was at the bottom of the crash on August 16, 2007. That doesn’t really sound like much of a recovery to me.

(Note to Merv: I don’t know if you have ever heard of this blog our not; many of our Forum readers follow your work; thanks for providing it to us. Could I ask you a favour, please: would you please publish a long term chart of your index? I’ve printed off your charts from the past and glued them together to make a chart on my desk, but your archives only go back a year, so it’s hard to get a long term perspective on the uranium market. Since your’s is the best uranium index, a long term chart would be helpful. Thanks.).

So here’s the thing:

On the one hand, uranium stocks are still at historical lows, so it would be reasonable to expect that they would retest the previous bottom before moving higher. In January, and again in February, 2008 Merv’s index tested the 300 level, which was close but not through the August, 2007 level. It therefore appeared that a bottom was in. Unfortunately the bottom did not hold in March or April, so we don’t know if we have reached a bottom. That leads me to approach this sector with caution.

On the other hand, all uranium stocks will not go down to zero. Nuclear energy is here to stay, so at some point these stocks will start going back up. I guess if you are a gambler you could assume that time is now and start buying. Personally, given the bloodbath from last summer, I would prefer to be cautious. I will put in some stink bids and start buying, but it will be done cautiously. I don’t think every stock is going to double in the next week, but they may well be at or near a bottom, so some selective buying, on weakness, with stink bids, should prove profitable in the medium term.

The Dines Letter

Now, to a more fun topic: Mr. Dines. Around 1:23 pm eastern time on Friday, Dines issued an Interim Warning Bulletin. Apparently all is right with the world, and everything is fine. The new bull market is here. He goes on to list all of the stocks that have gone up. My favourite is this one:

List 1 stock #2 is up 46% from its Jan 22 low

Classic. Good ‘ole List 1 stock #2 traded at $14.98 on April 13, 2007. By January 21, 2008 it had fallen to $2.69, a drop of 82%. It recovered, and then on April 30, 2008 was down to $2.42, for a total top to bottom drop of almost 84%. It closed on Friday at $3.18, so from it’s January low it is up 15%. It’s up 31% from it’s April 30, 2008.

Now I don’t mean to quibble with the old guy’s math, but List 1 stock #2 is actually up 15% from it’s January 22 low, not 46%. Even counting from it’s April 30, 2008 low it’s still only up 31%. And yes, I’m using closing prices, so I suppose if you went from intra-day low to intra-day high the numbers may be closer to what Mr. Dines is quoting. That’s not the point.</