SOS
The financial boat Titanic is sinking. Given the huge rally in the S&P500 over the last 4 weeks from 1080 to 1285, no one would know that. It is time for a reality check.
Underneath the waves, however, this ship has already hit a financial iceberg and ripped a hole. The ship is rapidly taking on water and will sink. It is simply a matter of time.
Whether it is in Europe, US or elsewhere, the debt load is now so great that it cannot be repaid or serviced without extraordinary pain. Bailing and pumping is not an option. Critical mass has already been achieved. For example, just this past week in the US, total current debt has risen to 100% of the GDP.
In addition, the government robs Peter to pay Paul and changes accounting and valuation rules to avoid bankruptcy of our largest financial institutions. They throw crumbs of interest cake to the peasants and call it stimulus while trying to camouflage and increase taxes on the masses. Then they print money with wild abandon to pay for their misdeeds which further devalues the currency.
In one week, the US dollar broke its daily uptrend and its weekly uptrend is in doubt. See my trading buddy, Trader Dan Norcini’s view on the dollar here.
At the same time, they attempt to borrow their way to prosperity from their neighbors and competitors and add more debt to existing debt that is unserviceable and call it a solution. Living within their means is a foreign language they cannot speak.
This total financial picture is not one of survival, success or solutions but a clear act of desperate drowning in the frigid waters of financial reality.
The math is simply not there and this boat will not float.
Underwater and Undervalued Lifeboats
Given this watery grave, our collective financial goals are one of preservation, protection and profits. In order of importance, that would be gold bullion, silver bullion and gold/silver stocks with significant defined resources and a future.
Frank Holmes had a recent article in which he said, “Because of the dramatic price decline in these early-stage companies, investors have the opportunity to purchase explorers & developers (E&D), often referred to as juniors, at about half of the company’s net asset value (NAV). In simplest terms, the NAV means assets minus liabilities. In fact, you can see from the chart that the current price-to-NAV level for E&D equities is sitting near record low levels…levels not seen since the financial crisis of 2008.”
As TD Securities says, “on a rebound, we expect the best performing equities to be among the ranks of the explorers and developers.”I totally agree. This is one area that has been overlooked, forgotten or despised.
A History of Opportunity
As indicated numerous times on our website, the risk/reward ratio in favor of gold/silver production companies and exploration juniors with significant defined resources, especially the smaller ones, is increasingly very favorable.
Undervaluation occurred in 2008 and early 2009 under very similar circumstances, as noted above. For example, in late 2008, we acquired shares in US Silver as low as .045 cents with a subsequent average price of .189 cents. At the time, we also acquired many other stocks whose shares were in that undervalued category as well. It’s time for a repeat performance.
Recently, we have had the good fortune of two takeovers in the past two months with Northgate and Trade Winds Ventures.
Rowing Harder
As mentioned on many occasions, it’s my assessment we are in the area of Part 2 of the downturn in the XAU/Gold ratio that first occurred in 2008. Additional supporting evidence for this turnaround area, outside of the NAV values noted above, is in the XAU/Gold ratio and Dan Norcini’s HUI/Gold ratio commentary. Both ratios are slowly basing while showing early signs of emerging from a significant base pattern first formed in August 2011.
Being a specialist in stock selection, a major buying program was started in this area near the end of the significant September 2011 decline. Already it is showing progress.
Trading positions generally, but not exclusively, come from the "stocks of current or potential interest" area on our portfolio page. Specific stocks are not recommended to our readers. One can determine, however, where the attention is since they are ranked in order of perceived performance. This is not an implied recommendation and changes can occur without notice. Your personal due diligence is still required.
Sink or Swim Strategy
My personal goal and focus is to acquire on sale, low priced, and undervalued quality stocks which subsequently achieve a 100%+ gain and get promoted to core status. To be elevated to a core position, a stock must have achieved at least a 100% net gain in the portfolio. At that point, 50% is sold for a complete return of initial risk capital and the rest rides for free. No core position is sold unless a substantial and material adverse change occurs or the company is bought out.
This means buying on dips of 10-15%, not after 6 straight up days in the XAU which we have just experienced.
Floating the Boats
- If you are waiting for the evening news to announce it is safe to go in the water, you are too late.
- Buy and directly own the bullion or gold/silver stocks that have a significant (2-5 mil oz) 43-101 compliant “gold/silver vault” resource now and wait about a year. The caboose people will make you a big winner in due course with patience.
- Acquire shares in companies who have both a vision and a plan to further develop the resources. It all starts with management.
- You do not have to be a market analyst or technician like Trader Dan, Chris Vermeulen or myself. Pick up the trash, recycle it into a lifeboat and power your way to preservation, protection and profits.
- If you want to beat the hedgies, momentum players and the caboose people, one must take appropriate staged risk when “on sale” prices occur.
After conducting your own due diligence, see if you also agree…this investment area is indeed full of boats that will float
Disclaimer: This opinion piece was created solely for informational, educational and entertainment purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Market Pendulum is not an investment advisor. Market Pendulum accepts no liability whatsoever for any actions taken as a result of reading this opinion piece or from the dissemination of any information from the website. The information contained in this opinion or on our website is obtained from sources believed to be reliable but is not guaranteed. Readers should not regard the Market Pendulum website, its opinions or its contents as a substitute for the exercise of their own judgment and due diligence
