|
We
expected a quite light trading week during this happy and holy holiday
season. Instead we got chaos. Yesterday, the S&P put the US government on
“watch” for an eventual downgrade at some point in the future. It
is important to note that the first sentence of the report reaffirmed The US
AAA/A-1+credit rating. The US rating has not changed, nor will it any time
soon. However, the country was told that because of its very large budget
deficits, rising government debt and an unclear path to addressing this
problem, S&P has revised its long term rating to negative from stable.
The rating agency went on to say, in rather
blunt terms, that it does not believe that the US congress or the
Administration will reach any agreement on how best to address these long
term and medium term challenges. I can’t help but be amused, if it
weren’t so frightening, that wasn’t it S&P, Moody’s and
Fitch who gave “AAA” ratings to the Collateralized
Debt Obligations (CDO’s) that were not worth the paper they were
written on? Was it not the same cast of characters that gave Enron
“AAA” status right up to the point of the company’s
bankruptcy? Wasn’t it the same cast that gave the seal of approval to
Orange County a decade ago only days before Orange County defaulted on their
debts? Historically S&P’s track record leaves much to be desired so
we take their decision with a larger than usual “grain of salt.”
Yesterday’s market selloff in the
response to the Standard and Poor’s downgrading of U.S. debt was a
long awaited event. Yesterday’s market response of losing more than 200
points on the Dow only highlights the inability of our representatives to do
anything to realistically address the budgetary problems. Congress and
the administration had the fiscal responsibility to seriously reduce the
debt. Instead they dawdled over whether it should be a $100 million... then
$60 million... then $38 million. This farce was tantamount to
spitting in the face of a $14 trillion calamity. Did they really
think they could get away with this? We are behind most leading
nations in our pitiful attempts to clean house. Now maybe we may
get a more constructive response from these dullards who can only think of
raising the debt ceiling as a constructive approach. These bozos by the
way are among the largest recipients of entitlements including huge pensions,
obscene perks, and the very best medical treatment...free of charge! Little
wonder we have a tea party arising from the enraged heartland of
America. The shoulders of our middle class citizens are heavy with
paying the bulk of the taxes, while another 50% which includes illegal aliens
and major corporations receiving bailouts and bonuses, get away scott free.
My
response to my loyal readers is to hold on tight to my predictions in this
post. Surely there may be a short term adverse reaction to
today’s news but don’t be disillusioned. Negative
reactions usually recover in the course of time. As Jesse
Livermore taught us, “it is not the news but how the market reacts to
events that matter.” I believe we are in "exactly the right place
at exactly the right time." Rare earths will only become rarer. While I
expect Silver and Gold to pullback on expected profit taking, this will only
provide us with an opportunity to take profits and wait for secondary
entry points in their powerful upward trend. With the debasement of our
currency gold and silver are the safest port in the storm. To illustrate this
point I have a story. There was an advertisement in the back of the Wall
Street Journal last week. The ad was for an entire coin collection that was
being sold. I gave the gentleman a call and we talked but it soon became apparent that
he knew exactly what he had. I mused to him that sadly for me, he knew
exactly what he had and that he was exactly in the right place at the right
time. He told me yes, he knew that. I relate this story to warn my readers
not to open any positions in gold or silver at this time. If you missed out
getting in back in January - don't worry - there will be another time to get
in. I want to re-emphasize - now is not the time! Be patient and wait. As a
mentor of mine taught me "Sometimes doing Nothing is doing
Something."
If you want to wade into the waters, as I
suggested yesterday look at the uranium stocks. Yesterday, during the market
sell off I opened a long position in Cameco Corp. (CCJ) @
$27.85. Below is a chart of CCJ.
Please refer back to yesterdays posts as it
was completely devoted to the out of favor uranium stocks that are on sale
right now. Safer and more modern nuclear energy will return to favor as
modern industrial nations realize that electricity generation has no place
else to go for many decades to come.
In conclusion, I firmly believe that we are
in exactly the right sector at exactly the right time.
As I write this, I am long GLD, SLV, UXG,
THM, CCJ, DNN, GMO, UURAF, AVL and LYSCF. The only position that causes me to
pause is SLV. As those of you who read my posts know that two weeks ago I
sold half of my position in SLV @ $38.85 and I continue to monitor and keep a
tight mental stop on this holding. Below see a chart on SLV. The chart shows
what I believe. Silver has run up to far and is due to make a correction. At
the first sign of a selloff I will be out.
As Bernard Baruch used to say, he would
rather sell a position and watch it run up another 10 or 15% rather than
watch it collapse and give back all of his hard earned gains.
I will keep you posted on any developments.
For now trust the fact that Rare Earths will continue to become rarer and
Gold will continue to run up to the $1,550.00 – 1,600.00 level before
we see a sell off.
Stay Tuned for timely developments in these
exciting areas.
|
