Grandich Letter Special Alert
Editor’s Note - Ever had a period in your life where there just aren’t enough hours in the day and no matter how hard you work, your to do pile doesn’t shrink? I had hoped that the months of July and August would be relaxing for me (for a change), but nothing has been further from the truth. You’ll have to accept my apologies for an abbreviate update but it was either that or none at all. My staff is on holiday next week, and may decide not to come back after how crazy I’ve been driving them lately. What I hope to do is write an in-depth analogy of all the markets in August, which hopefully will more than make up for my lax coverage of late.
Overall Assessment – Now in my 24th year in and around the financial arena, I’ve seen great changes in how business transacts. But at the same time, highly questionable trading patterns persist, especially in the last couple of decades in the stock and gold market. I’ve noted in the past actual facts pertaining to manipulation in the stock market, most recently when Fed Chairman Bernanke admitted to being part of what has been called the “Plunge Protection Team (PPT).” When you have lived and breathed the markets as long as I have, you develop a “sixth sense.” In my heart of hearts, recent trading in both the U.S. stock and gold markets has reeked of intervention. I hope to go into more detail in a few weeks, but know for now that the more manipulation that occurs, the bigger the underlying problem must be, and sooner or later the manipulation will be overrun by forces even bigger than the manipulators.
U.S. Stock Market – While by no means a roaring bull, I’ve maintained for many months that I don’t expect the U.S. stock market to top out until such time as the FED is being readily perceived as moving towards easing, or actually does. It’s been my hope that I could go short during this and catch what I believe could be a major top for years to come. Despite an onslaught of very bearish fundamental economic news, the U.S. stock market has managed to hit 14,000 on the DJIA. Yes, it makes no economic sense given the whole host of poor and/or worsening economic factors, but it’s that very fact that makes manipulation the most likely explanation. (More on that in a few weeks).
I may end up missing getting short before the ultimate top is put in, but it still appears the “Don’t Worry, Be Happy” crowd on Wall Street has enough “juice” left to make a run to 15,000. I do believe one must be strictly a seller of general non-metals related stocks no matter what going forward. Stay Tuned.
Gold – In my June 11, 2007 alert (http://www.grandich.com/docs/alert_06-11-07.pdf), I went through the main factors I felt influence gold and concluded “…Yours truly is not stepping aside at this time as I did a year or so ago because the fundamental argument appears to be the best that it’s been for gold in quite sometime…”
I would like to go back to that commentary and moment in time for a couple of reasons. The first is:
· I’ve maintained we’re in a secular gold bull market and new nominal highs are not a question of “if,” but “when”. The factors that greatly influenced my decision-making process have all remained pretty much constant or actually improved (most notably the death march of the U.S. Dollar). I’ve long argued that gold’s rise is two steps up and one step back, and these type of moves frustrate many and cause them to jump out and miss getting back in.
· This takes me to the second reason why I wish to recall the June 11th commentary. In it, I spoke of my good friend Frank Barbera’s bearish call on gold. While I respectfully disagreed with it, I felt opposing views like his needed to be heard -- if for no other reason than to refortify our own view. While Frank’s call appears to be wrong at this point, I still commend him for it. Why? My industry lacks prognosticators who are willing to stick their neck out. Instead, the vast majority are either:
1- Always bullish, period (and usually for good reason as they sell wares related to gold);
2- Wishy-washy in that they speak out of both sides of their mouth (most notable is the so-called strategist for one of the world’s most noted metals websites) and end up being on whatever side the wind is blowing;
3- Suffer from select amnesia in that they never seem to recall their wrong forecasts.
I’ll take Frank Barbera over these folks every day of the week. Frank, me and all these “No-GUTS” commentators will all be wrong at times, but at least Frank and I can go to sleep knowing we had the decency to lay it on the line and let the chips fall where they may.
Perhaps one of the most ardent bulls, not because it sells but because he emphatically believes gold is greatly manipulated and has urged being very long throughout this 5-year run, has been Bill Murphy. I strongly suggest you make his daily commentaries part of your research and you can get a free, two-week trial to his publication at http://www.lemetropolecafe.com/ I believe Bill and www.gata.org have clearly pointed out what has really been behind gold’s move and the lack thereof.
The “stealth” bull market in gold continues. We’ve weathered much of the seasonally weak period for gold and in another few weeks will enter its most favorable period. All of the fundamental factors that got us here remain solidly bullish. I don’t see any reason why we can’t challenge and surpass last year’s highs around $735 before this year is out.
U.S. Dollar – How many times have I said, “The only party that doesn’t know the U.S. Dollar is dead is the U.S. Dollar”? While the “Don’t Worry, Be Happy Crowd” on Wall Street has tried to sweep our national currency’s plunge under the rug for quite some time, history has shown what happens to former empires and great countries when their currencies fall out of bed. 80 basis the U.S. Dollar Index has been the last line in the sand and as we speak it’s being tested. Because the U.S. Dollar is very oversold short-term, I would much prefer it to stabilize or even rally for a few days or weeks before coming back to, and eventually below, 80. Either way, the Fat Lady is not only in the building but has begun funeral services for Uncle Sam.
Oil – While the “Don’t Worry, Be Happy” crowd has convinced the sheep that $75+ oil is nothing to worry about, we know better. It will be interesting to see what $80 or $85 does to their rose-colored glasses.
Mining and Exploration Shares – First, the big picture. Despite all-time or multi-decade or years highs in metals prices, the mining and exploration industry shares have been trading as if gold was half its current value. We know the drill by now:
· Inability to find enough new deposits to grow or even maintain current reserves;
· Much higher operating costs due to skilled labor and part shortages;
· Substantially more difficult working conditions thanks to environmentalists, political and social concerns in most areas of the world now;
· Still most investors are either greatly underweighted or don’t have any exposure to mining and exploration shares and instead are up to their ears in general equities.
Most of the majors have corrected sharply and appear attractive again given the belief that we’re going nicely above $700 in the next six months or so. Juniors, meanwhile, are even worse off given metals prices but soon should be past their seasonally weak period.
The Southwestern Resources Corp. (SWG-TO) situation is important but I highly doubt it will have much of a spillover or BRE-X effect for several reasons:
· BRE-X took place at a time when there was no real shortages or tight supplies of metals. Whether or not SWG China results are all or partially bad, it’s painfully obvious that the world is still in great need of ore and that 99% of all mining and exploration companies are operating above board;
· There’s lots of money flowing into mining and exploration and the markets in general are very liquid;
· Mining and exploration shares in general have not been flying high and aren’t vulnerable simply because they’re too expensive as they were when BRE-X hit;
· While SWG may prove to have slipped through the cracks, if at all, the industry is far better regulated and concerned than it was in the 1990s.
I have never been a fan of SWG and would avoid it completely for now but would not let it affect my exposure to mining and exploration shares one ounce.
