Words of Wisdom - Stay the Course with Commodities
Dudley Pierce Baker & Lorimer Wilson
Here's more from that subscriber of ours down in Argentina who we have dubbed 'Crazy Like a Fox' for his insights into the economy, financial markets and commodities and the way he has positioned himself in these troubled times to profit from those insights. Like his previous emails to us which we edited into articles ("Crazy Man's Rant - He's Crazy like a Fox", "A Crazy Man's Rant or Right On - You be the Judge", "Lighten up and Enjoy the Commodities Ride" and "Commodities are for 'Crafty' not 'Crazy' Investors) we have done the same with his latest which we received this past Thursday after the commodities debacle of Wednesday. If his previous 'emails' are any indication you will enjoy and prosper from what he has to say.
"Hey amigo, remain tranquilo, as they say here. While I too don't like these past few days in terms of the markets and what has happened to commodities, nothing has changed with the fundamentals. Don't sell because there is nothing out there to improve your financial circumstances. I remain totally committed to commodities generally and the precious metals and oil specifically. Selected base metals, other energy and agriculture are also worth staying the course. Whatever you do, don't allow yourself to be confused or worse, convinced, that this sector has seen its peak.
I repeat - it is most important to realize that nothing of consequence has changed with the fundamentals. The magnitude and scope of the current credit crisis remains unparalleled. It is a mortgage, credit, liquidity, solvency issue based on much derivative slime which is leveraged up to 35 to 1 and which is highly subject to margin calls. That, in part, is what hits us in the commodities sector when the folks need to sell to meet a margin call. If that wasn't enough, the Wall Street investment banks frequently do their normal trick with short sellers and those long with trailing stops. That is just normal Wall Street tactics to slaughter the little guys and to pick up the pieces. It is temporary and something that can't be used to alter the dominant trend.
What the Fed uses to buy time and to avoid an immediate meltdown is to print money at a rapidly increasing rate of about 14% annualized now as well as to reduce interest rates to below even the official rate of inflation. Last weekend with Bear Stearns they added the element of taking over the underpriced/overpriced derivative paper which is now owned by the taxpayer. If this formula continues to be applied in the future, you can count on a much further depreciated Greenback and much higher inflation and commodity prices. Given Fed chairman Bernanke's record and academic credentials, this is almost guaranteed to happen.
Therefore, please stay with your commodities and precious metals/oil specifically. You know that the 1980 peak price of gold was $850 which today using official, not real, inflation rates would be over $2,275. Clearly gold under $1,000 today has a long way to go. Moreover, the gold/oil ratio is way out of whack in that either oil has to decline substantially or gold must appreciate dramatically to restore its traditional ratio/relationship. With no world currency of consequence currently backed in any way by gold today, you may be assured there is no discipline in the currency sector in terms of printing/creating more of it. When investors get scared they will reflexively revert to the only real money there is...gold. Because there is so little of it, prices will skyrocket, especially once the little retail investor gets a sniff of it in its last parabolic price increase phase. That is when I exit.
This year 2008, we will have a bumpy economy which will continue that way until the elections on November 3rd. Politicians, including central bank Fed folk, will do their predictable best to have voters feel good until they cast their votes. This means those of us in the commodities sector will periodically wonder whether we are still on the correct course. No fear. All is well in that economic fundamentals have not improved. However, I predict that the period following the November 2008 elections through 2009 and 2010 will be the crisis phase. Much of the derivative sludge which we have begun to see remains hidden on the books of insurance companies, pension funds and other institutions not normally thought of as banks. When this slime emerges in stages ever so slowly during the two years ahead, there will be a rush to real value - commodities and real money...gold.
I will continue to remain with my selected investments throughout the undulations of the markets for as long as I see charts which show me higher highs and higher lows. Only a breakdown on that front will cause me to alter course. We must continue to remind ourselves that the marketplace is always choppy and that there is no need to alter our carefully chosen course. To attempt selling high and buying low is a mugs game given the sophistication of the big institutions and brokerages who have all the tools and smart guys with their programmed computer trading. Stay the course and forget about trading because we can't win if we attempt to play with the big boys under their rules. If anything, you should BUY more precious metals stocks, warrants and especially bullion or bullion surrogates! This dip is custom made for investors.
Please don't second guess yourself or allow the nonsense you see on tout TV/CNBC. It is very dangerous to your financial wellbeing.
These words echo my opinion that this is an incredible time to be buying the junior mining shares and their long-term warrants. We have arrived at a serious turning point and the recent pullbacks have set the stage for the coming rally.
We invite you to visit our website, view and listen to our new video tutorials, spend some time in learning center and sign up for our free Saturday email, The Warrant Report.
March 25, 2008
Dudley Pierce Baker & Lorimer Wilson
Dudley Baker is the owner/editor of Precious Metals Warrants, a market data service which provides you with the details on all mining & energy companies with warrants trading on the U. S. and Canadian Exchanges. As new warrants are listed for trading we alert you via an e-mail blast. You are provided with links to the companies’ websites, links to quotes and charts, tips for placing orders and much, much more. We do not make any specific recommendations in our service. We do the work for you and provide you with the knowledge, trading tips and the confidence in placing your orders.
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