Fear in the Streets - The Real Deal
You may recall our previous article in August 2007, “Fear in the Streets – A Dress Rehearsal”.
Well it looks like now the fat lady has not only warmed up but is singing and hitting that high C. This time the fear is real with IndyMac Bank in California disappearing, and Freddie Mac and Fannie Mae under a great deal of stress. Yes, more government bailouts which will cost billions and even more reason for a U.S. Dollar collapse. So, the credit and liquidity crisis continues, the economy slows, oil remains high and inflation is rising in the world setting the stage for much higher prices for gold and silver in the coming months and years.
As a brief, refresher, in our original article, we said….”as we write this article it appears that fear is abating and that the financial markets are getting back to business as usual. Nevertheless, one major piece of bad news could send the markets tumbling once again. So, have we just witnessed the worst of the market decline or was this just a dress rehearsal for a much more severe and perhaps catastrophic decline ahead? None of us has a crystal ball going forward from here, but we as investors continue to seek opportunities always aware of the potential short term downside risk.”
On the charts below, you can see that back in August of 2007 the S&P 500 plunged down to 1375 and then rebounded to new highs in October. Gold was trading in the $650 - $700 range and the U.S. Dollar was trading around 80 to 82.
If you dare, look where we are now.
The S&P 500 has traded down to touch 1200, what a nasty looking chart. The U.S. Dollar has fallen out of bed and is now at 72. Some are still looking for a dollar rally. To me from the chart below, we have already had the ‘rally’ up to 74 and are will be breaking out to new lows soon.
The bright spot, as it should be, is our favorite, gold. On balance, gold has performed exceptionally well recently and appears to be coming back into favor as the defense hedge for investors. Gold hit $1030 in March, then fell back to around $850 and now we are back on track with gold in the $960 range as we close this article. Even a couple of days ago on CBNC, some of the fast money boys were talking positively about gold. Of course, it only takes a $20 pullback and these guys think the party is over and run for cover.
What I take away from the charts is that the S&P 500 is due for at least a brief rally before heading lower and gold is due for a brief correction which is exactly what is currently happening.
This time the fear is real and the possibility of a meltdown is possibility is real. It is getting scary and you must make some tough decisions. Do I go down with the ship (financial markets) or get into gold, silver or related assets? Your financial survive may be at risk and as we like to say, ‘no time to hide, your needed on deck’.
Each investor must decide for themselves in which markets or sectors to invest and then make some informed decisions as to which specific stocks, ETF, etc., to purchase.
Probably most readers on this website are already on board the train for the bull market in gold. Where else can you be in these treacherous times? But I realize that many investors, including myself, having purchased the junior mining shares have questioned our strategy over the last 2 years or so. It is not been pleasant and frankly, with the incredible drawn downs on many of this stocks, I am sure many investors have run to the exits only to return in the coming weeks and months at much higher prices. For those of us who have been around for awhile, we realize that things change and they can change very fast in junior mining sector.
There are so many reasons for the juniors to be down; from the high energy costs to the shares falling with the general markets, but we continue to believe the future rewards will be outrageous. We see the next great opportunity from September into perhaps the first half of 2009 with the juniors finally having an incredible run.
We have recently seen some of the senior mining shares doing very well and a few hitting new highs and we believe this is setting the stage for the next leg up with the juniors following or perhaps leading. So, we suggest investors continue to accumulate shares in quality companies. Good management, good properties and cash in the bank are essential. If the companies you like have long-term warrants or LEAPS trading, we suggest you give them serious consideration. There are many great companies with warrants in our database, and one with a remaining life of 9 years, and several producing properties. In addition, for our subscribers, we have just completed our database for all natural resource companies having options or LEAPS, giving investors access to more great companies and leverage opportunities.
A necessary skill for investors during this time is patience. In the coming weeks and months we suspect that fear will become our friend, driving many investors into our sector for the first time. Inflation is now in the daily news and everyone will soon know that they must have gold or silver in their portfolios.
Dudley Pierce Baker
July 17, 2008
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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