Thursday, September 02, 2010

September 2, 2010 Guess what went up 7.1% Today?


September 2, 2010 Guess what went up 7.1% Today?

Ok, I’ll give you a hint. My wife and I started this investment 14 years ago. I can confidently predict that this investment will advance by 6.6% next year this time. OK, some of you are thinking bond. Good guess, but WRONG. In the same period from 1996-1997 we saw this investment advance by 50%. Of all of our investments besides another similar one, these are our most cherished. Yeah, you guessed it. Our son Jack turned 14 today.

Yesterday we said we took some profit in GLD, the Gold based ETF. That was a tough decision as we still feel that gold has some legs, but it is up 14% so far this year. September is a bit of a cyclical month for gold as jewelers around the world start placing their inventory orders for the up and coming holiday season. On the down side we have a lot of tea leave readers (That is a technical term for people who stare at stock charts all day long and decide when to buy and sell an asset based upon the interesting subtleties of the asset's chart) aka chartists saying there is significant resistance at the 1250 range we just entered today.

Here is my humble opinion. This is not a bad place to add or start a position in Gold. Even with the subtle positive economic news we heard so far this week, we have a job report that could make or bread the two day rally we just enjoyed. My guess is it will disappoint. The non-farm payroll estimates are all over the board and were in flux even up till about 3:00 PM PST today. Some say a loss as big as minus 160,000 jobs, and some say we might see an improvement to 70,000. The average estimates early in the week was 42,000 new jobs. I don’t see it. Some of the manufacturing indexes are showing an expanding work week indicating longer hour versus new jobs. Comments (mentioned here yesterday) about the manufactures interviewed by fed reserve members said they are reluctant to hire because they do not know what a new employee is going to cost. I am thinking 20,000 new jobs which will be a disappointment and will show an unemployment figure of 9.7 or 9.8. This disappointment should be pretty much priced into the market, but you will see the 10 year yield go down and gold go up above the 1250 point. If it can stay up above 1250 for a few days, the next resistance point is 1290-1300.

So I am looking for the next correction in GLD to add to the position and look for a number reflecting the 1300 gold. By that time, a month or two, we should see how the congressional elections are going, feel pretty confident that the Dems will loose control, we will see what the health care reform regs look like, what the financial reform regs look like, and then we will see US companies and international companies with interests here start hiring, those employees will start spending and we will see economic growth approaching 3-4 %, the fear of deflation evaporate, a close eye but controls to keep the possibility of inflation in check and see the 10 year creep up to the 3.5% range and gold collapse to the 900-1000 range. This is a 6-12 month process.

We will need to adjust our expectations about employment. We will not see 5% unemployment in my lifetime. That was the estimated baseline unemployment prior to 2008 (actually estimated to be 4.5-5%). The stimulus program and unlimited extensions of unemployment benefits have conditioned another 2-2.5% of the population not to work. The baseline unemployment will hover around 6.5-7%.

So enjoy the Gold ride while it lasts, but do not be afraid to take a profit some time soon. In researching this section and reading all I can on gold and gold futures (Thanks Tim and Dana), I ran across a sleeper. Typically I do not buy gold miners. I used to and did fairly well, but I kept running into non value issues that sucked much of my hard earned profit away. (They included labor unrest, privatization of mines, weather issues causing shaft flooding etc.) The company we stumbled on is NAK Northern Dynasty Minerals Ltd. engages in the exploration of mineral properties. It owns a 50% interest in the Pebble Project, a copper-gold-molybdenum project located in Alaska, the United States. The company was formerly known as Northern Dynasty Explorations Ltd. and changed its name to Northern Dynasty Minerals Ltd. in October 1997. Northern Dynasty Minerals Ltd. was founded in 1983 and is based in Vancouver, Canada.

You’ll note that they own 50%, the other have is owned by Anglo American, Rio Tinto, and Mitsubishi. They have no debt and a 1.5 billion dollar piggy bank ala Anglo. The property is one of the largest in Alaska and is considered one of the most important because it is so big and so rich. It’s a grams per tonne type of mine but is loaded with copper, gold, molybdenum, uranium, silver, and palladium. Ok, so how come this is not a household word like Newmont or Anglo or Barrick? We’ll they need some critical permits before they can actually start mining. From reading the quarterly’s, they are hiring all the right people to get the permitting done, but no one will know till about mid 2011. Once the permitting get’s approved, assuming it does, you will see a significant pop in the stock. It currently sell for 7.28 a share. For about 5 portfolios we are starting small position with limit orders at 7.11. We will add to this between now and march 2011 and will look for 14-20 a share by this time next year. That is based upon a continued improvement in gold prices and the eventual permitting. If there is a huge correction in Gold or signs of permit challenges we will reduce or get out.

No Action in the portfolio today.

It looks like we got some dividends in today (WFC and INTC), but no sales. There were a couple of day only order placed. We had the one already discussed for NAK that should execute tomorrow. We also have some small limit order in for PNG and BWC. PNG being the nat gas storage play and nat gas was a little down today because of inventory issues so we will try and catch the dip tomorrow. BWC was the nuclear side of McDermitt which got spun off about a month ago. We are adding a litte if we can catch the limit order placed tonight.

From the White House on The Road Gallery
During a 2009 visit to Santiago, Chile VP Binden has a fun moment with Chilean President Michelle Bachelet:
"Come on just one more time, pull my finger."

Salve Lucrum


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