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At the Market
‘A Market of Extremes’ by Rodney Blake
I don’t know about you, but as I scan the markets of late it seems to me that I’m witnessing a market of extremes like I’ve never experienced before. That is, there seems to be one or two issues that are leading the market and getting most of the media attention while the rest of field can’t seem to get any positive recognition at all. Take for example Apple Inc., the market darling and maker of the famous iPhone and iPad communication devices. Apple it seems, can do no wrong, and by all of the positive coverage Apple receives, one would be hard pressed to think that any other smartphone companies such as Motorola, Nokia, Research In Motion or Samsung even exist. The same could be said about internet search engine giant Google Inc. Now I’m sure that Google is a very fine search engine indeed, but I’m at a loss to remember the last time I’ve even heard of other search companies such as Yahoo! Inc. or Microsoft’s Bing being mentioned, even though they draw a good portion of the overall internet search traffic.
The same scenario seems to occurring in the resource sector as well. Everything to do with graphite seems to be getting most of the market’s attention while other metals, especially gold issues, are having a most frustrating time attracting investors’ attention. And again, while I’m certainly aware of the importance of graphite in the new technology of electric vehicles and extended range batteries, I’m also equally convinced that the value other metals such as gold or copper is being significantly diminished. Yet, while gold may off by some 15% from its high of US $1,924 established last September, most of the gold stocks I follow are off of their highs by 30% to 50% or more. Investors, if they’re right, are discounting gold to below US $1,000 an ounce, a price that seems somewhat extreme to me. Base metal stocks are not fairing any better, with many trading at half their value of just one year ago. Chinese growth at 8.1% per annum may be slowing, but it is still more than double that of the industrialized world, that in itself, is gaining traction as the world works its way out of recession.
The same extremes can be found in the petroleum industry with crude oil hovering above US $100-a-barral while natural gas recently set a new 10-year low by breaking down below US $2 per-billion-cubic-feet (BCF). Historically, on a heating basis, natural gas has generally traded at about 1/10th the price of crude oil, so are those norms going to re-establish themselves again over time, or has global warming and the shale gas phenomenon forever skewed those long established ratios. Time will tell, but I’m betting that higher natural gas demand will bring the ratios closer together, and perhaps, even sooner that some would think.
There you have it, a market of extremes. Frustrating for most, but offering opportunities for the savvy. Position yourselves accordingly.
‘The Curse Of The PDAC’ by Rodney Blake
In early March, I recently attended the giant 2012 Prospectors and Developer Association of Canada (PDAC) convention in Toronto, Ontario. This is by far the world’s largest mining and mineral exploration tradeshow with over 30-thousand attendees for the 4-day event. And while the overall mood of the convention was very upbeat and optimistic, as it should be with today’s metal prices, I was intrigued how every once in a while the underlying conversations would turn to “the curse of the PDAC”.
In case you haven’t heard of it, the curse of the PDAC stems from the observation that this convention more often than not coexists with the top of the resource market for that particular year. Each year of course varies, and in some instances, the resource market actually powers up beyond the PDAC, while sometimes, such as 2011, the TSX Venture Exchange fell by some 45% in the months following the PDAC. 2011, you may recall, was the year the disastrous tsunami that knocked some of Japan’s nuclear reactors offline just a few days following the convention, triggering an immediate drop in uranium and other commodity prices as the economy one of the world’s leading users of commodities suddenly came to a halt. So with the events of 2011 very fresh in their minds, the delegates to this years’ PDAC convention couldn’t help but wonder if the curse of the PDAC would prevail again in 2012. But is it really a curse, or tsunamis aside, why is it that the PDAC so often marks the top of the resource markets?
As it turns out, the timing of the PDAC actually coincides with a seasonal drop in most resource prices as commodities tend to rise in the autumn and winter months and fall in the spring. This has to do with everything from industrial plants gearing up for their new year production runs, to gold and jewelry demand for the holiday season, to increased heating fuel demand over the northern winters. The two main laggards are crude oil and gasoline prices that tend to peak in time for the start of the North American driving season around the Memorial Day long weekend in late May.
A PDAC curse? I think not. Last spring many resource prices were at near or record highs and most resource stock prices were enjoying extended gains, so when the tsunami hit, there was no where for the market to go except down. This year not so much, as commodities and resource stock prices are still below last years highs. I suspect that this year may once again bring a seasonal lull in the market, but nowhere near as bad as in 2011. Then, the resource prices and the resource markets will once again take up their long term advance that began some eleven years ago. Seasonality over folklore. Use it to your advantage.
‘The Wall Of Worry’ by Rodney Blake
Japanese tsunamis, Greece’s potential for default, European sovereign debt downgrades, the European Union may not survive, Iran’s loose cannon nuclear program, China’s economic growth is slowing, the United States can’t seem to climb out of its recession, special interest groups block pipelines, and resource prices can’t seem to break old highs. I don’t know about you, but I don’t think I’ve heard a positive economic headline since about this time last year when that terrible tsunami knocked the bottom out of uranium prices and shook a fragile world economy that was still trying to recover from the United States led recession of a few years earlier. Many market pundits would say that in light of these uncertainties, one should stay on the sidelines avoid the equity markets like the plague. Most certainly, that’s what the smart money would do.
But wait. The charts I follow are telling a completely different story. If you’ve stayed on the sidelines in 2012, you’ve missed a decade high New Year’s market rally that’s seen the Dow Jones Industrials gain about 6.0% to the middle of February. Not to be outdone, the broad based S&P 500 Index has returned about 8.3% so far this year while the tech weighted NASDAQ Exchange is up on the year by about 13.3%. North of the border, the resource heavy TSX Composite Index is ahead so far in 1012 by about 4.2% and the more speculative TSX Venture Exchange is ahead by about 11.7%. How can this be? How can the markets be so good this year when the news is so bad? How can markets rise when common sense says they should fall?
In short, the current markets are climbing a classic wall of worry. This is a wall of negative sentiment or disbelief as to why the bull market shouldn’t or couldn’t happen. Interestingly enough, the longest and strongest of bull markets usually climb against the greatest amount of negativism and worry. This works because the market is usually very efficient at weighing all of the current parameters and projecting where it wants to be many months into the future. It looks past the current headlines to where the market will be. And this market is saying that in spite of all of the current turmoil and uncertainty, overall, the world will be in a better state towards the end of this year and into the next. The bull market usually continues to climb, albeit with some corrections, until all of the doubters can’t stand it any longer and finally throw in the towel and become supporters of the underlying trend. This, of course, is also a sign that a top in the current market cycle may be near. For example, you may recall the many gold bulls calling for ever greater highs last year when gold bullion finally established its new record highs, only to watch in disbelief when gold and resource stocks fell into a correction that pulled the TSX Venture Exchange down by some 45% before it finally reached a bottom in October. With so many people onside, the market had no one to take it higher so it had nowhere to go but down.Conversely, when most are out of a market, it has nowhere to go but up.
As always, do your own due diligence and try your best to make educated investment decisions. Try to look a few months to a year or so into the future and separate common sense from the headlines. If the headlines all state that the market can’t possibly get to where you think it might want to be, then perhaps you too are ready to climb that beautiful wall of worry.
'Wishing And Hoping' by Rodney Blake
The start of a new year is generally the best of times for resource stocks as the seasonality of rising resource prices tends to drive the market higher for at least the first few months of the year. I usually try to allocate most of the cash in my accounts in the depressed tax loss and Christmas seasons of the previous year. Then I wait patiently to distribute a good portion of these positions over a period of time as the public rushes back into the market with all of the pent up enthusiasm and optimism that the new year generally brings. This strategy usually works like clockwork, but so far in 2012, not so much.
So far from my vantage point, 2012 is starting off with what can at best be described as cautious optimism. While the TSX Venture Exchange as of mid-January, is up some 50-odd points or 3.6% from its year-end close of 1,485, the market rallies to date seem to be short lived and any uptick is immediately met with enough ample selling to keep a lid on the issue. And Venture Exchange daily trading volumes, that were around 300-million shares a day in January, 2010, before pushed up through 400-million a day in January of last year on their way to a peak of 600-milllion, are barely breaking the 200-million level so far in 2012. To this point, there just doesn’t seem to be the amount of volume needed to drive the resource markets higher.
I don’t think we can blame soft resource prices for this year’s investor apathy as save for natural gas and uranium, most resource prices, while off of their highs of last year, are near their price at the start of 2011. Gold bullion, for example, was some $245 cheaper at the start of 2011 at US $1,400 an ounce, while copper was $0.57 higher at US $4.25 a pound and crude oil was $8 lower at US $92 a barrel. I think that the resource stocks are soft because most investors were expecting another big year in 2011 and as a result they continued to buy the market too soon during last year’s correction. Then when the market continued to fall by a massive 45% they were, for the most part, deeply underwater with these positions. Now, instead of re-entering the market at still lower prices, they are on the sidelines wishing and hoping just to get even, and worse still, are selling into these early rallies just to try and do so. This, to me, is not a winning strategy.
Now is not the time to be selling this market, and wishing and hoping to break even is certainly not a winning strategy. The Venture Exchange is just coming up off of a classic double bottom formed first last October and retested in December, and is entering its traditional season of greatest strength going into the second quarter. This is a resource market that is begging to be bought now. Come spring, I feel that those who refrain from doing so will be wishing they had.
'Tis the Season' by Rodney Blake
Christmas and year end are supposed to be the season of good will and good cheer, where one celebrates their accomplishments or achievements while reflecting with a sense of contentment on the year just past. But for most resource stock investors, except for those holding takeover candidates such as Hathor Exploration Ltd., the end of 2011 feels much more like Santa only left lump of coal was in our stocking The 45% plunge of the resource market in 2011 has left most investors confused or disillusioned, especially when compared to the previous three years that saw the TSX Venture Exchange, the exchange most closely associated with resource stocks, march almost continuously higher from a low of about 700 in December of 2008 to a high of almost 2,500 in March of this year.
How could this happen. How could the resource markets fall so badly when the resource prices for the most part are still near multi-year highs. Who or what allowed the Grinch to steal our Christmas? The Grinch who stole the resource markets, as far as I can see, was disguised as politics, and for the most part, American and European politics. While the uranium market was obviously destroyed by the after effects of the Japanese tsunami, I feel the rest of the resource market suffered due to the seemingly endless political rhetoric that came out the United States and Europe for most of this year. Never have I experienced a time when politics, especially negative politics, continually dominated the media. It got to the point where any meaningful economic or corporate report was immediately discounted as the politicians on both sides of the Atlantic reminded us of how the world was about to fall into the abyss if we did not immediately adhere his or her warning of the day. And so it went, day after day, week after week and month after month of negative rhetoric about U.S. debt ceilings, European sovereign debt issues, the potential collapse of the European Union and of the euro itself. All of which wore on the minds of investors as they saw their investments grind ever lower as the year progressed.
And then, very quietly at first, near the end of November, the tone of the news started to change. The U.S. debt ceiling was raised, record numbers of Americans went shopping on Black Friday, the world’s central banks seemed to find a way, if only temporarily, to stabilize Europe, and the U.S. unemployment rate suddenly fell to 8.6%. Optimism suddenly prevailed and the North American markets starting December with their best weekly gains in over two years.
Perhaps the theme of Dr. Seuss’s tale will prevail and the Grinch will not completely steal the 2011 resource market after all. Perhaps we’ll have a Santa Clause rally and enter 2012 with the optimism of years past. Don’t be too quick to throw out that lump of coal that Santa left in your investment stocking as it may yet turn into a diamond. ‘Tis the season. Merry Christmas to All and a happy investing New Year!
'You Ain’t Seen Nothing Yet' by Rodney Blake
Let’s see. So far this year the resource markets have absorbed the effects of the Japanese tsunami, the uncertainty over the U.S. debt ceiling, the European debt crisis along with some signs of a slowdown in the Chinese economy. On top of this we’ve had a near $300 drop in the price of gold, a $20 tumble in silver, a $1.50 fall in the price of copper, to go along with the $40 plunge in crude oil. All of this plus a 20% drop in the North America’s senior exchanges left the TSX Venture Exchange grasping for straws as it plummeted some 45% from its peak in early March, second only to the 80% fall into the abyss that the resource markets experienced during the market crash of 2008-09.
Putting this all together, I can only deduce one thing - I’m thinking we’re in for one of the biggest resource bull markets in recent history. Now, before you choke on your coffee, consider the following. Most, if not all of the events that caused this year’s major correction are being dealt with in some manner. Japan is rebuilding, the U.S. is continuing to slowly work its way out of its recession, the Europeans have a better understanding of and are establishing measures to deal with their debt problems, and the Chinese economy, while it may have slowed somewhat, is still expanding at a near double digit pace.
Now consider this. Resource prices, save for natural gas and uranium, have come up nicely off of their lows. Traditionally, due to seasonal increases in industrial demand and consumer spending, the fourth and first quarters of the year are when resources make their best gains. The resource markets, except for seasonal yearend tax loss selling, usually mirror this seasonal rise in commodity prices. It’s no coincidence, and I’ve mentioned many times, how resource prices and the resource markets seem to peak at or near the giant Prospectors and Developers Association of Canada (PDAC) conference held each year in early March in Toronto.
Also, consider that we are approaching the later end of a secular or generational bull market in resources. That is, the secular bull market that started in 2001, should go on for about a generation of 15 -20 years. And if history repeats itself, we starting experience the greater volatility that comes in the latter stages of these secular bull markets. They usually carry on until they blow off in an extended period of speculation, such as experienced by the U.S. housing market a few years ago. This has yet to happen and to me, all of the things that started this bull market are still in place, namely, the rapid modernization of 2/3rds of the world’s population along with the acceleration of the ‘save the planet’ technology. This, is just not going to stop in one season.
Putting all of this into perspective – extremely oversold conditions, less uncertainty, improving economics, market seasonality, along with increasing volatility and all I can suggest is that the next few months should be very good for resource stocks and, if everything comes together then - Baby, you ain’t seen nothing yet.
'Super Summer Sale' by Rodney Blake
I hope you have enjoyed or at least taken advantage of this Summer’s sale in resource stocks. The current sale started when the TSX Venture Exchange fell by 300-points in early August and except for a few false rallies, has carried on for some two months now. It has turned out to be one of the longest and deepest market downturns of recent memory and for the most part, except for a few the senior or intermediate gold producers and a few takeover targets such as Hathor Exploration ltd. and Peregrine Metals Ltd., the sale has affected most resource stocks across the board. While summer selloffs are nothing new to the Venture Exchange, (as we actually come to expect them), this particular one has offered investors some of the best buys since the Great Recession of 2008. I’m afraid though, as with most corrections, when this one, if finally over, not enough of you will have taken advantage of the great buying opportunities that were made available.
While most investors’ portfolios will come close to matching the performance of an underlying exchange, they fall short of matching the performance of a professional because they tend to stay with a losing position longer and fail to purchase positions in down markets. That is, most investors want to purchase a stock in a rising market to be sure that the momentum is going their way. Then, instead of taking a profit in a rising market, they will miss the top and then ride the position all the way back down to the bottom, leaving precious missed profits on the table.
We have a major retail store here in Canada named Canadian Tire that specializes in automotive, hardware, lawn & garden, sporting goods as well as other household items. Canadian Tire stores are known for their sales, and every week, most of the men I know eagerly scan their weekly flyer for the many deep discounted items they offer for sale. They may not really need that particular widget, but for 70% off, they’ll buy it just in case. Sometimes, I wish more of my clients would take this same attitude toward their investments and watch for a valuable investment offered for sale at a deep discounted price.
Purchases now could also be very timely as October marks the start of the fourth quarter and traditionally, the fourth and first quarters offer the best returns of the year as the large investment funds reposition their portfolios for year end and the beginning of the new year. Resource prices also tend to rise in these quarters as inventories trend down in the winter months. The resource markets are currently trading at a discount. Now is the time to open your stock portfolio flyer and repurchase those issues you were shrewd enough to sell at higher prices last spring, or to get positioned in those promising issues you may have thought were beyond your reach. Act now, as I feel the days of this Super Summer Sale of resource stocks are numbered.
'That Numbing Feeling' by Rodney Blake
Monday, August 8th marked a watershed start of four days of trading where the computers took the Dow Jones Industrial Average (DJIA) and other equity markets out of the hands of individuals and took them on a wild roller coaster ride of alternating 5% daily gains and losses. It was also a period that took gold bullion to three consecutive new record highs as it spiked up to $1,800 an ounce, while wiping out a year of gains in crude oil as it plunged down to $76 a barrel. And between these extremes were the near record moves in base metals as well. And of course, most resource stocks fell into lockstep with these moves, with the gold stocks moving slightly higher while the base metals and oils fell into the abyss. But the most amazing thing to me, as all of this record breaking action was going on all around me, was the general lack of action or disinterest of the investing public.
Here we were in the midst of one of the most volatile markets of recent memory, but the phones were mostly quiet, with the exception of the regulars who always checked in regardless. Stranger still, was the lack of client orders either on the buy side or the sell side of the market. For the most part, clients just took this extreme market action in stride and instead just stayed focused on their summer holidays. It seems to me that, just as we now mostly ignore those annoying car alarms that seem to go off with ever increasing frequency, investors seem to be numbing to the many market gyrations of recent years.
Think of this, in the last eleven years we’ve had four major market events beginning with the tech market crash of 2000. Then, in quick succession, there was 9/11, the Lehman Brother’s led U.S. housing bubble, and now ever popular U.S debt ceiling/European sovereign debt issue. Before this, the only really memorable market event was some 13-years earlier with the market crash of 1987. This, to me, is an extreme overload of issues for investors to digest and react to. In market terms, I’d suggest that it’s like those annoying car alarms going off every hour or so in parking lots, and after the first few alarms, you just sort of tune the rest out. And that’s where I think we are with the markets today. Investors are just tuning out the random noise.
The question now is, was this sell off just another computer generated and media emphasized market sell off or, is this time the start of a real long term bear. Only time will tell, and investors as always, should always do their do-diligence and be aware of potential market pitfalls. However, recent history would indicate that overtime, the markets, especially the resource markets, still want to go higher. The key for investors is to try to stay tuned to the long term trend and to be aware of the underlying value of their investments. Try not to become numbed by the random noise of the market so that you’re ready to take advantage of these extreme sell offs.
'Game On' by Rodney Blake
The new, and possibly fifth major upleg of the current secular bull market for resource stocks has begun. It was set up in the last week of June when the TSX Venture Exchange plunged by over 6% to 1,862 in one last purge of exhaustion selling that would see the world‘s leading resource market fall by some 600-points or 25% since mid-April And it was triggered unexpectedly on July 12th when gold bullion finally broke through to a new record high of US $1,562.30 an ounce.
Bull markets usually begin quietly and are seldom announced. They are often later referred to with terms such as ‘stealth’ or ‘creeping’ bull market as analysts and investors often have to look back many months later to see just what they missed or to see when the bull market began. In contrast, bear markets are often announced by events, market pundits or the media. Think of the word ‘bubble’ or ‘9/11’ as examples of words or events that are aligned with major bear markets. Now, try to remember anyone or anything that told you of the start of the secular bull market in gold had begun in 2001 when gold bullion fell to US $250 an ounce.
Secular refers to markets that are generational in length. That is, they can last as long as twenty or so years. The best current example of a secular bear market is Japan’s Nikkei Dow Index that is now just trying to come out of a secular bear market that began after it spiked to all-time high of 39,000 in 1990. You may remember media reports of the overpowering Japanese economy from that time. The last secular bear market for resources started in 1980 when gold bullion abruptly fell after hitting US $850 an ounce and fell relentlessly until the 2001 figures mentioned above.
Secular bull markets usually have four, five or more major and numerous miner waves that are a treat to trade as even if you sell too soon, there is a good chance you can re-enter the market on a pullback. The other interesting phenomenon is that each major upleg is usually stronger than the last, and this continually repeats itself until the market finally blows off in one final event.
I’m not sure if this will be a minor or major upleg, as it is still too soon to tell. There may even be a retest of the bottom, but I’m not expecting that. My best guess is that this upleg should at least parallel the seasonal strength in gold that runs from early fall to late winter that coincides with increased jewelry purchases. Gold and silver should also be the catalysts to pull the rest of the resource stocks higher, as confidence in one sector usually spills over to others. Today, the markets and media are negative. Trading volumes are light and investors are nervous. But make no mistake about it. From my perspective, the resource bull market has returned. Game on.
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'The Silly Season' by Rodney Blake
Welcome to the silly season for resource stocks. I know this may sound like an offhand remark, but after many years of watching this market, I just can’t think of a better description for it. It’s just silly. It seems that most every year at about this time, usually from late Spring to about mid Summer, the resource market goes into such a broad based retreat that I am amazed as to how negative it can be. This year, with the exception of the crash in 2008, the drop has been one of the most pronounced ever, with the TSX Venture Exchange dropping by over 10%, from over 2,100 to under 1,900, in just the first twenty days June.
There doesn’t seem to be any rhyme or reason for the selloff, as most company field reports seem to be encouraging. But one thing is clear, it is broad based and no resource sector has been spared. Gold, silver, base metals, oil & gas, uranium and even rare earths stocks have all been devastated. And while most resource stocks are down, it’s the gold stocks that are particularly frustrating as they are trading as if gold bullion is falling when in fact the underlying metal is only about $10 below the record high of US $1,557 an ounce it established just two months ago in early May. Is the market forecasting lower gold prices to come, or are there other factors at work here causing such negativity.
I have a theory for the recent action in the gold market. Ten or so years ago, at the beginning of this bull market, investors could easily see a doubling of the price of gold from US $275 to $550 so they enthusiastically purchased gold shares. They could also see the next doubling of gold to $1,100 as that was just above the all-time high set for gold in 1981, so they continued their purchase of gold stocks accordingly. Now, the next lift to $2,200 was harder to envision as this is entirely in new blue sky territory for the yellow metal, and not near as many investors were willing to step up to the plate, so gold stocks failed to follow the metal higher. Then, when gold seemed to peak out, many investors threw in the sell tickets as they feared the bull market was over. And over it was, but not, I think, for the long term. This I feel, was just another of the many short term corrections we’ve had in gold over the past decade or so. But because this one started from such a lofty height, investors were much more anxious to get out of the way.
It looks to me like the recent correction in gold is over and that a breakout to new highs is all that is needed to bring the most of those investors back. And once gold breaks out, the buying should filter down to the other resource sectors as well. Do you own due diligence and take advantage of this silly season to position yourself for higher highs to come.
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'Silver – An Exponential Explanation' by Rodney Blake
Finally, it’s happened. After a steady climb from about US $8.50 an ounce at the end of October, 2008, to gaining more and more momentum earlier this spring and ultimately reaching a new 31-year high of US $49.21 on April 29th, 2011, the silver market finally corrected. And my oh my, what a correction it was. On Monday, May 2nd, silver tried to climb upon the previous Friday’s high, couldn’t do it, and the freefall was on. From there, it was a full retreat of some 27% in just five trading days to about US $35 that left many investors, as per the movie….dazed and confused. And silver wasn’t the only casualty here, as gold bullion and crude oil suffered similar abrupt corrections, although perhaps, not to the same degree.
So what really happened here? Was this the “We told you so” bursting of the silver or resource bubble that many of the talking heads had been predicting for some time. Was it speculators being forced out of the silver market due to the Chicago Commodities Exchange (CME) raising their margin requirements on silver contracts? Was it due to opportunistic hedge funds aggressively shorting the silver market when they sensed that the recent run up in silver was overextended? Or was the sudden drop in silver just because the recent high price of the metal brought about a corresponding amount of selling from silver investors and producer s? Any, or all of the above reasons were no doubt credible, well thought out theories for the sudden and sharp correction in silver. But for my money, a simple chart of silver foretold that a sharp correction was coming well before the headline makers ever could.
Look up a daily chart of silver and see for yourself. After a steady, linier climb of many months, the price of silver started to go exponential in mid-March of this year. That is, the price accelerated by a greater amount each day until it was almost going vertical by the end of April. From there, when it couldn’t go higher, the market new that the game was over and run to the exits was on, and it didn’t stop until the price of silver tumbled to just above its 200-day moving average of about $33 an ounce. Now, the key word here is exponential. A market, any market, whether it’s a stock, a commodity or even the U.S. housing market, that goes up exponentially usually collapses under its own weight. That’s because by the time it goes exponential, everybody interested in that market is ‘all in’ and there is usually no one left to buy the market once it turns. The buyers only return to the market when the item retreats to its long term support level such as a 200-day moving average, which is where silver now seems to forming a base just above $33 an ounce. From here, if the base holds, the market can begin to advance in a more stable linier fashion once again.
Your investors edge here is to what your charts as well as the underlying fundamentals of your investments. Don’t be afraid to sell something that is accelerating exponentially. I’m sure there a number of American homeowners who would agree…
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‘A Pause That Refreshes‘ by Rodney Blake
During the first week of April, gold bullion advanced for five consecutive days before finally establishing a new record high of US $1,474.10, while silver pushed up through $40 to a new 31-year high of US $40.61. Yet the TSX Venture Exchange, instead of breaking the yearly high of 2,440 it established in early March, gained only a few points to 2,389 and then dropped by almost 100-points over the next two trading days to fall to 2,300. Hardly an investor endorsement of higher precious metals prices to come. Granted, precious metals and other resource prices did drop the following week as well, with crude oil coming off a new 21⁄2-year high of US $112 and uranium falling below US $60. Still, gold and silver is what traditionally drives the Venture exchange, and when the two disconnect, one had best pay attention.
Is this finally the much heralded popping of the gold/silver and precious metals bubble that the ‘talking heads’ have been continually predicting for the past few years. Is it the start of a major correction, or perhaps just another pause on the long road of higher precious metal prices to come? To better understand this we have to step back and view resource prices from a worldwide perspective. Is the modernization of the Far East, India and the Third World complete? Has global warming been reversed? Have interest rates climbed so high as to stifle business expansion and consumer spending? Is the United States falling back into recession? Have speculators driven the price of commodities and the markets to unsustainable highs? From my perspective the answers to those questions is an emphatic no. The world is still modernizing at a record pace. Glaciers are still melting. Interest rates, although firming, are nowhere near the levels of previous recessions. The all important American consumer is actually increasing personal spending as their businesses continue to tool up and rehire workers. And as for speculators, apart from the recent froth of crude oil and silver, most commodities are advancing in a linier fashion or have fallen back somewhat as in natural gas and uranium, while investors, as per the indexes, are not chasing issues higher.
From my advantage, the current market pullback is so far nothing more than a much needed pause in the ongoing secular bull market in commodities. Most short and long term moving averages are still advancing and until these support levels are tested, dips are to be bought and positions accumulated. Like most years, seasonality may now come into play and the market could correct throughout the summer. But even then,
I’m treating this market pullback as nothing more than a pause, either short or long, that refreshes the market.
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"Innovation With Picks & Shovels" by Rod Blake
I’ve just read where prospectors of the year, Shawn Ryan and Cathy Wood, found two multi-million ounce Yukon gold deposits by simply taking soil samples just two feet deeper than their predecessors. Now, let’s think about that for a moment. Billions of dollars of gold bullion ore discovered just by digging down a little deeper and taking their soil samples at the 2½ foot ‘B’ horizon instead of the traditional six inch deep ‘A’ horizon that has been an industry standard for generations. And if that’s all it takes, then let’s quit our day jobs and get out into the bush to start digging those deeper soils and become millionaires. I mean, how hard could it be?
But of course, we all know that it’s not that simple. Most ore bodies stake a great deal of time and effort to discover. In this case, Ryan and Wood spent many long hours investigating and studying and they deduced that because that area of Yukon, the Dawson Range just south of Dawson City, had somehow managed to avoid the glaciers of the last great ice age, (and how that could have happened so far north is another mystery), that the mineralization would have percolated deeper into the soils - perhaps, two feet deeper. They put their theory to work and after thousands of soil samples, optioned two of their White Gold properties to Underworld Resources, (later taken out by Kinross Gold), and Kaminak Gold that are the talk of the exploration world today.
While the general publics’ perception is that mineral prospecting and exploration is nothing more than picks and shovels, the happy shareholders of these two companies can attest to the fact is that it is often achieved with the utmost use of innovation and technology. These White Gold discoveries are two of the latest, but there are many other examples, both past and present.
When I first started in mineral exploration, I was lucky enough to work for an innovative mining engineer named Chester Millar, who concluded that a mild acid solution percolating through oxidized rock, would dissolve the minute minerals within, to be collected chemically later. This of course, was the premise of Glamis Gold and the start of the modern heap leach mining technology as we know it today, which has allowed miners to extract ore from rock that previously, would have been left for waste. Fred Davidson of Energold Drilling envisioned that small portable diamond drills could be used to develop orebodies in hard to reach or environmentally sensitive areas.
Today, Uranerz Energy Corp. and Excelsior Mining Corp. have rewarded their shareholders by pushing technology further by extracting uranium and copper by forcing acid through the rock while it is still in the ground. Think of that. No open pits and waste dumps. Just a number of injection wells and recovery plant for the pregnant solutions. Meanwhile, Nautilius Minerals is preparing to use robots to mine copper from the floor of the Bismarck Sea off the coast of Papua, New Guinea.
Innovation leads to discoveries, so as you walk around some or some of the many mineral exploration trade shows, take the time to investigate and embrace those companies with new and unique ideas. Put one or two of them in your speculative portfolio and you may be pleasantly surprised, because I can assure you, mineral exploration is much more than just picks and shovels.
At the Market
"Listen To Your Friend" by Rod Blake
As the remarkable year of 2010 draws to a close I thought it would be interesting to look back to the expectations and perceptions we had for the resource markets at this time just one year ago, and from there, try to project what took place this year into the next. As we learned all too well in 2008, the future isn’t always a continuation of the past, and market momentum can definitely change in a hurry, but in the early stages of a move, I think the trend is still your friend.
Looking back, the TSX Venture Exchange optimistically brought in the New Year of 2010 at about the 1,400 level after doubling from a multi-year of about 700 in 2009. Similiarly, trading volumes started January 2010 at about 250-million shares a day, having climbed from about 150-million shares a day at the beginning of 2009. Coincidently, Canaccord’s Junior Mining Weekly has often emphasized that an average volume of 200-million shares a day was required to continually propel a TSX Venture Exchange bull market, so 2010 was at least starting the year on a bullish note. With commodities, gold bullion entered 2010 at about US $1,100 an ounce, after enthusiastically climbing up through physiologically important $1,000 from a base in early 2009 of $875. Silver started the year under US $18 after gaining about seven dollars in 2009. Copper began 2010 the strongest of all, benefiting from the Far East’s historic economic expansion and more than doubling in 2009 from about US $1.45 to about $3.30 a pound. Crude oil almost doubled, climbing about $38 in 2009 and entering 2010 at about US $78 a barrel.
These bullish trends continued in 2010 with the TSX Venture Exchange advancing by another 700 points to about 2,100 while daily trading volumes continued to improve to a range of about 400-million. Gold bullion enters 2011 at about $1,389 after establishing a new record high last year of US $1,403 an ounce. Silver, after lagging gold for the first part of the year, suddenly skyrocketed in 2010 to $29 and copper is ending the year at about a new record high of US $4.28 a pound. Crude oil gained about eleven dollars during the year and begins 2011 at about $90 a barrel. And although at or near their highs, these long term trends are still in place and suggest that new highs once again lie not too far ahead.
Looking over those numbers, it seems to me that we’re entering the third year of a commodities bull cycle that has produced a corresponding rise in volumes and prices of commodity equities and their markets. The housing bubble that triggered the severe correction of 2008 gave shrewd investors a second chance to re-enter the long term commodities led bull market that began sometime in 2000 – 2001. For the past two years, the resource markets have defied the ‘talking heads’ who told us to be wary of equities and that cash was king. First, in 2009 they said it was just an over V-shaped bounce off of an oversold bottom. Then in 2010 they talked watched in disbelief as the market continued to climb the wall of worry of double dip recessions and sovereign debt.
Now, we’re entering 2011 with the worry of the two Koreas locking horns and economic belt tightening in China. It seems to me that there will always something to worry about.
There is an old market saying that ‘the trend is your friend’, and the market is telling us that this resource led bull market is going to be our best friend for at least the first quarter of 2011. Listen to your friend and stay with the trend. We leave 2010 hoping you have Merry Christmas and Happy and Profitable New Year!
At the Market
"Short Term vs Long Term" by Rod Blake
We’re all familiar with the terms ‘short term’ and ‘long term’. We learnt them as children as we saved a little at a time in order to buy that special bicycle, and later in life as we scrimped to buy our first car or home. In sports they often refer to enduring short term pain in for long term gain, and in our working life, we try to save a little at a time in order to ensure a long term retirement. Setting short term goals is very important in order to ensure long term objectives. Unfortunately, investors, especially investors in speculative resource stocks, seem to have difficulty differentiating between short term trading and long term investing.
As I write this column in mid-October, the TSX Venture Exchange has just traded up to the 1,840 level from about 1,350 in early July, for a three month ‘short term’ gain of almost 500-points, or just over 36%. And that’s just the average gain of the index. There are many issues that have doubled, tripled or more in the same time period. Similar gains can be found in the commodities that support the Venture Exchange, with gold bullion up by about 15%, copper up by over 30% and silver leading the way with a three month gain of about 38%. The underlying fundamentals to support these gains are well documented, the modernization of the Far East, sovereign deficit and debt concerns, along with a weak American dollar all point to a long term commodity and resource stock for many years to come. But short term, just short term, maybe some of these issues have gotten a little ahead of themselves and a pause or correction might be anticipated.
This is where investors have to learn to lock in a short term profits while keeping a core position for the long term gain. Sure, the market looks good, and sure, the project is going well, and sure, the stock is trading great volume and making regular gains…But for how long, and how would you feel, or how would it effect you if for some unforeseen reason the market, the commodity, or worse, the stock itself suddenly corrected or dropped. How would that 36% look then? For an indication of how fast outlooks can change, just ask someone who was heavily invested in the American housing market in 2008.
Try to discipline yourself to take regular profits, say 25 - 30% of you position on a gain of 35% or, at the very least, move out half your position on a double. Now, you’ve got most or all of your money out and locked in a profit, while still having a low cost, long term position. And if that correction ever comes, you are now in a position to buy your original position back, although very few investors ever do, but that’s another topic for another day. At the very least, you can broaden or strengthen your portfolio with the profits.
Trading short term while investing long term…Now that’s the smart way to do it.
At the Market
‘Crank Up The Volume’ by Rod Blake
Isn’t it amazing how a little change in volume gets our attention? A little louder advertisement on television or radio. A baby crying. The siren of a police car, ambulance or fire truck. A river swelling with the extra volume of the spring run off or a heavy rain. All of these things get our attention and tell us that something has or is about to change. Another volume that I think resource investors should pay attention to is the trading volume of the TSX Venture Exchange, as a change in trading volume is one of the best indicators of the near term direction of the market.
For the past two months, investors have quietly started to turn up the volume of the world’s leading resource stock exchange. From a low of about 150-million shares a day in mid summer, the daily trading volume of the TSX Venture Exchange has recently moved up through the 300-million shares a day threshold as of mid September. Change in volume usually precedes the direction of the market. That is, an increase in volume usually leads to an increase in the level of the market, and a decrease in volume usually means that the market is about to drop. In this case, the Venture Exchange has followed the volume by increasing from the 1,350 level to about 1,625 today. Some of the increase in trading volume can be attributed to investors getting back into the market after a long summer holiday, but a good portion of it is because of the world’s renewed interest in resources. On a side note, the current Ventures Exchange daily trading volume correlates closely to when the exchange was trading at its yearly high of about 1,700 earlier this spring.
So where do we go from here. While no correlation is perfect, keep an eye on the trading volume of the Venture Exchange, and if it holds these levels or keeps rising, there’s a good chance that the level of the exchange will follow suit. If the price of resources keeps rising, then watch for the daily trading volumes to approach 400,000 million shares a day sometime next spring, as it did in 2007 when the Venture Exchange reached its all-time high of about 3,400. Of course, the opposite is true in that a sudden drop in volume would indicate that investors are losing interest, but I don’t see that happening in the foreseeable future, until maybe sometime next summer.
Is the suddenly venturous TSX Venture Exchange on its long way back to new record highs, or is this just another short term run? Time will tell, but with rising resource prices, there’s a good chance that investors will keep increasing the trading volume which, in turn, should attract even more of the market’s attention to take the index higher. Crank up the volume – this party’s just getting started.
At the Market
"Very Venturous" by Rod Blake
Pssst. Don’t look now, but the resource based TSX Venture Exchange has quietly become the best performing North American stock market. As I write this in mid August, the Venture Exchange is trading up through the 1,460 level, some 8.1% higher than the 1,350 lows established when the North American equity markets finally bottomed in early July. This compares quite favourably to the 4.1% gain of the TSX Composite Index, 5.0% for the NASDAQ, 5.9% for the S&P 500 Index and even the 6.7% rise in the Dow Jones Industrial Average over the same six weeks. What’s even more impressive is that while the senior markets have corrected back some 3% to 5% from they’re recent rally tops in early August on less than stellar economic reports, the usually lagging Venture Exchange has for the most part, held onto its gains as it patiently builds a base from which it will hopefully move higher.
I say higher because it is said that a market that won’t go down on bad news is destined to move higher, and the Venture Exchange has absorbed more than its fair share of bad news in the past few weeks. Poor retails sales, high unemployment, talk of a double dip recession. You name it and the Venture Exchange has taken it in stride and just continued to move higher. But how can this be? How can the lowly TSX Venture Exchange outperform its much more economically sensitive and worldly exchange cousins? The answer, I feel, is in the first line above…resources.
Resources are telling a different story than the headlines. Currencies under pressure – gold and silver are up by about 5.6%. Housing starts are slowing – copper is up by 11.8%. Crude oil inventories are at multi-year highs – crude oil is up by 5.6%. Households are cutting back – uranium gains 15%. Resources are looking beyond the headlines. They’re telling us that there is a real underlying demand. They’re telling us that mankind’s fastest and greatest changes to the modern world since the start of the industrial revolution are not only continuing, but they’re probably accelerating. These changes are being driven by the internet, education, demand for better food, and climate change (both real and imagined), and they are being fueled, for the most part, by technology, money and resources.
The modernization of the world will take years to play out, and resources will be a very important part of the cycle. There will no doubt be ebbs and flows along the way, and not all resources will move together. But rest assured they will be in greater demand and overtime move will move higher, with the TSX Venture Exchange leading the way.TOP
At the Market
"The Perfect Storm" by Rod Blake
We’ve all heard of a perfect storm or, heaven forbid, some might have even experienced one firsthand. Here on earth, a perfect storm develops when just the right combination of time of year, atmospheric pressure, and temperature occur to give us a record amount of rain, snow, or hail. It could also create a major hurricane, tornado or forest fire. Even the moon comes into play, for if it is in the proper alignment with the earth, it will help a perfect storm to create record high tides and flooding along a coastline. Perfect storms usually wreck havoc on anything in their path and leave property values greatly depressed in their wake. The one thing that all perfect storms have in common is the relief that people feel after it has passed. They feel very lucky to have survived and they look upon their remaining property with an enhanced sense of awareness. They systematically discard those items that were damaged beyond repair and rebuild their lives with their remaining core assets. They look forward to brighter future.
Perfect storms can also be created on the stock market, and just like those produced by Mother Nature, they occur when just the right combination of events take place. This spring, the markets produced all of the elements needed to create a perfect storm for resource equities. These included a sudden turn down in resource prices brought on by a pending sovereign debt crisis in Europe, suspect economic reports from the United States, a flattening of growth in the Far East, special interest groups standing in the way of resource developments, governments expropriating or nationalizing resources, a proposed mining super tax in Australia, and even an oil disaster in the Gulf of Mexico. All of this led to an agonizing 20% drop in the TSX Venture Exchange from early May to the first week of July. And just like the perfect storms of Mother Nature, no resource sector was spared as it left a wide path of investor destruction in its wake.
The perfect storm in resource equities now seems to have passed, leaving investors to review their devastated portfolios, but relieved they have some value as the Venture Exchange tries to build a base above the 1,350 level. Now, this is where the tough decisions are made. This is where we weed out those positions that are holding us back. This is the time to sell those positions that we forgot about or haven’t paid attention to. Those that are weak, in need a viable project or are just too crippled to carry on. This is where we inject cash as needed to rebuild our portfolios and buy companies that have the best chance of advancing their projects in a difficult market. The perfect storm has passed, and the resource markets, although battered, have survived. The future will one day look bright again. Let’s make sure we’re in the best position to take advantage of it. TOP
"Grazers and Hunters" by Rod Blake
If you've ever watched those documentaries on the African Serengeti, you have no doubt noticed that the animal kingdom is made up of grazers and hunters. The grazers quietly move across the plains in great herds, feeding on the natural grasses and raising their young. They are, for the most part, contented with their life, and they know that from the sheer strength of their numbers, that they must be doing something right to advance their lives and protect themselves and their offspring from harms way. What could possibly go wrong?
The hunters, of course, travel alone or in small numbers, looking for ways to feed off the great herds. They follow patiently, waiting for a chance to stampede the herd and create an opportunity to bring down an isolated animal. The hunters know that a spooked herd makes irrational decisions and is at its weakest as they try to outrun any danger.
The investment world, just like the animal kingdom, is also made up of hunters and grazers and, just as it is in the animal world, the vast majority of investors are grazers. That is, they like to quietly watch their investments move along in an orderly manner, watching them grow over time as they systematically build a portfolio for themselves and their family. They invest for the long haul and based on those criteria, what could possibly go wrong? The hunters, on the other hand, are opportunists. They react to the sudden changes in market conditions that drives the herd to make mass decisions and take advantage of the uncertainty, corrections, chaos and even the over exuberance that sometimes captures the market's attention. The hunters buy when the grazers are selling the farm and sell when the grazers are buying it back.
Since the beginning of May, investors have been spooked by a series events like uncertainty over Greek and Hungarian sovereign debt, Germany's ban of naked short selling, Australia's proposed super mining tax, crude oil well blowouts in the Gulf of Mexico, threats of war from North Korea., falling base metal prices and mixed economic figures from a number of sources. The grazers have been selling in mass and the hunters are having a feast. They're taking advantage of the best buying opportunity since the market bottomed in early March, 2009.
Rest assured, the markets will once again calm and most investors will gradually come back to passively nurture their investments, As the market regains its composure the grazers will once again all move in the same direction and bid prices up, content that by their sheer numbers, they must be back on track. And the hunters? They'll quietly move to the sidelines, watching and patiently waiting, knowing that at some point they will once again get their opportunity to re-enter the market as the herd gains momentum pushes it higher and higher for, after all, what could possibly go wrong? TOP
"Marked Up" by Rod Blake
I'm directing this column to those American investors who continue to use U.S. discount brokerage firms to purchase Canadian securities through the shadow of the over the counter or OTC market. In a word – Don't. Your order is most likely being 'marked up' by your U.S. broker and you are paying much more than you should to purchase the issue. Here is a little lesson on cross border securities shopping.
Let's say you have received a positive report on XYZ Minerals and you call you local broker for a quote and to inquire about a purchase of the issue. He tells you because of order flow and trade routing issues, he can't purchase the stock directly from the Canadian exchange, but the issue also has an American over the counter or OTC listing and he can purchase it there for say $0.59, which with the Canadian and American dollars at par, is about the same price you would pay in Canada. That sounds good so you agree and tell your broker to go ahead and purchase 10,000 XYZ at $0.59. And here is where you get marketed up.
What he conveniently hasn't told you is that he can also see the Canadian market and XYZ Minerals is trading quite nicely there for $0.58. Now your U.S. broker short sells you 10,000 XYZ at $0.59 and then goes to the Canadian market and buys it back for himself for $0.58, which flattens out his position and puts an extra $100 (10,000 shares x $0.01 = $100.00) in his pocket. You on the other hand, may have received a discounted commission for the trade, but you got marked up by an extras $100 on the purchase. The same thing will work in reverse when you try to sell the issue. In that case, he will buy your stock from you at a discount, and then sell it back in Canada for the best spread that he can. Mot a bad job if you can get it, and if you think of all the trades that are made across the border everyday, you can just imagine the kind of money that is being made.
To avoid being paying too much for your Canadian securities, search out and work with a broker who can trade directly on the Canadian exchanges and will give you a fair exchange on the dollar. You may pay a little more in fees, but you will get a better fill, and most importantly, you won't be the mark who gets marked up every time you trade. TOP
"No One Knows What They're Not Worth" by Rod Blake
There are a number of themes that seem to repeat themselves in the resource markets. Some, such as tax loss selling, repeats itself every year end. Some, like last year's blow off in crude oil, come along for a variety of reasons that usually start with an underlying economic premise such as Asian supply and demand, and usually end in a speculative frenzy, with unwary investors being pulled into the market by media predictions of exuberant prices due to a suddenly changed economic order such as Asia draining the oil fields dry.
Another market repetition is the new or, as I call them, 'no on knows what they're not worth', themes that entice the markets from time to time. We've had a number of these new events over the years such as diamonds, uranium, and coal that excite the market by way of an unexpected discovery or economic need. The reason these new mineral stocks can run so quickly is because very few investor, investment advisors, or even analysts understand the true dynamics of these new events, and therefore the market concentrates on the excitement of their upside potential as opposed to the underlying costs of development, production or marketing of their end product. For example, I can assure you that very few people new what a carat of diamonds was worth when Chuck Fipke and Stu Blusson of Dia Met fame made their diamond discovery near Lac de Gras in Canada's Northwest Territories in the early 1990s, or that it would take some eight years before the resulting Ekati Mine would produce its first diamonds. Now, of course, every diamond project receives the same scrutiny as precious metals, base metals or oil & natural gas and is analyzed right down to the country from which it originates. Can you say blood diamonds?
This year, lithium has captured the market's attention. The need for this industrial mineral has suddenly come into focus because of its perceived use in the batteries that will power the new wave of electric cars coming just over the horizon. This in turn, has investors and brokers searching out investments in lithium, while exploration companies scramble to pick up lithium properties of merit, and analysts try and put the mineral and projects into perspective. And once again, only a very few have any real understanding of lithium or its uses. This understanding will only come over time.
In the meantime, be aware, that just like with diamonds, the excitement of lithium, along with other new investment ideas will fade. The market, as always, will gradually come to understand their underlying fundamentals to know exactly what they're worth, and will discount the investments accordingly. Patience in this area may serve you well. TOP
"It's a Gas…..Naturally" by Rod Blake
Over the years, the markets have given us a number of ratios that have stood the test of time of keeping things in balance. Two obvious ones that immediately come to mind is the Canadian to American dollar ratio that for the longest time was at about 0.82 to 1.00. That is, when the Canadian dollar was worth about 82-cents to its American counterpart, trade between the two countries seemed to flow harmoniously across the border. However, when the Canadian dollar fell to the low 60-cent level a number of years ago, Americans came north in search of Canadian bargains, while American products were expensive to Canadians. Conversely, when the Loonie went above par in 2007, Canadians went south in droves to shop for inexpensive goods, while fewer Americans took their holidays north of the border.
The other common ratio is the gold/silver ratio of about 60 to 1. This ratio seems to be in balance when the value of about 60-ounces of silver is the same as about 1-ounce of gold. At today's price of about US $14 an ounce for silver and US $950 an ounce for gold, this ratio is slightly skewed in gold's favour, and many feel that in a true bullion bull market, silver will outperform gold and the ratio will swing more to overweight silver, as in the early 1980's when gold briefly touched US $850-an-ounce while silver, with the help of the Hunt brothers, surged to about US $40-an-ounce, for a gold/silver ratio closer to 21 to 1.
Another long term ratio that I follow is the price of crude oil to natural gas. This ratio has historically been about 10 to 1. This is because it takes about 6-times as much natural gas to produce the same amount of energy as crude oil, but with transportation costs for the two commodities factored in, the ratio seems in balance at about 10 to 1. Therefore, with crude oil generally trading between the low US $60s to the low $70s-a barrel of late, then natural gas should be price in the US $6-7 range but, it has been stuck in a narrow trading range of about US $3.50 -$4 for a number of months now. This, we are told, is because of the surprisingly good production rates coming from the new shale gas fields that has been pushed into the market and skewing the oil/natural gas ratio all the way up the current record high of about 20-to-1.
Will this surge in shale natural gas production forever change the traditional oil/gas ratio? Only time will tell, but with most natural gas wells having a first year depletion rate of about 30%, and with active drilling rig counts at multi-year lows, and with winter fast approaching, I'm thinking that the more traditional crude oil/natural gas ratio of 10/1 may be not too far away. So I'm accumulating positions in natural gas exchange traded funds (ETFs) and other natural gas equities….while hoping for a very cold winter. TOP
"Déjà vu" by Rod Blake
Déjà vu – The expression often used to describe that overwhelming feeling that you're experiencing a certain circumstance or event that you're sure you have experienced before, and now it seems all of the sequences that brought about the previous event are falling into place again. You've probably had that feeling. Perhaps you were walking down a new street, but you knew what was ahead. Or you meet someone you were sure you had met before. Sometimes it's just a fleeting memory, but sometimes the feeling just won't go away and you rack your brain trying to put the connection together, and when you do, to your great relief, all of the missing pieces seem to fall into place.
Lately, I've been experiencing an intense sense of déjà vu regarding the price of gold bullion. What started out as just a coincidence a few months ago has lingered, and now, as the feeling intensified, it had me pouring over data looking for the connection. And thankfully for my sanity, I think I've found it. What I'm been seeing in the price of gold bullion is yet another 'rising flag' or 'pennant' formation. That is, the price of gold has been rising up once again to a well established resistance level, only to fall back, consolidate, and then push up to that resistance level again.
See for yourself. Print out a long term U.S. dollar chart of gold bullion. You'll notice the in the last year and a half, the price of gold has moved up to the US $1,000 an ounce mark on four occasions, only to meet with strong resistance and fall back down. But more recently, starting late last year, the lows of these pull backs have been rising, from about US $700 last October to US $860 this April to, as I write, about US $905 in early July. If you draw a line across the tops of about $1,000 and than along the rising bottoms from $700 to $905, and then extend them out, they meet at about $1,000 a few months out in the above mentioned rising flag or pennant formation.
Now, here's where my déjà vu comes in. Go back on you chart to the spring of 2006. There, gold bullion was trying to break through, and was pushed back many times in a similar manner, from a very strong resistance level of about US $700. But, as the bottoms kept rising, gold finally broke through in September of 2007 and began a very powerful seven month accent to the current resistance level of $1,000. And, if you chart goes back far enough, you can see similar formations going all the way back to the lows of gold bullion in 2001.
Is my mind just playing tricks on me, or is gold about to break out to new highs? No one knows for sure, and only time will tell. But for me, this strong feeling of déjà vu just won't go away... TOP
"Going With Those Who Got You Here" by Rod Blake
I've been buying Teck Resources for select accounts since the market fell apart last fall. Not because I'm the most astute bottom fisher in the business, or not because that I had any great intuition that they would get their financial affairs straightened out before their short tem notes came due, although I sure hoped they would. No, I mainly bought Teck Resources because they're one of the reasons why I'm still in this business today. Let me explain…
A good many years ago, in the early 1970s, as a young mining technologist, I was the lone field employee and had the very good fortune of running a drill program outside Kamloops, BC, that turned out to be the Afton copper discovery. Teck Corporation, as it was known then, under the guidance of Norman Keevil Jr. and Bob Hallbauer, saw the potential of the new discovery early on, and through purchases of stock in the open market, as was allowed then, acquired a controlling interest in Afton. This event seared into my mind not only what the dynamics of a mineral discovery could do for the price of a junior resource company's shares, but also how it could change the lives of its employees and investors. Teck, didn't owe me a thing, but kept me on and I got to participate in the development of the modern Afton mine, mill, and smelter complex.
Some years later, when I entered this business, I asked my step father, Martin Gibbeson, who also benefited from Afton and went on to become one of the Vancouver's premier financiers and promoters, how he determined what companies or deals to get involved with. He said there are all kinds of investments around, but most important to him was to go with the guys who got him here. That is, if he had done well with a company or group, he had no qualms about going with them again, because he had previous knowledge of the people in the deal and what they had done before. I took that advice, and it has served me well over these many years. And that's why I've been buying Teck Resources of late, as well as other resource companies that I've done well with in the past. They helped me get here, and I feel we'll have some success again.
As an investment advisor, I find too many investors are afraid to go with a stock more than once. They seem to feel that they always have to go on to something new, which I think is a mistake. As investors, take a look at your at your previous successes, and as these resource markets regroup and rebuilt themselves, give those companies or groups a call to see how they are doing, and if you see fit, reposition yourself again. Go with those who got you here. They can be very satisfactory investments. TOP
"Braveheart"by Rod Blake
I was channel surfing the other day and came across the movie Braveheart and the classic scene where Mel Gibson as commoner William Wallace was rallying his small band of Scottish freemen against the much larger and better equipped English army. You may remember, as Wallace urges his troops to hold their position a number of times, first as the massive English force lines up opposite his men; "Hold!" Then as their arrows rain down upon them; "Hold!" And as the cavalry begins its charge; "Hold!' And finally, just before the charging horses run head long into the Scottish extra long spears; "Hold!". And of course, the Scots hold to the very last second, only to raise their spears into the charging beasts and then go on to win the most famous battle is Scottish history.
I found the above scenario very similar to the current state of the junior resource companies trading on the TSX Venture Exchange, in that most of the issues on the exchange moved up about 35% early in the new year, and now, this little band of companies has been fighting for the last three months to hold a combined Venture Exchange level of about 850 in the face of some of most bearish economic news of recent generations. A record drop in U.S. home prices; Hold! Record American and Canadian jobs lost; Hold! The Dow Jones Industrial Index and the S∓P 500 Index fall to new 12-year lows. Hold! Negative investor sentiment at its highest level ever; Hold!
And hold they have. Under the greatest onslaught of negativism this broker has ever experienced, investors of resource issues have stood in there and supported their favourite issues, banding together and refusing to let them fall back to their lows of last fall. Now, as I write this column in mid March, the Major North American markets are once again turning positive. Some corporations are turning down emergency financial aid. And U.S new home starts for February suddenly rose by 22% and broke the longest housing downturn of the last 18-years. On the resource side, copper has moved up another 20-cents in the last two months to US $1.75 a pound, and crude oil is bumping up against US $50 a barrel. The economic engine is showing some life.
Has the greatest economic battle in history been won? I would suggest that it's a little too early to tell, but the enemy seems to be weakening, and if the Braveheart TSX Venture Exchange doesn't falter, and can continue to rally investors, then higher highs could lie ahead and victory be ours. TOP
"Leaders and Laggards" by Rod Blake
To the surprise of many, the world of resource stocks failed to go to zero at the end of 2008. It tried, oh yes, it tried. And as we watched the TSX Venture Exchange go through its death throes as it traded down below the 700 level just before Christmas, it was all we could do to stop ourselves from begging the regulators to pull the cord on the respirator and put the poor thing out of its misery. The death certificate was written, and all that was needed was to fill in the official time and cause of death.
But then something amazing happened. The damn thing just wouldn't die, and just like the hero in a good old fashioned movie, the Venture Exchange has come back to life. Now, here we are, a month and a half into the New Year and the exchange is pushing up through the 900 level for a gain off the bottom of over 25%, which, if I'm not mistaken makes it one of the best performing exchanges in the world today. And while the exchange as a whole is up, many of the leading issues have more than doubled in price, while some of the laggards are still trading at very depressed prices.
Is this a relief rally? For sure. With all of the negative resource sentiment and tax loss selling that this exchange had to absorb last year, it was bound to recover somewhat just because the selling stopped. Is it a real long-term resource rally in the making? Time will tell, but with gold bullion getting ever closer to its all time high of US $1,004 an ounce and copper holding above US $1.50 a pound, the building blocks for such a rally are once again in place. All that is needed is for some much needed trading volume to drive the entire the resource sector higher.
Now how do we as investors play this emerging bull resource market? To paraphrase Sergeant Phil Esterhaus of 'Hill Street Blues' fame – "Let's be careful out there." We've been here before. Most every year, the resource sector get's off to some sort of a flying start only to have it turn on itself, not because of poor field reports, but for some vague reason usually based of seasonality, resource prices, economics, or political commentary. This is the time of year to play your leading positions against your laggards. If you've got some winners in your account, enjoy the ride, but don't be afraid to take some profits just incase this market takes an unexpected turn to the downside. Look to acquiring the market laggards. If this proves to be a major resource market rally, these lagging stocks will play catch-up to the leaders, but if the market turns, they won't come off as much as they were already trading at depressed values. In sum, by playing your leaders and laggards, you'll lock in your profits and protect your downside, and rebalance your investments. TOP
"Spidey Senses" by Rod Blake
With apologies to 'Spiderman', my spidey senses are tingling again. Call it intuition, or call it experience, but I can't help but feel that a profound change of attitude toward resource stocks is coming. I remember having the same sort of feeling when I wrote in this column last summer of how I thought the TSX Venture Exchange had built a major pennant formation, and that if it didn't soon break to the upside with the record high resource prices of the day, then it would surely have a major move to the downside. The media was screaming about $1,000 gold, $4 copper, and $147 oil, and I was hoping for the upside, but my spidey senses were warning me of the downside…....
So why are they tingling now when we're supposedly firmly immersed in the greatest economic slump since the Great Depression? When I read my newspapers or watch or listen to the news, all I see or hear is just how deep an economic mess we've fallen into is and just how long it's going to take to work our way out of it. And a poor economy means reduced demand for resources which means resource stocks should be out of favour for a long time to come. And all of this makes perfect sense because the TSX Venture Exchange plunged by over 70% in the last half of 2008 and by rights I should be abandoning my resource portfolio and fleeing to the safety of cash or government bonds, and I would, I really would, except….those darn spidey senses keep tingling. Maybe then, before we abandon all hope, perhaps we should look beyond the headlines.
For one, markets that go up during bad news should be paid attention to. Something I believe, about 'climbing a wall of worry'. And as I write this in early January, the TSX Venture Exchange is trying to break through the 900 level, up some 30% from its lows of below 700 set just one month ago in early December. Gold bullion has gained over 20% in the last two months to about $850 an ounce. Silver, the poor investor's precious metal, at $11.28, is up by about 30% from its lows. Copper, the metal with a master's in economics, has jumped by 20% to $1.54 a pound in just the last two weeks. Zinc has gained about 10-cents to 58-cents, and uranium is holding at US $53 a pound, while crude oil and natural gas seem to be forming an elongated base.
Now, where do we go from here? Does the Venture Exchange continue to forge ahead in a continued bull market? It might. Or does it listen to the 'talking heads' and retreat to retest its lows? It could. And there are compelling arguments for both. All I know is that every time I'm tempted to cash it all in…..those darned spidey senses start tingling again. TOP
"Yard Sale" by Rod Blake
A few years ago, I was with a group of friends enjoying a few days of skiing on Big White, near Kelowna, in the beautiful Okanagan area of British Columbia. On the second day of our skiing adventure, we were cruising down a somewhat challenging run when my late friend, Ted Ticknor, by far the best skier of our group, hit an unexpected rut on the run, lost his balance, and literally exploded out of his skis, landing very hard and scattering almost all of his ski gear, including skis, poles, even his touque, and goggles across the hillside. Luckily, the only thing hurt from Ted's fall was his ego, and as he was gathering up his equipment, another of our group, Jim Nealy, surveying the carnage of ski gear, broke us up by exclaiming – "My God! It looks like a yard sale!" Unscathed, Ted finished the days skiing with us, and his unfortunate spill made for very enlightening conversation at our après ski dinner later that evening.
I'm reviving this story, not to further belittle Ted's misfortune, which I'm not, or because I'm looking forward enthusiastically to the ski season ahead, which I am, but to point out that the current state of the resource markets looks to me….like a yard sale. You've all seen a yard sale. That's when one of your neighbours decides to discard a good portion of their worldly goods by displaying them haphazardly across their front yard. These sales don't last very long, as the items are usually bought up quickly at rock bottom prices by opportunist passerbys and shoppers.
This, to me, is the state of the current resource markets. The companies and their share prices are randomly strewn across the marketplace with no real thought to their underlying values. The sellers want out at any cost and bids are enthusiastically filled regardless of the price. It matters little what sector they're in. Precious metals, oil & natural gas, base metals, coal, forestry, or fertilizer stocks - it matters not. To them, the resource boom is over, they're cleaning house and don't want to look at these issues again, for the memories are just too painful. Cash is king, and these sellers want to see the cash in their accounts.
As with most yard sales, I don't expect this carnage to last very long. It might last longer than a few days, weeks, or even months, but I don't see, and I truly hope that it doesn't last as long as some of the talking heads are predicting. Regardless of the world's banking situation, the Third World is still modernizing. North America and Europe are still retooling to become more energy efficient. Governments worldwide are still fighting global warming. In short, the resources for these and many of mankind's problems are still in desperate need.
As always, the real bargains with confirmed hard assets will be taken up first, and those with grass roots projects being left for last. So do your homework. Be nimble, pick your sector and place your bids accordingly. You may be pleasantly surprised with the bargains this resource based yard sale may give you. TOP
"Back In the Saddle" by Rod Blake
My daughter Jennifer owns a couple of horses and is a very competent rider. I've seen her galloping across a field with both her and her horse's hair flowing in the wind as they effortlessly cover great distances in very little time. As a proud but responsible parent, I want her to slow down and be careful, but I also knew that she and her horse knew each other well and they seemed to ride as one. They were meant to be together. For the most part, it is a very safe thing for her to do, but sometimes, her horse will unexpectedly stumble or suddenly change direction and Jennifer will be most unceremoniously thrown to the ground. Usually these falls are harmless, except for her pride, and she quickly gets on with her ride. But sometimes, she will be bumped, bruised and shaken quite a bit by the severity of her fall. The most amazing thing however, is not she survives the fall, but how she dusts herself off, regains her composure, climbs up on her horse and gets back in the saddle, with her enthusiasm for her horses and riding never wavering, no matter how beat up she may be. For her, it's the only thing she can do….
And that brings us to the resources stocks we hold in our portfolios. While the stock exchanges of the world and most equities that trade on them are understandably down on the year, I can't identify any sector has been beaten up as much as resources. Oh sure, we've experienced market gyrations before. Remember the Crash of 87, Bre-X, or the Tech Bubble? I certainly do, and while they were all very major market events with serious impact on investors, they were not anywhere near the magnitude of what we are experiencing today. Whether it is the collapse in the price of the underlying commodities, portfolio rebalancing, tax loss selling, the inability to finance, or some combination of all, there are many issues today, especially those with exploration or development projects, which are trading down below levels that by any measure realistically reflects the underlying value of the company. This is not at all pretty, and as the saying goes – "If it weren't so sad, it would be funny".
So here we are, all bruised and beaten up after taking the financial fall of our lifetime, feeling real sorry for ourselves and looking around for some sympathy or a way out of this mess. To me, there's only two ways to go. One, the easy way, is to clean out our portfolios by dumping our holdings on an already depressed market, and thereby hurting the companies and the people that work very hard to run them and walking away from this very depressing resource market. Or, take the time to remember why we got into these investments in the first place. The thrill of a drill play and anxiously awaiting results. Watching with pride as our companies open up new frontiers or work in underdeveloped countries. Enjoying the ride as a surge in commodity prices lifts our positions higher. Purchasing shares in these decimated companies is by far the tougher thing to, but from my view, and just like Jennifer, I've got to dust myself off, take the reins in my hand, grab hold of the saddle horn, put my foot in the stirrup, pull myself up and get back in the saddle. For me, it's the only thing I can do… TOP
"Missing The Putt" by Rod Blake
Missing the putt….If you're a golfer you know just what I'm talking about. You're in that time and place when you're standing over that simple little three to four foot putt to make birdie, or win the hole, or finish your best round of the year, and all you have to do is hold steady and hit it firm so the ball gets to the hole with some authority and takes out all the little breaks that will take it off course. Yes, all you have to do is take all of that uncertainty and second guessing out of your mind and make the putt and everything will be great. You've made four foot putts before, many times, no problem. Just see you line, get your stance, a firm smooth stroke and, and, and….the damn ball slides by the hole, or worse yet, it comes up short, and you want to do is hide. What happened? It was so simple. Yes you've made many three foot putts before, but not in pressure situations where everything came down to just one stroke. This time you didn't have the confidence to pull it off, or put the complete game together. You pulled or pushed the putt, or you did the ultimate gaff and decelerated on the stroke and couldn't even get the ball to the hole. You didn't give it a chance to go in. In short ….you blew it.
And that my friends, is what has happened to resource markets. They blew it. I mean they really lost it. When the TSX Venture Exchange finally broke its long standing support level of 2,400 in July that I mentioned in my last article, investors panicked. All they had to do was stay in their game, stays focused and support their favourite companies or look for undervalued situations and the index might have held. But they lost their nerve, they second guessed themselves; they lost their focus and missed their shot. In short, they sold instead of bought. They threw good companies out with the bad. And this time there was nowhere to hide. Precious metals, oil & gas, diamonds, and uranium, they all got hit. Even the high flying potash and coal companies got it. It was complete and it was thorough and as I write this column, it has left the Venture Exchange grasping to hold onto and build a base at about 1,950.
So we blew it, and now we move on. We clean ourselves up, regroup, get refocused, look for value and get on with the game. The companies are out there doing their best to find the world's much needed resources and looking for your support to help them make it happen, and by the luck of the draw, their shares are of much greater value now than they were just a month or two ago. And maybe, just maybe, the next time, we're in that zone, we'll be able to keep it all together and make that putt and walk away a winner, and wouldn't that make a great 19th hole story. TOP
"Base Building" by Rod Blake
OK. Let's get this out of the right now. If you're involved in resource stocks, so far, 2008 hasn't exactly been a year to write home about. Oh hell, let's be really truthful here. Going back to the summer of 2007, it really hasn't been a whole year to write home about. Granted, there have been a few bright spots, with flurries of activity, and there have been some real winners that deserve all the credit in the world for attracting investor attention in an otherwise uninteresting market. But, just as when the uranium stocks came out of nowhere to skyrocket in the spring of 2006, this year's market 'winners', with the exception of those with bonanza discoveries or were takeover targets, have mainly been involved with relatively obscure or forgotten minerals such as potash, oil shale, and….even coal. Those companies having more tradition projects involving precious metals, base metals diamonds, and oil & gas, have for the most part watched in amazement and frustration as their news releases fell on seemingly deaf investor's ears.
So, where do we go from here? Do we wait it out stay the course with our underachieving investments, or do we throw in the towel and sell them off and move on to the next new deal? Now, I'm not a technical analyst, and I'm sure there are far brighter minds than mine that can analyze a chart, but every time I pull up chart of the TSX Venture exchange I see a very interesting recurring pattern. Take a look for yourself. Note how since last summer, the index has sold off four times too test a level of about 2,400, and, if you want to back even further, the 2,400 level was tested two more times in the spring and summer of 2006. And, as I write this in the second week of July, the same level is under assault once again. Seven tests in just over two years….and what do we make of that.
As 'Buffalo Springfield' used to say – "There's something happening here", and what I think is happening is one of the longest base buildings of an index that I've ever seen. Short term, mid term, and long term, this level of support has held. To my eye, there are two possible scenarios to be played out here. You will note from the chart that the Venture Exchange has also posted a series of lower highs going back to early last year, forming what is known as a 'descending wedge' formation. These wedge patterns tend to create major moves once the upper and lower lines converge, with magnitude of the move similar to the length of the formation. It looks to me that these converging lines will meet sometime this summer and when they do either this market is going to breakdown into the abyss and establish new multi year lows or, its going to bounce up like a ping pong ball and test the highs of 2006 and 07. If we take into account the seasonality of rising 3rd quarter resource prices, then a bounce to upside would seem to be a god bet, but keep you powder dry, just incase it goes the other way. This is not for the faint of heart. TOP
"Flavour Of The Day" by Rod Blake
Mmmmm, Caramel Toffee. Now that was a flavour! When we were young, it was a real treat to go to the local ice cream parlour and enjoy the 'flavour of the day' ice cream. The many tubs of regular flavours were still there, chocolate, vanilla, strawberry and such, and we always looked them over with passing interest, but it was the new 'flavour of the day' that got us exited. Our taste buds couldn't wait to be satisfied, and we put our quarters on the counter with great zeal just to enjoy the experience. Oh, we could always get a chocolate cone, or a vanilla shake, and they were good, but we knew just what they would taste like, for we had been eating them for years, and perhaps for that reason they just didn't excite us enough. We could always get chocolate, but cameral toffee, now that was a treat!
I'm putting this youthful memory to you because most of us have had similar flavour of the day experiences, and, I think it is a good analogy to the current resource market. As I'm writing this in early May, there are suddenly four or five very active stocks trading at new highs on very active volume because of ….a new coal discovery in eastern Saskatchewan, near the Manitoba border. Coal…..who knew? The last time a coal discovery was exciting was when our great grandfathers were pushing the railways across North America. And, if my early reports are correct, the discovery company wasn't even looking for coal. They have gold in their name and were drilling a diamond target when they hit a thick coal seem, while the others only have ground in the area. But, that didn't matter. A discovery was made and the rush was on.
And that to me is the nature of today's resource market. Today it's coal. Last week it was potash. Last month it was oil shale, and last year it was uranium. Always something new to grab the speculators interest. You've got gold? Boring, it's only $858 an ounce. You've got copper? Who cares, the Chinese expansion will be over in 10-years. You've got oil? Get out now as it's trending down to $100 a barrel. But you've got a coal discovery? Now that's worth getting into as there are numerous jurisdictions in the world that are just clamoring to have industry put up another greenhouse gas belching coal fired electrical plant.
Am I being facetious? Yes. Silly? Perhaps. And my point here is not to demean these hard working companies or belittle their day in the sun, as they definitely deserve all the credit in the world for their efforts in a very tough industry. My point is that this is not a typical resource market we are in. For the better part of a year now, investors have been discounting ongoing exploration programs. They have been listening to the 'talking heads' and are waiting for U.S. economy to go into a tailspin or for resource prices to collapse. In short, venture investors are afraid to stay with a project. They're surging to the new situation for the short while it is active and then they're getting out.
To summarize, if you want the action, get in the new play early and then be prepared to exit in the same manner. But if you like your current investments and their potential, just be patient, because just like at the ice cream parlour, the 'flavour of the day' will change again. Hmmmm, orange chocolate,… now there's a flavour. TOP
"Gone Turtle" by Rod Blake
'Gone Turtle' – You may or may not know the expression, but in my world its when a combatant tucks his head in and covers it with his arms and then hopes that his adversary won't pound on him for very long, such as in a one-sided hockey fight. And I'm sorry to say that 'gone turtle' is how the majority resource investors went from mid March until April 1st, when the price of gold bullion finally broke down from its six month run from US $700 to $1,000 an ounce, and in two short weeks dropped back to just under US $900 an ounce. Base metal and crude oil prices also experienced a similar rout.
I know this because in that tumultuous two week period, not one of my clients phoned up to buy any their favourite resource stocks. Not one! Nada! Zippo! Zilch! Not one of my clients took the time to realize that this was just a hard correction in a secular, (long term), bull market in commodities and was probably their best buying opportunity in the last year or so. Oh, they phoned all right. But they didn't act. They whined about how the resource bubble had burst and they didn't have the chance to get out. Or they complained that the people running their companies weren't doing enough promotion. Or they theorized that the U.S. sub-prime mortgage problem will be the end of the Asian economic boom and that the world's economies were heading for the abyss. Instead of buying, they wanted to run with the herd and get out at any cost, and only some very firm countering on my part kept them in the game.
It was an amazing and puzzling thing to watch, as most of my clients have been long term resource stock investors. Many have held various positions, some going back through the post Bre-X lean years of the mid 1990s to the bottom of the resource cycle at the turn of the century, and I'm sure they were more enthusiastic about their investment prospects when gold bullion was US $275 an ounce, or copper was US $0.50 a pound, or crude oil was US$12 a barrel than they were during this correction. It would almost be comical if it wasn't so sad.
I'm afraid our resource market will never really experience a runaway bull market until its investors learn to put their heads in there and take a little pain for the team by buying stock on the bad days. Remember, the game is long, and those who participate on the bad days will surely enjoy the good days all the more. TOP
"Tighten Your Lines" by Rod Blake
Do you feel that? There…there it is again. It's not very strong, nor is it happening very often, but for the first time in months we're getting a sense that the junior resource market is getting ready to be active once again. No, we're not seeing broad bases rallies, far from it. But there's a sense that conditions are changing.
What we are seeing though, is a market that refuses to go down any more, or if it goes down, often springs back as soon as the selling pressure is lifted, which, in light of the recent activity, is what is needed before any significant rally can be achieved. Whether is the continuing advance of resource prices or the resource sector finally becoming numb to the negative media headlines from the financial sector remains to be seen, but for the first time in many months, there is a sense that this market is very oversold.
So now what? What do we do? How do we approach this timid market? If I can take you back for a moment to your childhood fishing days, no doubt someone told you that when you felt a fish nibbling at your bait, you were told to "tighten your line" in order to get a better feel of the fish and hopefully set your hook. In other words, you had to heighten your senses and stay focused so that you caught the fish instead of letting it get away with your bait.
If we can take our fishing experience and apply it to the resource market, what we have to do is focus on those securities that we really want to own. Be aware of their trading patterns and put in our bids accordingly. Do they trade in a narrow range or surge and pull back? Do they trade volume or thinly? Do they tend to rise and fall with there underlying mineral price or follow the general market. All of these indicators will help you to get a better fill. A stock that is volatile allows you to put in a bottom fishing bid to be filled by volume on a pullback. A thinly traded but well supported stock forces you to keep your bid current and be prepared for partial fills. If your target tends to follow its primary mineral price, try waiting for a day when commodities are lower or when their futures contracts roll over and sometimes trigger the next month's contract at a lower price. With a stock that tends to follow the general market, be patient and put in you orders on days when the market is having a bad day.
Be careful, this isn't a feeding frenzy where everything is biting and you can just keep on reeling them in. This is just a select group of securities that are finally becoming interested in your bait. So tighten your lines, stay focused, selectively pick you opportunities and hopefully you will land the big one of the next bull market. TOP
"It Was A Very Good Year" by Rod Blake
Not 2007, for that year is behind us, and it may or may not have been a very good year for you, and there isn't a whole lot we can do with it but to reflect on how we did and what we could have done to do things better. No, what I want is to have us looking back at this time next year and saying that 2008 was a very good year. And here's how we're going to it –
First, we're going to fine tune our purchases and be more realistic about our expectations. By that I mean that we are going to try and be patient and ease ourselves into positions with the companies we like, and we're going to ease out some of our positions into any significant rallies. Let's be truthful here and admit to the number of times we have chased a hot stock higher, only to have it come back down as soon as the volume eases off, or how many times we've chased a stock lower because we didn't sell into the surge of a rally. Now, I'm not talking about just putting in stink bids way below the market, or selling our whole position on the first up tick. No, I just mean we should work the orders so that at the end of the day, we've paid a fair price for our position or we have some profits and some of our position remaining in our account with which to start the day tomorrow.
Second, we're going to second guess or be more critical of our beliefs. That is, while we think that ABC Resources have a good project, it may not necessarily be the best project. Or just because DEF Minerals has reported one good drill hole, it doesn't mean that their next set of results have to be better. Or worst still, if GHI Mining has reported a discovery, it doesn't necessarily mean that Consolidated JKL Explorations has an extension of that resource just because they have the adjacent property, or are on strike, or have the same geology or, (and this is the best one), if drawn to a small enough scale, their property is included on the same promotional map as the discovery.
And third, we're going to be more critical of the market gurus or and their broad brush stroke outlook for the markets. Such as - Is uranium demand increasing at record levels? Yes it is. So it has to go to record highs again this year right? Well…. not necessarily, because last year's high may have been too high too fast, or construction of new reactors may get delayed, or coal fired plants may become cleaner, or liquefied natural gas transportation may become more mainstream, or…you get my point. What we are, is about seven years into what could and should be a secular or plus or minus 18-year bull market for commodities. But they won't all track together, and they all may not continue to break and make new record highs. Some will, and hopefully they all will, but we can't count on it just because some 'talking head' says it's so.
So there we have it. Be patient, be realistic, and be critical. Take profits according to what the market will give you, and keep some of your leading positions for the long haul and in twelve short months I have no doubt we'll be saying that yes indeed…..it was a very good year. TOP
"Garage Sale" by Rod Blake
Recently, I spent the good portion of a weekend cleaning out the garage and having a sale of unwanted items, and at the end of it all, the garage looked good, all neat and much more efficient, with a reason and place for everything in it, and surprisingly, I felt better for finally getting the job done. And, I even had a few dollars in my pocket to purchase some new things that have caught my eye. You know the drill, over the course of the year you tend to gather more and more stuff, that at the time, made perfect sense, but after a while, they start to annoy you by never really being useful, keep getting in the way, or continue to take up too much valuable storage space. Things like that velvet painting you just had to have on your last tropical holiday.
It seemed to me that cleaning up the garage and selling the outdated items was much the same as 'tax loss selling' of our investments, especially at this time of the year when we've had time to accumulate a whole years supply of dead weight securities in our portfolios. Stocks like that ABC Minerals that your $$^Y*%$ brother in law told you last January was a sure double by February, but forgot to tell you in what year. Or, EFG Resources, that drilled a wildcat well using their new proprietary 4D seismic technology. And don't forget XYZ Widgets, which launched their not so successful Blueberry hand held communication device. These, just like that velvet painting in the garage, have probably outlived their usefulness.
So, why tax loss selling, and why at year end? Now, keep in mind that I'm not a tax expert, and you should confirm these moves with your own tax accountant, but here's how it works in general. Tax loss selling is your ability to create a capital loss now, that can be applied against a capital gain you might have this year, and save you current capital gain taxes, or, you if you have no current capital gains, you can carry the loss forward indefinitely to be applied against future gains you might have in subsequent years. For example, let's say you have locked in $20,000 in capital gains so far this year, and if you were to sell the three beauties named above they would give you a combined capital loss of $10,000. Your total gain, ($20,000), minus your total losses, ($10,000), leaves you with a net capital gain for this year of $10,000 which should reduce your tax bill somewhat. Plus, you now have an extra $10,000 in your trading account to take advantage of any opportunities that may come along this year end or in the future. In addition, you don't necessarily have to us you tax losses now, but you can carry them ahead indefinitely to be applied against capital gains in future years. Be aware though, you have to do you selling so that the trade settles in the year you want to lock in the loss, which takes three business days after the trade, so watch out for Christmas holidays that may extend the settlement date of you trades. And, also be aware that if you buy back the same security in less than a month, you void you capital loss.
So once a year, don't be afraid to roll up you sleeves and have a portfolio garage sale. It will help you to refocus your account, give you a break on you taxes, and put a little extra money in your account to take advantage of other opportunities. Hey, have you seen the ad for that new all in one tool… TOP
"Christmas Shopping" by Rod Blake
Where has the time gone? Here I am, caught up in the daily operation of my business and all of a sudden, Thanksgiving is over and now it's time for a Christmas shopping list. No, not the traditional list of stocks we want to acquire for the New Year. This is a different kind of shopping since some or all of these gifts may well pay for themselves.
So where do we start? The first thing any prudent shopper does is to lay out a list of potential purchases and set a budget. Let's say four stocks and no more than $5,000 per purchase - $20,000 max. And just like our purchases earlier in the year, we're not going to just wade in and buy, but we'll pick our spots and accumulate positions, while keeping some of our capital in reserve for unexpected opportunities.
Every Christmas has that one item that captures the imagination of the market. For us, it's the resource company that is advancing their assets faster than any of its peers. This is the one that most analysts and market writers are covering. Let's treat ourselves and buy $3,000 of this market leader, because no doubt, it will continue to lead next year as well.
Next, let's buy $4,000 of a tried, but true favourite. One of those great seasonal stocks that seem to be economically priced at this time of the year, yet always seems to rally at some point in the year as its projects move along.
Now, how about $4,000 of a fallen angel? This is the company that always seems to have assets to develop, but for one reason or another, never seems to get the recognition of the market. This is a low risk buy as it's probably already trading at the low end of its range and if it runs, it's all good. This stock is much like you mother in-law's Christmas fruitcake – it never seems to go bad.
And let's not forget to watch the fliers for those pre-Christmas sales or, what he market calls tax loss selling. This ritual of portfolio devastation takes place at this time each year, and if we have our bids in place or are nimble at the switch, we can pick up a $5,000 assortment of these low budget items.
And there you have it. The bulk of our Christmas shopping is complete, we haven't blown our budget, and we still have $4,000 left in reserve for those last minute stocking stuffers. TOP
"Sports Car Or Pick-Up Truck" by Rod Blake
I've recently bought a new pick-up truck. It's a very nice four door, 4 X 4, midsize truck, but it's not the point of this commentary. The point is that this is my sixth truck. Over the course of my driving life I've also owned two motorcycles, one sports car, four sedans, one van, and a jeep. But I've had six trucks. I'm a truck kind of guy. I know trucks. I'm comfortable driving a truck. And, I've kept the trucks much longer than the others. When I was looking at new vehicles, I tried looking at SUVs and cars again, but I just couldn't see where they would meet my needs and I eventually went with another truck as trucks are best suited for my lifestyle. I like to keep the clean stuff up front and the dirty stuff in the back.
And what, if anything, does this have to do with investing? Well, in my case, when I look at my investment portfolio, it's also mostly made up of trucks. But in this situation, the trucks are resource stocks. That's because I'm a resource stock kind of guy. I know resource stocks. I grew up with resource stocks. I was educated around them and I have worked in the resource industry. I'm comfortable around resource situations. Certainly, over the course of my investing life, I have owned and still own other investments, but the majority of my investments are in resource stocks. For me to stray too far away from what I know best just wouldn't fit my lifestyle.
And this brings me to the point of this commentary, which is to suggest that you invest where you feel comfortable and with securities that fulfill your needs. If, because you are reading ResourceWorld, and you enjoy resource stocks, fine. If you like dividends, fine. If you want growth, fine. Or, if you want the excitement of the drill bit, fine. You can get all of these and be actually diversifying within the resource sector by buying exploration and mining stocks at various stages of development. Or you can diversify by buying gold, uranium, or nickel stocks, or oil and gas stocks. If you are a resource sector kind of investor, you will still feel comfortable with these various securities.
There are thousands of investment ideas out there, and diversification is important to protect yourself against market gyrations, but to buy some 'clipped coupon, convertible, floating rate of return, tax deferral, foreign currency, get it while it's hot new issue' when you have a much better understanding of assays, grade tonnage, just doesn't make a whole lot of sense. Diversify yes, as it's very important to do so, but have the majority of your portfolio in issues that you understand and feel comfortable owning.
So, take a look at your portfolio, and see if you are a sports car or truck kind of investor. Adjust and rebalance your investments accordingly, and I think you will have a much more enjoyable ride. TOP
"Pulling The Trigger" by Rod Blake
May 2007
Finally - You've just been vindicated. That dog stock 'XYZ Minerals' that you have been bagging around for years, and you told all of your friends, acquaintances, and family to buy, (and even your mother-in-law owns some at much higher prices, so those special Sunday dinners for the last couple of years have not been the treat they used to be, if you know what I mean), and you've averaged down on for a lot more times than you will admit to anyone.
XYZ has finally drilled that hole from heaven that you always new they would, and the news is out, and it is coming off a trading halt in fifteen minutes, and you've done your due diligence and called the company and talked to their people, and you've checked the chat rooms and everyone says this is the best news they've seen in their lifetime and the stock is going to go ballistic, and, and ….what do you do now?
SELL!!!!! For Christ sake, pull the trigger and sell! Not all of your position of course, as a new discovery such as Aurelian Resources (ARU-V), can literally go ballistic. But please sell some on the opening. Sell enough so that you don't cringe when your credit card bills come in. Sell enough if you can to get you cost base down to or close to zero. In short, sell enough to get comfortable. Trust me. You will feel better after you've sold.
As investors, selling is the hardest thing we learn to do. For some reason, buying a stock if far more easier than selling. Most investors are afraid to leave a little profit on the table. It's as if, if the stock went higher after they sold, it would make them somehow less of a good investor. Fortunately, this is not usually the case. Selling into strength almost always leaves you further ahead. Here's why.
Selling some of your position into strength gives you two ways to go. You now have the cash to purchase another stock that you may have to bag around for a while, or, better still, you now have the cash to buy back your original position or more at lower prices. Lower prices? How can that be, when the stock is going ballistic? This is because of a phenomenon I call 'The Herd'. In most cases, no all, but in by far the most cases, stocks tend to settle back into a lower priced trading range after the surge of buying that the herd brings to the issue on the release of the news and the pent up buying pressure created by the halt in trading.
And guess what? Usually, once the buying herd has come through, it usually turns right around and becomes a selling herd as those, (not you), who tried and missed the top, suddenly panic and drive the stock lower as they run ahead of each other hitting lesser and lesser bids in their effort to now lock in their ever diminishing profits. With any luck, you will probably end up owning a larger position, with a smaller cost base, in a more valuable company than you had before news from heaven was released.
In summary, don't be afraid to set you sights on the herd and pulling the trigger. You just might bring down a trophy. This will also improve those Sunday dinners. TOP
"Working An Order" by Rod Blake
April 2007
Let's say that you are reviewing your current list of securities purchase candidates and you find that one of them is halted - 'Pending news.' What do you do? First, review the latest trend in the stock price and latest project updates to determine if the news coming may be good or bad….An upward trending chart and positive updates such as "drilling has commenced" may be a signal that better than expected drill results are to be announced, and if so, you will want to establish your position in this stock.
Second, determine how much of this issue you want to purchase, say $10,000, and then cut this in half to $5,000 to purchase an initial position after the halt. This is of course that the news is as good as you and the market expected. The idea here is that you want to get an initial position in this issue as you feel the project is now showing some real underlying value, so you will take an initial position either at or near the opening price. Most of the time, however, a stock will surge after coming off the halt and then pull back as the wave of buying passes and the sellers who missed the first wave jump in front of each other in their zeal to take profits. This is where your second $5,000 comes in. If, the stock keeps on trading higher after you have your position, then at least you own a piece of a winner, and you still have some cash to buy more if you think it warrants the extra investment, or, perhaps pick up some stock in a company in the same play, or in an other issue altogether. But, if, as usual, the market pulls back after the news, you still have the funds needed to add to you position at a lesser price when the market calms down or the sellers stampede to the exits. Usually, this is the case, but you don't really want to wait to complete your whole order on the pullback, because sometimes they don't pull back, and then you are left watching or chasing a winner.
And now, how do you work the order. This is where your investment advisor comes in and where they earn their money. Give him or her a call and go over your intentions. If they have been following the stock as well, they probably will have a good idea of where you may get filled on your opening purchase. I usually use a range of limits not a market order as in this computer age, the market can change dramatically and a market order can be pulled up significantly in the rush to get in. With limits, at least you get a chance to pause and reassess the markets enthusiasm. Then, once you've got your original $5,000 fill, just sit back and watch the issue trade for a while to see if it spikes and then turtles, or holds the higher levels for the longer term. Either way, this gives you time to reassure yourself or reevaluate the position going forward.
So, the next time you feel the need to pull the trigger, try 'Working the Order' with you broker and I'm sure you will find it a more satisfying experience. TOP
"Hitting The Wall" by Rod Blake
It happens most every year. Sometimes it happens in March. Sometimes in April or May, and sometimes not until mid summer, but it happens. And the peculiar thing is that even though we know it's going to happen, for some reason, we somehow ignore it or think that this year it will be different and it won't happen again. But it does…
And what happens? What is it that happens most every year? What happens is what I refer to my clients as 'Hitting The Wall', and it is something we see repeating itself most every year on the TSX Venture Exchange. There comes a time, usually late in the first quarter or early in the second quarter of the year where the Venture exchange just seems to exhaust itself. Much like a long distance runner who has no energy left to push at the end of the race, the Venture exchange reaches a level where everyone is all in, and there just is not enough buying left to push through the wall of resistance that builds up over the first half of the year, and is needed to keep taking the market higher.
Hitting the wall seems to be something that is unique to the Venture exchange as it is something more than just a correction of a market that has advanced too far ahead of itself. Once the wall has been hit, there is a very purposeful run for the exits that takes place even though the market is waiting for field reports, or even though resource prices are buoyant, or even though the senior markets are still performing nicely. Some say it is because of all the private placement stock that becomes free trading in the spring. Others maintain it is a self fulfilling event that takes place only because the market expects it to happen. For what ever the reason, hitting the wall is a small cap phenomenon that we really should try to recognize and be better prepared for.
So how do we avoid hitting the wall on the TSX Venture Exchange? The first thing, as in any problem solving, is to recognize that the event actually exists and could take place at most any time from early March on. The second is to take profits accordingly. Just because we bought 50,000 XYZ Minerals at 10-cents doesn't mean that we have to get 50-cents for all of our position. As the new year's rally develops, let's try selling 10,000 shares on every up tic of 10-cents, leaving us with 10,000 shares of zero cost stock at 50-cents and, more importantly, cash on hand to repurchase part, or all of the position should the opportunity present it self. If, XYZ Minerals avoids the wall and keeps running, we've still got a nice position and the cash on hand to build our portfolio with purchases of other candidates that weren't as fortunate.
Remember, junior stocks are only worth what someone is willing to pay for them. Their value is usually set as much by a result of the market's momentum than by the company's underlying assets. Avoid hitting the wall and your portfolio will be enhanced, your pocketbook a little fatter, and you will find that your trading stories will be a whole lot more fun to tell. TOP
Disclaimer: This newsletter is solely the work of the author for the private information of clients. Although the author is a registered Investment Advisor at Canaccord Genuity Corp., this is not an official publication of Canaccord Genuity Corp. and the author is not a Canaccord Genuity Corp. analyst. The views (including any recommendations) expressed in this newsletter are those of the author alone, and are not necessarily those of Canaccord Genuity Corp.
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