Lemming Alert Part II—Beware the Coiled Spring
I wanted to quickly finish up Part II of the Lemming Alert piece because there are companies and opportunities I would like to cover before year end. Part I of this series was basically stating that the Financial World; our national financial World, is Upside Down and we had best acknowledge it if we want to get on with our lives and protect our assets. Just about all working Americans have assets and even non-working Americans have them. We all need to wake up. I’m not yelling fire in a crowded theater, but I do want you to be aware of what is really happening in the world about us.
It’s not easy to face reality but face it we must.
Last night, we watched Bill Maher’s The Decider. It’s edgy and dicey but I really encourage you to rent the DVD because to our way of thinking there is a great deal of truth in Maher’s political comedy. Maher relates the truth under the guise of comedy. Beware the coarse language as it is X rated—that would be both in presentation and in content!
I’ve always liked Bill because he does not suffer fools kindly. Richard Russell and Jim Willie do not suffer fools lightly—neither should you—nor I. Bill Buckler, of the Privateer, also does his best to ferret out the truth and pass it on as does Richard Russell. That is the best we can do at this point—it is also one of the greatest things we can do for our country. Am I exaggerating? I think not. We should ferret out the truth and pass it on when at all possible. That doesn’t mean getting into fist fights at the local bar or at the office water cooler when trying to get your points across to someone who doesn’t give a hoot.
It simply means having a reasonable discourse with those who would also open their minds to the truth; the truth as separated from the main stream media. Of course, it’s easier said than done because the truth comes in all shapes and sizes and is interpreted in a multitude of ways. I’m not being facetious; I’m simply stating that very few things in this world are black and white; most are shades of gray.
The Last Short While, Early December ‘07
For all but a handful of resource stocks, this past six months have been painful. The one question I constantly hear is “when is this going to end”? It took at least eight years to get to this point in our national financial disruptions so don’t expect them to end over night. In actuality our government has been building a full head of steam towards disaster for thirty or forty years. I kid you not, I believe that 1913 and the creation of the Federal Reserve was the beginning of the end. Then the closing of the gold window by Nixon was the second stake in the heart of the free market forces. 9/11 was an opportunity to leap off into the abyss under the guise of national security and boy howdy did they leap with the Patriot Act and any number of other anti personal freedom legislation. Has anyone been traveling lately?
There is apprehension in the marketplace that can be directly linked to banking uncertainty and the slow-motion implosion of the housing market. Year-end tax loss selling has further fueled this trend. I repeat, tax selling has been brutal this year, especially in the junior mining sector. I would not have thought it to be so.
But evidently, quite a few people have made significant amounts of money in this sector over the past year.
People are looking for ways to reduce their tax burden in the
Incidentally, I hate to use the metaphor of dogs, because we love them dearly, having a portfolio of four. Two beautiful strong willed Australian Sheppards (about to drive us nuts but world class Frisbee creatures and totally lovable and loyal), one totally neurotic Bichon Frisee and a magnificent blond German Shepard who melts your heart—all adopted out of rescue services. You can see my reluctance to use dogs in any manner of deprecation. Alas, dear reader, I digress.
I see a great many golden ponies on the landscape. Both dogs and ponies will make you wealthy if you are patient and buy low and sell high. The opportunities are now here and they are clear. Here and clear in a strange year.
Fear and a Strange Year
In some quarters, especially in the shares of junior mining companies, there is evidence of fear. Prices are no longer wildly appreciating as they did a year ago. Again, it is my firm belief that 2008 will be a terrific year for gold and silver junior mining companies. I have to stress the fact that there is but an infinitesimally small number of investors involved in the precious metals complex at this point in time. There is a very good possibility that those numbers will increase in 2008. Gold at $800 is now a coiled spring as never before
I, as did many, thought that 2007 was going to be the year that the world woke up to precious metals. I was wrong. Why? I believe there has been a concerted effort to keep the price of gold and silver under wraps because they compete with paper and paper assets. Now I’ve said that over and over again, and I’ll continue to reiterate the concept. The powers of paper, which are everywhere, have no affinity for gold and silver and anything that competes with that paper. Paper pushers have nothing to fall back upon. Owners of gold and silver, along with their corresponding collateral assets, do indeed have something to fall back upon. I want you to have something to fall back upon.
It’s been a strange year or should I say years as in plural. We thought surely when gold went through $500-$600-$700 an ounce, we would start to receive some benefit from investing in the precious metals and the junior mining companies. Indeed we did but in measured terms—relative terms in relation to the huge number of financial debacles at large.
But in reality it’s been a big snore. Do I believe that when gold is at $1000 an ounce, it will still be a snore? The answer is no. Again the reason is as gold appreciates in price, there are other economic and geopolitical factors that are entering into the equation and are ultimately going to push the paper pushers aside. It’s not something that I relish; it’s not something you should relish. Because it’s not really “us against them”; it’s really more about our survival: individually—and as a nation. Indeed, now as a global endeavor when you consider global warming and all the repercussions thereof. Like it or not, we are all in this together.
Any idiot or idiots who choose a discretionary war in this type of environment must surely be off their rockers.
It is about understanding the nature of the enormous mistakes that have been made beginning with the Greenspan Put and with Mr. Greenscam himself not being able to recognize a bubble even when that bubble bursts in his face.
It was about moving back and forth through huge credit expansions all the while printing enormous sums of paper to support that expansion, believing that productivity and credit were one and the same. It was about believing that the good times would never end.
Credit expansions are all about paper, IOUs, falsified numbers, non-existent manufacturing, warped banking practices such as the fractional reserve system, not to mention a total lack of real productivity in the economy. Hence, the sub-prime mess was a consequence of all of these factors leading to a final white flag from the banks and institutions seeking yet another bail out from the government. Only this time it could not come because the government as a participant was tapped out.
We need to have at least a basic understanding of all of this institutional and governmental malfeasance if we are to understand why gold and the precious metals complex is going so much higher. And then guess what is going to occur. Yup—you got it. Gold and silver will then be the focus of even more cheating and malfeasance as the circle slowly turns. Hopefully, by then, you’ll know the good guys from the bad guys and you’ll have the tools, knowledge and guidance with which to protect yourselves. Because you see, there still are good people in the world. Our job is to find and support them. I’ve mentioned many of them to you and I will come out with my 2008 Gift to the Gold Community in the near future. Consider this missive to be part and parcel of it.
Gold is still forming a base at $800 an ounce and its still climbing the proverbial wall of worry. Stand strong.
We should also choose to understand this syndrome of fear and not allow it to rule us. Subsequently we should take control of our emotions and continue to participate in one of the most significant commodity bull markets on record.
The Lemming Factor
For close to five years now, I have heard the whisperings that the end is nigh; the bull market in precious metals is over. Of course, there were those calling for the end of the bull before it even began. That’s another story for another day.
Remember this one thing and back to paper we go—the world’s financial community is based on “paper”. Paper is an IOU. Governments print paper—they cannot print gold, silver, molybdenum, copper and so on. Therein lays the crux of the issue. If you have a big position in one thing or another—be it in real estate, oil or gold—you are going to do everything in your power to protect that position. Governments are no different—they are endeavoring to protect their paper positions after putting them all in jeopardy by printing too much of it. Paper does not like gold! Wall Street does not like gold because it competes with their paper; with their stocks and bonds. Remember that there is now over 700 TRILLION dollars in derivatives with an equal amount of counter party risk. We are currently witnessing the fraying around the edges of those derivatives. Got Gold?
So who appreciates gold and silver—and hard money assets? They are investors who possess the ability to reason and who act upon that reason.
There are investors who simply follow the herd; those who would methodically and mechanically follow their compatriots over the cliff by repeatedly buying high and then selling low. This mentality is almost a religion as is their inability to reason and to be ruled by their emotions. Lemmings are ruled by emotion. Investors are ruled by reason.
Beware the “Coiled Spring”!
A coiled spring contains latent energy that is infused into its steel complex by the force of its contraction. Energy resides there, waiting patiently for the time of its release. The more a coil (or a spring) contracts, the more elevated the level of energy that is stored. The tighter the contraction the more powerful its ultimate release.
And so it is with the markets. Selling is a form of contraction, winding certain market shares tighter and tighter until prices become so sublimely low as to be ridiculous. Then, the wise ones, waiting quietly in the wings, step forward and begin to buy. Unlike lemmings, the wise investors rarely panic, and the only fear they may feel is generally associated with prices rising too high to fast, rarely too low; especially when it comes to quality.
So in they enter, these true contrarians, purchasing undervalued shares like so many diamonds strewn on the sand, diamonds mistaken for broken glass—quite frequently by the lemmings.
And we who live in glass houses should not throw stones. That simply means that we have all been lemmings at one time or another in our investing lives. We should simply pick up the pieces, shake it off, learn from our mistakes and move on.
Every great bull market must climb a wall of worry. Without the worry, large upward moves turn to crashes overnight. ONLY by injecting uncertainty into the rising path, can the bull market consolidate, rebalance and restore itself, to rise yet again.
I believe we are in the very epicenter of a great bull market in the precious metals; we are only in the early part of its middle stages. So when you witness the lemmings on the run, and you know the truth, rejoice because it signals the mandatory respite before the next leg up. Hence the lemming alert; hence, that coiling spring.
Until Next time
D. Stewart Armstrong
Consultant to the Junior Mining Sector
Posted by D.Stewart Armstrong in Articles