Whilst I have more or less left Hotcopper as a contributor I must admit it is hard to remove yourself from the site totally. I have read all of your posts nickoo, and have watched your transformation and development with interest. I must say in terms of quality you rank right up there as one of Hotcoppers finest (there isn't many left) and this is enhanced by the fact that you are able to maintain your view and not engage in the banter and personal attacks that tend to bring many unstuck.
Firstly upon reading your profile, it would appear you are a fan of Adam Hamilton (Gold-Eagle and Zeal), and Adam must also rate highly in terms of market commentary on the Internet. Adam's finest work has been in his coverage of "bear market rallies", and his renewed focus on precious metals. I am also now a contributor to Gold-Eagle and to an extent it is an honour to have my work published on a regular basis.
DOW 1000
I feel it is premature to make such a call, based on the fact that the market is only now starting to come to terms with accounting scandals and earnings concerns. For many even a 5000 Dow is out of the question, as investors for the last 20 years have had a market moving strongly with only a few "blips" along the way (1987 was serious but the longer-term damage was concentrated in the speculative stocks, which had enjoyed their own bubble anyway).
I released a paper to clients in March, which covered the Dow Jones in terms of looking at each of the 30 components then allowing for sentiment to provide a more accurate view. I came up with an initial target of 6000-6500, and opted to go for 6250 as a point where I will again reassess my target (I would expect to revise it to the downside shortly). To predict an "ultimate Dow bottom" is simply too hard, and I would rather adjust my targets to reflect where the market is heading and allow for any further shocks whether man made or natural that could result in the market again becoming somewhat "irrational".
Once stock ownership becomes a four-letter word, you would expect some form of a bottom, however where people go wrong is that they feel that once the market levels out, it should move higher and quickly. Stocks could drift for years in terms of the major indices, however as we all know some sectors and companies will easily outperform the broader market.
I again looked at the 1990-1999, Dow chart and the extent of the bull markets acceleration is alarming. I am sensing that the current market activity could well be a repeat to an extent of the 1970’s, which was regarded as "the darkest period in modern financial history). We had stagflation (inflationary recession), however precious metals and energy performed well.
I do not “go short” at all, and have my reasons for this. I have found that by remaining long but changing sectors as required has worked well. Whilst you can often call a market in the right direction, it is the timing that is critical and at times even the shorts can be wiped out based on the sheer strength of the “bear market rallies”
PRECIOUS METALS
In terms of the PM's, in June last year I selected silver as my number one selection in terms of the being the next commodity/PM to be the basis of a speculative boom. Whilst the performance has been subdued the upside captured in one silver junior in particular for us has been significant. As I indicated in my last Gold-Eagle article, I expect the real action in PM's to begin once the Dows decline has slowed somewhat. Looking at the performance of Homestake from 1932 onwards when the market bottomed, you get a rough indication of what may indeed occur.
Barton Biggs call on gold did not get much airplay on HC, which is a shame but to be expected I guess. His call was that funds should allocate 5% towards gold and if this were to be the case the total market capitalisation of the gold industry would have to rise significantly to accommodate the inflow of funds. You would then be faced with "panic" buying in gold and precious metals stocks.
I do not expect gold stocks to fully reflect Friday's night increase just yet, and I feel many holding them may feel somewhat dejected at the lack of price appreciation. The key is to look at the bigger picture and ignore all the "noise" in between that can be generated in the press and on CNBC.
Keep up the good work, and remember that if your call is in fact proven correct it may take years to get there, and I doubt many will give you a pat on the back for it.
Cheers
Tony Locantro
Disclaimer: I am a private client advisor, and the views expressed in this post are my own and do not reflect the view of others that work in my organisation. I have significant interests in precious metals stocks (personally and clients) and these holdings may change without notice. The content in the post is of a general nature and should not be viewed as investment advice. Investment in precious metals stocks is speculative and may not be suitable for each individual investor.
