In a recent landslide election, Republicans took back control of the Senate and House. President Obama’s approval rating is very low. Although there a few making money in the stock market, the majority of the American people are fed up with close to 100 million people not working. Welfare and entitlement spending is out of control. The debt is still soaring close to $20 trillion and the dollar is rising making it even harder for politicians and banks to avoid default.
Somehow irrationally despite billions of dollars being printed under the guise of QE, the US dollar is rising. The question is how long do you really believe this dead cat bounce in the US dollar will last?
It may be just a bounce in a long term downtrend and is only relative to the other fiat currencies in fast decline. Smart investors should be accumulating gold and silver coins and high quality junior mining stocks trading now at historic lows. It should be noted that coin sales are picking up especially mint grade numismatics.
Avoid the large cap equities like the S&P500 (SPY) making a classic megaphone top, US dollar (UUP) and long term treasuries (TLT) as these are markets overbought and where the fundamentals do not justify the current valuation. I am very concerned about the exuberance in banking and real estate as the numbers of unemployed in America are still at record levels. Avoid “fairy tale” sectors which try to say that Price Earning Ratios do not matter or that we are in a new era which justifies obscene valuations.
The Middle East Arab Spring has turned into an Islamic Winter. Black swans could still be on the horizon. Now the US is looking to team up with Iran to fight ISIS and possibly ignoring the threat of Iran’s nuclear ambitions. Russia just stated What we are seeing with the rise of the dollar and decline in commodities may be part of the war no longer fought with bullets and missiles but with foreign exchange rates. The ruble is collapsing along with the Russian Economy. China and Russia may begin to look to trade in Yuan to avoid the negative consequences of currency wars.
Those with US dollars are able to purchase gold and silver at low prices despite record demand. The US Mint is showing record sales. Many have asked how is gold and silver going down in price when demand is at record levels? The only answer is that some games are being played in the paper market. This week the regulators just fined the major banks for manipulating exchange rates. Investors may be just beginning to lose faith in the manipulated paper markets and are just buying physical coins. Some numismatics such as Mint Grade Morgan and Peace Silver dollars have had a nice rise this past year despite a decline in gold (GLD) and silver (SLV) prices.
The junior gold miners (GDXJ) are hitting record volumes which indicates massive capitulation. The bear may be getting exhausted. We know that bear markets end in panic and many bail at the low. This time of the year the San Francisco Resource Conference was a main gathering for junior mining investors for many years. Now it is cancelled. This indicates to me that the public investor has panicked out chasing the bull market in US large caps, the dollar and long term treasuries.
When the retail investor is gone, the smart money accumulates. Don’t rush, there may be retests of this bottom and long term resource investors should look to add to high quality position on weakness during this tax loss season. Remember that bear market bottoms and tax loss selling season are some of the best times to buy at a discounted price. In this resource bear market over the past four years picking the winners has been challenging, but still I continue to search for the juniors who are the winners.