There Will be Blood


I borrowed the title of today’s issue from the Daniel Day Lewis movie of the same name – based on the Upton Sinclair novel, "Oil!"

The novel detailed the oil boom of early 20th Century Southern California.

Today I’m not going to talk much about oil, but the title of the movie is appropriate enough for the markets right now.

Because you could have cut the tension in the markets yesterday with a chainsaw.

If you didn’t crack and dump all your stocks as some folks appeared to do, I say congratulations: you passed the first of what will likely be some very trying tests in the markets over the coming months.

But I don’t think we’re through the wilderness at all. Unless uncle Ben Bernanke steps into the market with his big fat funny-money checkbook like he did last year, the uncertainty we saw yesterday will only grow.

And while I’m not a fan of bear markets in general, I once again feel compelled to remind you that these types of mass-market downturns can present buying opportunities that only come around once every few years.

We know the commodity bull market isn’t over. And we know that stocks are essentially flat over the past 12 years. So if we’re going to stick with the trend that’s working, we should be ravenously awaiting broad market panics to fortify our positions in our favorite commodity vehicles.

I’m still averaging into physical gold and silver on a regular basis – but you and I should also be on the lookout for any weakness in commodity based publicly traded companies.

I’ve said all of this before, I realize. But you need to make a shopping list of companies you want to own or companies you want to own more of.

Make the list now – so you’re prepared when your dream-price comes up.

I’d love to own Exxon-Mobil (NYSE: XOM) at less than 10 times earnings. That rarely happens, but if and when I get the chance to buy in at that valuation, I’ll be ready.

That’s just one example. I’d also pick some "dream" prices or valuations for potash giant Mosaic Co. (NYSE: MOS), Noble Energy (NYSE: NE), Royal Gold (NYSE: RGLD), Penn Virginia (NYSE: PVR) and Cameco (NYSE: CCJ).

If you make a shopping list and set aside some capital now, you’ll be mentally and financially prepared to swoop in and buy these world-class commodity stocks at the price you want to pay.

My point is: I think there will be blood in the markets. The only way to make sure you’re on the winning side when the blood clears out is if you have a plan lined up now. Investing really is about mentally preparing yourself to seize opportunities at the right times. Prepare now before the blood rolls into the streets.

If you’re options savvy, you might even consider selling some puts on these companies to produce some income while you wait for your strike price to hit.

Incidentally, my colleague Andy Crowder has over 10 years experience as a successful options trader. If you have any questions about options, I encourage you to drop him a line at [email protected]

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