Don’t Bet Against the U.S.

Before May, there were plenty of investors wondering if the stock market had gotten too far ahead of the economy. Sure, stock valuations themselves have stayed within historic norms, supported by strong earnings growth.

 

But with unemployment stuck at persistently high levels, ongoing imbalances in the economy, and record high budget deficits, it’s reasonable to wonder how long earnings growth can continue. Now, after the debt issues with Greece have revealed some serious dissension in the European Union and questions about the future of the euro as a currency, we’ve seen an abrupt reversal. 

At last week’s lows, the S&P 500 was down 9.6% from its highs. Oil prices are down 20%. 

The Volatility Genie

I was trolling Bloomberg last night and I came across the following quote:  

 

“The volatility genie is out of the bottle and it will take some time to put it back…”   

 

It doesn’t really matter who said it or what they were commenting on. I initially dismissed it as one of those clichéd comments that just takes up space and doesn’t really add anything meaningful to the discussion.   

 

I mean, “volatility genie”? Come on.   

The Godfather of Gold Companies

Like
every human being with
a pulse and half a brain, I’m a huge fan of the first two Godfather
movies. There are so many relevant
quotes and situations from these movies that speak to just about every
aspect
of life.

Perhaps
the best and most
quoted line is Michael Corleone’s explanation of how his father Vito,
the
Godfather, was able to help with Johnny Fontane’s career. To refresh your memory, Johnny Fontane was a
Frank Sinatra archetype locked into a contract with a band leader. Johnny asked Vito to help him get out of the
contract.

Long story
short, the band leader released Johnny only after Vito “made
him an offer he couldn’t refuse
.”

The
offer, of course, was
that Vito’s henchman Luca Brasi would kill the bandleader if he didn’t
release
Johnny from the contract.

Now,
the gold company I’m
going to talk about today has never threatened to kill someone – as far
as I
know. But they’re known for making
offers that while not impossible to refuse, are quite difficult at
least.

Broad Market Slaughtered Today

European debt concerns pulled stocks lower today, as investors sought safety in U.S. treasuries.

Gold moved higher as well, though it’s still just shy high of record nominal highs from earlier this week.

According to a report from Goldman Sachs (NYSE:GS), the outlook for commodities in general is "strikingly positive."  This news arrived yesterday, and Goldman projected a 12% return in 2010 for the S&P GSCI – one of the largest traded general commodity indexes. 

The Warren Buffett Retirement Plan

Frankly, most individual investors — no matter how smart or dedicated —
never really figure out a winning system.

You see, the secret to
true wealth isn’t putting in more hours at work. Most of us won’t
inherit a fortune. And it’s certainly not buying a lottery ticket and
hoping like millions of others that yours is the one.

The path to
true wealth can be very simple: make wise investment decisions, based
on a sound investment strategy, with a defined purpose in mind.

You
probably already have a purpose in mind — nice vacation, new car, gift
for someone special, putting a child through college, buying a second
home, early retirement, any of those and more — and that’s great. It
gives you a goal. Now, you just need a strategy.

My Predictions about Gold

I received
some great emails from readers yesterday – notably a message from Mark
I. who
suggested buying puts as a way to profit from the tendency for the
United
States Natural Gas Fund (NYSE: UNG) to do nothing but lose money.

(For those readers
unfamiliar with options, a put is a type of option that, to put it
simply, goes
up in value as the underlying asset decreases in value.)

It’s hard to argue with
a
strategy that could have yielded greater than 100% percent gains, month
after
month for the past year. I’m not
exaggerating either. Options prices can
surge by multiples as they approach the strike price.

Take a look at this
table
showing put prices for July expiration on UNG.

A New Look at Bakken Oil

As the world watches the dreadful scenes coming from the BP oil
spill, the blame game ratchets up and now it’s reported that over 100
lawsuits have been filed in relation to the spill. Tough times for BP,
Transocean, and Halliburton.

Given all the attention to the Gulf Coast scant attention is being
paid to one of the fastest growing oil regions in the nation. I’m sure
you’ve heard of it. It’s called the Bakken. It’s a region in the upper
Midwest of the U.S. and lower Canadian Plains. Unlike much of the
continental oil development fields that rely on extracting oil from sand
and shale deposits, the Bakken produces light sweet crude: the
preference of most oil refiners.

A Bold Prediction

On Monday, when it was apparent that we were in for a big day as futures went limit up in pre-market, I said I wanted to see a candlestick pattern called “three white soldiers.”  

 

Three white soldiers basically means three pretty good sized up days in a row. This pattern is considered very bullish, especially after a period of consolidation. And the reason it’s bullish is fairly easy to deduce. 

 

A period of consolidation for a stock means that not much is changing. The buyers and sellers are pretty much in agreement as to what it’s worth. And so the price doesn’t change much. 

How Much for the Island?

Investing in gold is often called a “fear trade.” In times of crisis, it’s believed that gold will hold its value, and even rise, while the value of paper currencies and other assets fall.  

 

If you bought SPDR Gold ETF (NYSE:GLD), which seeks to track the price of physical gold, 2 years ago, you’d be up around 36%.   

 

The S&P 500 is down around 15% during that time.   

 

You probably already know that gold hit a new all-time high yesterday at $1,200 an ounce. And even though other traditional measures of fear – like the volatility index (VIX), bonds and even stocks – didn’t move much today, the move in gold can’t be ignored.  

Ignore Gold: Here

As I said yesterday, I
don’t
like telling you to buy something when it’s at or above its nominal
highs. So, I won’t. With gold now selling for
over $1235 an ounce – above its all time
previous highs of $1224, there’s no reason to ring the bell right now. If you were among the lucky few to buy gold
and gold stocks in the past, then I wouldn’t sell either – but I
wouldn’t
advise building or adding to a position in gold right this hot second.

By the way, I’d like to
hear
from you – where do you think gold is headed? What
percentage of your portfolio is in gold? Drop me a line at
editorial@resourceprospector.com

I believe gold will
likely
move higher, but buying at the highest highs in hopes that it will
immediately move
higher is just not good investment sense.

Instead, I’d like to
draw
your attention to a commodity that’s not making headlines today. It’s
not on CNBC, or gracing the front page
of the Wall Street Journal. Once a story
is well-covered by the mainstream media, it’s not really my job,
or in your best interest, for me to continue shining
a light
on it.