Curried Wealth Building
Finding an Edge

If you want help with your finances, give me a call at 703-791-3243.
December 4, 2010
Issue 125  -  A Little Self Analysis
 
 
As investors, we tend to act like the cat in the picture above, seeing or remembering things as much better than they are/were.  This is basic human nature, as the mind wants to protect, and painful memories are often upsetting.  It's easier just to fill in the story with a slightly better outcome.  This is also displayed with memories of positive events.  I have found myself recounting my childhood athletic achievements while talking with others and later when hard evidence (newspaper clip/year book) is seen, the accomplishment wasn't quite as good as I recounted. (I never really broke 10 seconds in the hundred yard dash :-) 
 
A trader must constantly look at ways of avoiding this.  One of the best ways is with self analysis.  Often, we as investors, believe we are doing far better than we really are.  A cold, hard look must be taken, and the end of the year is as good a time as any.
 
How does one do that?  If you've been investing for multiple years, just take out all of your old tax returns and take a look at Schedule D on each.  Write down each loss on one page and all gains on another.  Do the losses/gains have anything in common?  Are they short term?  Look them over carefully to see if you notice a pattern in your losers.  Do the winners look alike.  If you're like most investors, the winners will be longer term holds, while the losers will be shorter term holds.  Of course this won't be a hard and fast rule, and you may be different, but this is a generalized characteristic for most people.  One thing I can almost assure you of is that the results will be worse than you remember. 
 
This trend of over trading, fits into one of my favorite investing sayings, "Be right, and sit tight."  Our urge to "do something," is so strong that it can work against our better interests, especially males.  The big money is almost always made holding for years.  With Gold Resources, even though it's up big recently, was inititially purchased in early 2008.  There were all types of gyrations in the stock.  Had I been a short time trader, I surely would have sold out.  Know what you're buying and unless circumstances change, hold tight.  It is very easy to have a stock go up 50% and be so happy about it that you sell only to the have stock go much higher in the years ahead. 
 
We also usually stop watching the stocks we have sold.  This is another grave error.  If you bought a stock, you probably have some pretty good knowledge of it.  Use that knowledge to assess if it is time to re-enter the stock.  Don't just forget it.  Better still, if the circumstances haven't changed, and the reasons for buying the stock are still there, don't sell at all.
 
Sacrificing?
 
President Obama is looking for ways to cut the budget.  Federal pay freezes and other measures have been introduced.  The only problem in this whole thing is that the sacrifice is bogus.  No one is really giving things up.  Foreclosures are being halted, government aid for lowering interest rates on homes and many other tactics have anything but the look of sacrifice.  This is what I see:
 
 
But this is sacrifice:
 
 
The whole idea of giving something up is completely foreign to the populace.  Sacrifice is not eating at a sit down restaurant.  Sacrifice is buying a new car every three years instead of two.  Sacrifice is taking only one vacation.  These AREN'T sacrifices.  We have lived beyond our means for so long that our reality has been completely skewed.  This will change in time as the world forces a reconciliation of our debts.  The dollar will be toast and things will have to start over.  What does that mean to you?  It means you better batten down the hatches and prepare.  The most important thing is exposure to the precious metals.  If you don't have this, you are likely to be sucked down with everyone else. 
 
The most interesting metal in all of this is silver.  It broke out to 30 year highs this past week and is still acting very strong.  An interesting thing in all of this is an internet call to buy silver which could crash JP Morgan.  If everyone in the country bought one ounce of silver, JP Morgan's silver shorts would explode and they would be finished.  Here is Max Keiser calling for it:
 
 
This seems to be having an effect:  (from GATA)
 
SILVER TIGHTNESS

Bill,
Just putting my thoughts into perspective, I want the whole GATA Army to realize just how tight the silver physical market is, and how easy it is PROVE it.

Over the past two years, I have spent a large amount of time researching the various ways to buy physical gold and silver, particularly silver as I believe it to be far more undervalued (as well as far more barterable for this reason).

While there are obviously hundreds of coin shops, there are really only a handful of major players in America in the coin selling business, and after a while of following the business you get to know these players.

Silver is a tiny, tiny market, with estimates of AVAILABLE, INVESTABLE SILVER BULLION WORLDWIDE generally in the 200-500 million oz range, or just $5-$15 billion at current prices, a pittance in the global securities markets. And remember, this is a WORLDWIDE figure, a world where nations such as India and China are far larger buyers of bullion than America.

In other words, there may be less than 50 million ozs. (a measly $1.3 billion worth) of available, investable silver coins at American dealers, enough to actually count up by hand if you call the major American dealers, such as Tulving, APMEX, and the Northwest Territorial Mint. And if you watch eBay as carefully as I do, you get to know all the major players there (usually smaller, regional coin dealers) and thus can get a good feel of available supplies.

I am telling you that, based on what I currently see from these dealers cumulatively, this is the tightest I have EVER seen the physical silver market in America, at least in the two years that I have been watching like a hawk.

HUGE premiums over spot (15% on average), even for lesser coins such as Maples, Buffaloes, etc., shrinking or zero inventories, delivery delays, etc.. Heck, in the last two days I’ve watched actual AUCTIONS for 20-100 coin lots of Silver Eagles DISAPPEAR ENTIRELY, replaced only by "Buy it Now" sales at way above spot prices, such as $34-$35/oz..

And now, with the onslaught of anti-Cartel actions, starting with GATA of course but now closely followed by the National Inflation Association, Silver Circle, Max Keiser/Alex Jones ("Buy Silver, Crash JP Morgan"), and of course silver stalwarts such as Jason Hommel, Ted Butler, and now the mainstream BART CHILTON (nice call on that one, Bill!), it looks like the end of the Cartel is nigh, especially as December and January are the two largest PM buying months of the year.

Silver is the Achilles Heel of the Cartel due to its TINY SIZE, and IT WILL BE THE STRAW THAT BREAKS THEIR BACK!

Now I don't know if this will kill JP but I do know that silver can go MUCH higher without affecting the economy to any real extent.  Here is another GATA contributor describing why:
 

Bill,
When considering the possibilities for owning silver one reason stands out above all. That is, it eventually will be expedient for the cartel to let go of silver suppression.Yes, once (if) the cartel gets out of their massive short silver positions there will be zero incentive to go back, and every incentive to flip to the long side. Mainstream media would then do their best to divorce silver from gold and make it a simple supply-demand story. Gold alone would then become the benchmark for fiat transgression. Another reason for higher prices in silver being expedient is unlike nearly any other commodity or financial instrument, an enormous run-up would do very little harm to the economy. At 15 times its current price silver would still be consumed industrially. I haven't heard any auto makers lobbying Congress about the oppressive prices of platinum, palladium, or rhodium. Silver's viability at $400 or more is very reasonable when you think of the extraordinary effort to suppress it for decades. If silver exploded to $400 it would barely cause a ripple in industries where it is consumed. Compare that to nearly any other commodity and see what would happen.

* If soybeans went from $12 to $180 a bushel there would be starvation and food riots.

* If lumber went from $270 to $4,050 MBF a typical 2000 sq. ft. home would cost over a million dollars to build.

* If crude oil went from $80 to $1,200 a barrel the economy would ceace to function.

* If gasoline went from $3 to $45 a gallon there would be mayhem in the streets.

* If nat. gas went from $4.30 to $64.50 per CCF millions could freeze to death.

* If 30 yr. T-bond yields rose from 4.3% to 64.5% governments would collapse.

Yet if silver goes from $27 to $400 the economic fallout is miniscule, and mostly off the radar!

 
There you have it.  A pretty compelling reason that silver is going much higher.  I own a good deal of physical silver as well as my silver stock options and don't forget that about half of GORO's income will be from silver.  Silver is still very underpriced and once people figure out that silver is in VERY short supply, the sky's the limit.  I don't know if we make it to $400 an ounce, but I think $100 is nearly certain.  Please take advantage of this knowledge to protect your family.
 
Positions -  I'm going to start listing my VERY risky out of the money option positions again.  Please, please, please, do not buy these with money you can't afford to lose.  My recent picks have done very well, but these things can turn on a dime.  Just to balance these risky option out, I'm also going to list stocks I like, but am not currently invested in.
 
Goro  (closed at $26.35, up $1.83, average price paid, $6.10) 
  
Mexus Gold  (closed .25, up 2 cents, average price paid, $0.20)   
 
GORO June 11, call options, strike $20 (closed at $7.25, up $1.20, [due to the low volume, I'm using the average of the last bid and call] average price paid, $5.60)
 
SLW options  March 2011
        40 strike (closed at $4.34, price paid $2.75)
        45 strike (closed at $2.70, price paid $1.62)
 
Stocks I like
 
Gold/silver
   1.  Pan American Silver - PAAS
   2.  Agnico Eagle - AEM
   3.  Goldcorp - GG
   4.  Silvercorp - SVM
   5.  Rubicon - RBY
   6.  Tocqueville Gold Mutual Fund - TGLDX
 
Uranium
   1.  Denison Mining - DNN
   2.  Cameco - CCJ
 
Oil Sector
 
   1.  Provident Energy Trust - PVX
   2.  Knightsbridge Tankers - VLCCF
   3.  Cross Timbers Royaly - CRT  
 
 
 
Lastly, a little video to get you in the Christmas spirit.  Have a great week!
 
 
 
 
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