Those of you who read this column regularly know that I haven’t talked about the stock market, investing and such for a long time. That’s surprised some folks, in that it’s my stock-in-trade. I’ve gotten e-mails asking why I don’t write columns with investment ideas.
Certainly, the advice I proffered was pretty good, if I do say so myself. Among other things, I suggested shorting the Internet stocks (which subsequently crashed over 90 percent), buying gold – and the gold stocks – and buying various foreign currencies. Check my WND archives, starting right at the beginning, in 2001.
I haven’t recently (nor will I in the future) posted much on investment matters for two reasons: 1) People don’t appreciate free advice – they can get it from their brother-in-law and, 2) I have an obligation to those who do pay for my advice. It’s not free. If you want free advice, talk to your brother-in-law.
Notwithstanding that, I can’t help commenting on the markets. It seems like everyone is back in stocks, thinking the bear market that started in early 2000 ended in early 2003. My opinion is that it hasn’t ended. What we’ve seen for the last year is nothing more than a cyclical bounce upwards, a classic “sucker rally,” similar to what happened in 1930.
I don’t know when the bear is going to come out again, but it’s likely to be soon. And when it does, things are likely to get really ugly. Stocks are selling for outrageous prices. So I recommend you take the money and run.
But run where? I think the precious metals are the only place to be.
In the last month alone, the stocks on my monitored list have risen nearly 30 percent. Normally, that would scare me, and get me heading toward the exits. But I’ve said for years that, this cycle, gold isn’t just going to go through the roof. It’s going to the moon. If you don’t participate in it, you’re going to regret it seriously, and for a long time. Because the rationale for the move, and the cycles of the market, are clear – the knowledge of which companies to buy, and how and where to buy them, is readily available.
Several years ago, I pointed out that many of these small gold-exploration outfits were selling for less than cash in the bank. They traded by appointment. Share prices were in the pennies, and market caps were typically less than $2 to 3 million. And there was zero interest in them. In fact, the number of mining companies was dropping weekly, as promoters turned the shells into Internet companies. From those manic lows (which persisted for many months – it was hardly a spike bottom that you could only catch by luck) many companies have already risen 1,000 percent or more.
The market has changed. Many companies are now doing six-figure volumes – new underwritings and financings are being done daily. There’s real interest from guys who’ve been around the block a few times. But share prices are still almost all south of a dollar – market caps still mostly average around $10 to 20 million. We’ve only entered the second stage of the big bull market.
By the time we get into the third and final stage – and I don’t expect that for a couple of years – most stocks will be trading in the $2 to $10 range, with any number going to $50 or better. Market caps will typically run to nine figures. The public will be chasing these things the way they ran after Internet stocks.
How do I know? Because I’ve been in this market for 30 years, and I’ve seen it happen five times in the past (1973, 1980, 1983, 1987 and 1996, to be precise as to the peak years). But this one will be the biggest of them all, because not only will gold (and commodities, in general) be running, but the public – trained by the 1983-2000 bull market – all have brokerage accounts, and will be looking for the next hot sector. And the gold-resource story will tell exceedingly well. What’s coming up is going to be a mania for the record books.
So, what should you do now? These stocks have had a huge run, especially over the last few months. There have been lots of doubles and triples. Many experienced investors are shaking their heads, commenting that they’re way overpriced relative to current metal values, and selling. Well, that’s fine if you’re in a position to reload with well-negotiated private placements.
But I find that most people, once they sell a stock, never wind up replacing it. So the market runs away on them, and they wind up watching. Except for anomalous times – like a while in 1999, 2000 and 2001, which I think I amply documented in International Speculator, when many of these companies were selling for less than the cash in the bank – these companies are always “overpriced.” That’s because, in many ways, they’re really just options on the price of precious metals. Or even lottery tickets. Options and lottery tickets have no intrinsic value, and are expensive.
I think it’s a mistake to try to trade these stocks. Unless you’re used to making a good living in the commodities market, you’ll just get whipsawed, commissioned, bid-ask spreaded, and currency conversioned into penury, when you should be making hundreds of percent in profits. And benefiting from long-term capital-gains tax treatment.
The golds now are like the Internets were in 1996. Overpriced, but selling for just a fraction of where they will be in a couple of years. Weakness should be used to buy, not an excuse to be shaken out.
This is just the beginning of the market. And I personally expect it to be the wildest bull market, of any sort, I’ve ever seen.
