In his latest “Update From the Frontlines,” Dave Forest highlighted two commodity sectors that are poised to skyrocket.
That prompted some inquiries from your fellow Daily Cut readers.
Now, if you don’t already know Dave, he’s our resident geologist and commodities expert. So that means he’s the guy you want to listen to when it comes to resource investing.
And in today’s Daily Cut mailbag, he answers two of your questions…
But before we get to that, Legacy cofounder Doug Casey responds to a reader’s question about God…
Reader question: Obviously, Doug does not believe in God. He says the choice is between living and nonexistence. Sad. Hasn’t he heard of heaven/hell or the afterlife?
– John K.
Doug’s answer: I understand your fear of the great unknown, after death. We all have it and would love to have “the answer”.
One thing that I rule out entirely, however, is the notion that you either go to heaven, whatever that means, or you go to hell and burn in a lake of fire for eternity. Both concepts impress me as being both malevolent and absurd on the face of it.
That said, I examine the numerous alternatives in the sixth novel of my High Ground series, “Antichrist”. It should be out in 2023 – just in time for the coming financial apocalypse.
And now for those commodity questions, with answers from Dave…
Reader question: Question for David Forest, International Speculator, from a subscriber: If the rare earth market is about to take off as you suggest, then why is REMX, the rare earth ETF [exchange-traded fund], in a downtrend, or at least showing few signs of life? Thank you.
– Jonathan F. (Legacy Research member)
Dave’s answer: Rare earths are indeed taking off, spurred by an announcement this month that the U.S. Army will directly fund domestic mining development.
REMX does benefit from that, but the ETF doesn’t just hold rare earth metals. It also holds a number of critical metals, such as vanadium, cobalt, etc. Those aren’t considered rare earths, and they’re not moving as much yet.
This explains why REMX hasn’t moved as much as pure rare earth stocks. But I do believe vanadium, cobalt, and the other critical metals will go up, so expect REMX to perform well in the medium to longer term.
Next up… another question for Dave. This time it’s about uranium.
Reader question: First, let me say how much I enjoy reading your publications…
Question: What is going to have to happen to make uranium stocks start to move up? I feel like I’ve been holding on a long time.
Thank you, and have a Merry Christmas and Happy New Year!
– Anne H. (Legacy Research member)
Dave’s answer: The fundamental setup for uranium is excellent. Current spot prices are WAY below the costs of production for most uranium mines. It’s so bad, many companies have stopped mining because it’s cheaper to buy other people’s uranium on the spot market to fulfill long-term contracts.
You can guess that’s not sustainable for long. Eventually, there will be no more spot supply. Then, we’ll need prices to rise so mines can reopen.
How long will that take? Hard to say. Uranium stockpiles are notoriously hard to estimate, because you’re dealing with opaque countries like Russia and Kazakhstan. But it will happen.
One note on timing: Right now, uranium is the most crowded “contrarian” play I’ve ever seen. There are lots of investors who love the sector very vocally. To me, that suggests we’re not quite at a turning point. When all those bulls give up (many of them have been waiting years by now), we’ll be close.
Moving on from commodities…
Let’s turn to one of the most important topics we talk about here at Legacy Research – the impact of central banks on the markets.
Jeff Clark has the answer…
Reader question: I’d like to know your thoughts on the present undeniable market distortion created by the Fed and other central banks.
Does their action interfere with any market signals you historically rely on? Maybe other subscribers wonder, too.
– Gregory S. (Legacy Research member)
Jeff’s answer: Thanks for your question, Gregory.
The Fed’s actions clearly influence the financial markets. All that “funny money” needs to find a home somewhere. It props up asset prices. It’s likely the main reason stocks have enjoyed the longest bull market in history. And yes, the Fed’s actions do have some influence on the technical signals I pay attention to.
But, the influence isn’t as great as you may think.
Technical analysis is more of an art than an exact science. The predictive abilities of any indicator, or any set of indicators, evolve over time and are relative to current conditions. The Fed’s actions influence those current conditions, but not any more or any less than other factors like politics, seasonality, sentiment, etc.
Consider the action in the Volatility Index (VIX) for example. Currently, the VIX is considered low anytime it dips to about 12. But it wasn’t so long ago that a 15 level on the VIX was considered low. And, back in 2005, a 15 level on the VIX was considered high.
So, my point is that it doesn’t matter so much that the Fed influences the markets. If it wasn’t the Fed, something else would be influencing the technical indicators.
It’s more important to recognize those indicators need to be interpreted within the context of current conditions.
Next up in today’s mailbag… a question about placing orders for options trades.
Reader question: I’ve noticed that some of your orders for options trades are specified as “day orders” with “limit prices,” instead of “good-til-cancelled” orders. That is counterintuitive to me, since I would expect to execute the trade provided that I can get in below the “limit price.”
Why then are the trades specified as day orders? And why the limit prices? Is there any reason that I should not use good-til-cancelled orders?
– Gregory H. (Legacy Research member)
William’s answer: In general, we use limit prices to make sure we lock in great entry prices for our trades.
Of course, option prices move quickly. So the option’s market price could be different by the time you go to make a trade versus when we lock it in our model portfolio. And this is totally fine. Here’s how to think about market and limit prices:
If you’re selling to open an option, the higher the price, the better. This is because when you sell an option, you’re receiving the income up front. For example, let’s say we had a limit price to “sell to open the ABC Co. $10 covered call option using a limit price of 50 cents or better.”
This means your broker won’t execute the trade unless he can get you at least 50 cents for the option. So if the current market price of the option is 50 cents or higher, the trade will trigger right away.
On the other hand, if the current market price of the option is 49 cents or below, the trade won’t trigger.
If you’re buying to open an option, the lower the price, the better. Why? Well, when you’re buying, you’re spending the cash (versus receiving the cash for selling an option). So if an option drops below our buy up to limit, that’s a good thing.
Here’s an example. Let’s say we want to “buy to open the Palm Beach Co. $15 call option using a limit price of $1 or better.”
Your broker will look to execute the trade at $1 or below. So if the market price falls to 85 cents, let’s say, your order will trigger at this lower price. If the call option is trading for $1.01 or higher, the order won’t trigger.
As you can see, limit prices help to ensure we don’t overpay when we’re spending our cash… and don’t under-earn when we’re receiving cash.
Finally, we like to use “day orders” versus “good-til-cancelled (GTC) orders” because it forces us to re-evaluate the trade each day. As you get more experienced, GTC orders might be a better fit for those with very busy schedules. But I always like the idea of re-evaluating a trade anytime it doesn’t trigger.
This forces us to focus and study… which hones our trading skills over time. And that is the formula for success in the options market.
We’ll end this week’s mailbag edition with something special…
Our resident technology expert, Jeff Brown, recently appeared as a guest on “The Glenn Beck Podcast.” Glenn called it “one of my favorite conversations this year.” And after reading the excerpt below, you’ll see why…
Glenn Beck: Change is not something humans like. It causes fear. And fear works to the benefit of those who would like to control others. How confident are you that we don’t see some form of control like what’s happening in China?
Even if it’s wrapped up in a corporation or government, how confident are you that we won’t enter a world that man cannot get out of?
Jeff Brown: I would argue the U.S. has done a pretty good job avoiding that. In China, when you get a driver’s license, you have to undergo a facial recognition scan. And now you are in the database.
And any camera in the entire country can track where you are at any given time because they can recognize who you are.
But the U.S. hasn’t done that. And that gives me encouragement that we can maintain a much healthier balance. But we have to stay resolute on ensuring that we don’t move in the same direction. I’m not saying it’s easy. But we have no choice. And things might still end very badly…
Glenn: Look how much we’ve given up already…
I was at the airport, and I saw [retina scanners]. People don’t understand the power of the retina. I think, “You’re giving that away?” People don’t understand that when the retina can be tracked, everything can be tracked.
Jeff: Especially if that data isn’t completely private and secure. But in many ways, technology is out of the bag. Did you know that they sell CRISPR genetic-editing kits online for a few hundred dollars? Anybody can order them online.
Glenn: Wait, so if I want to be a hairstylist or a manicurist, I have to have a license? But if I want to alter the genetic code, I’m good?
Jeff: Oh yeah… But I’m hopeful.
In the West, they have been very progressive with how they handle genetic-editing technology. They establish organizations and ethical frameworks. And they’ve made great progress.
One thing the industry won’t permit is germline editing. That’s editing an embryo before the child is born. But China has done precisely that.
This is just a small snippet from Jeff’s appearance on Glenn’s podcast. In their full two-hour conversation, they covered the state of technology right now… the threat of quantum computing… why you won’t recognize the world of 2030… and much, much more.
You don’t want to miss it. Catch the full episode right here.
That’s all for this week. Have a nice weekend.
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