Last week, International Speculator editor Dave Forest showed us why gold is the key to a worry-free financial crisis.
With gold prices up almost 3% this year, one reader wants to know more… So we reached back out to Dave – who just returned from Tokyo, Beijing, Hong Kong, and Shenzhen – for an answer…
Reader question: Do you have any thoughts about the gold miners you can share? It seems Mr. Market is trying to buck off as many bulls as possible before any uptrend.
– Cal S. (Legacy Research member)
Dave’s answer: I’m watching the so-called junior miners closely. Junior miners are either developing, or seeking to develop, a natural resource deposit. They’re not running productive mines. They’re earlier on in the process.
When it’s “money off” in the mining sector, the juniors often struggle to finance their projects. With the Chinese going “money on” and pouring money into the sector, that means vital cash infusions. [Catch up here.]
But the bigger effect on mining stocks will be a new wave of buyouts. If you’re a junior miner, you’ve got an asset – say, a mineral deposit – that’s not throwing off any cash yet. So you’re usually happy for some big buyer to come along and say, “We’d like to buy your company.”
Buyouts typically happen at a per-share premium of 30%, 40%… even 50%. It’s an easy way to make money – especially when mining stocks are as beaten down as they are right now. You buy cheap. And you get a big jump when your shares get bought out. It’s a beautiful thing.
The thing to remember with gold miners is that they are “leveraged” to the price of gold. That’s because the bigger gold miners have gold reserves that are still in the ground. As the price of gold rises, so does the price of those reserves. And when the price of the product you’re selling rises, while your costs stay the same, that’s rocket fuel for stock prices.
That’s why the VanEck Vectors Gold Miners ETF (GDX) climbed 310% in the three years after it bottomed in October 2008. And there’s good reason to believe we’ll see gold stocks pick up again soon. That’s because owning a hard asset such as gold is a time-tested way to protect wealth during troubled economic times.
That’s not all for our globetrotting geologist…
Another reader asked about a different precious metal Dave mentioned to Daily Cut editor Chris Lowe…
Reader question: My question is, what are the predictions for platinum? For years, it was above gold in price. For the recent past it was $200 to $300 BELOW gold. What do you think about its prospects?
– Martin K. (Legacy Research member)
Dave’s answer: At International Speculator, we’re very positive on the platinum group of metals, which includes both palladium and platinum.
Our proprietary Casey Cost Curve analysis – as well as recent industry reports – suggests that 50% of global production is uneconomic right now. That means we could see a potential supply disruption and price rise.
We’re slightly more positive on platinum than palladium, only because platinum currently trades at around a $520/ounce discount to palladium, whereas, historically, platinum has tended to trade higher than palladium.
But given that the two metals are generally produced from the same mines, we’re positive on both platinum and palladium projects.
Moving on from metals… we’ve got a question about sports gambling.
Luckily, this is one of the biggest investment themes on Strategic Investor editor E.B. Tucker’s radar right now. So we turn to him for some insight…
Reader question: I recently saw an article about the Supreme Court’s decision regarding online sports betting.
In your opinion, how will this affect the companies that were depending on the Supreme Court’s decision and their stock shares in the future?
– Shari M. (Legacy Research member)
E.B.’s answer: The companies we profiled in my Strategic Investor advisory stand in front of a tidal wave worth upwards of $400 billion.
In a way, the Supreme Court – with its decision allowing states to legalize sports wagering – is the biggest cash washing of all time. Every dollar wagered on sports betting until now flowed through the coffers of the underworld. Now it’s legal, licensed, regulated, and taxed.
The companies we cover should see some of that formerly illicit revenue flow through their doors, due to having lawful gaming operations in states that moved quickly to allow legal sports betting.
E.B. says that revenue will start flowing into the sports gambling sector in just three days… That’s why he’s calling this coming Monday, February 4, “the Greatest Day in Stock Market History.”
Over $4 billion is set to move out of the shadows… and into a small handful of sports-betting stocks. And E.B. says investors who get in early could ride share prices up 500% in a single day… and over 1,000% in the coming weeks.
And now, a great question about stop losses… along with a shocking answer from Near Future Report editor Jeff Brown…
Reader question: Just a quick question: Should I use a stop loss, stop limit, trailing stop loss or trailing limit stop on my stocks? When you recommend a stop loss, which one do you use in The Near Future Report?
I appreciate your reply. I read about the differences on these different stop losses, but don’t know which one you are using.
– Gabriele C. (Legacy Research member)
Jeff’s answer: To manage our risk exposure, we use trailing stops with all our positions.
That means we’ll be setting a rule for when we close a position in a stock based on how much it has pulled back from its recent highs. This serves two purposes. First, it controls the risk of any investment and limits any downside in an investment, if something unexpected happens. Second, it allows investors to protect profits in stocks that have significantly appreciated in value.
I frequently use trailing stop losses, and sometimes volatility-adjusted trailing stop losses for risk-management strategy. They are called “trailing” because they follow a stock as it appreciates in value. Put simply, as the stock increases in price, so does the trailing stop-loss price.
Occasionally, we will initiate a recommendation with a hard stop, in order to avoid getting prematurely kicked out of a position, due to unusual market volatility. Then, when the position gains consistently positive momentum, we’ll change that hard stop to a trailing stop (typically around 25%) so that we can protect our profits as the stock moves up in price.
I recommend my readers NEVER put their stop losses in as orders with their online brokers. Instead, they should maintain their stops using spreadsheets or with tools like TradeStops or Yahoo Finance. They can also wait to hear from us with alerts.
This may sound surprising, but anytime a stop loss order is placed into an online broker, it can be seen by market makers. Market makers are crooks… and they’re powerful crooks. They can actually pull a stock’s price below a popular stop level, forcing all those with stop loss orders to sell the stock. The market makers buy the stock at the artificially low level, then immediately turn around and sell the stock at current market prices… pocketing the difference at the investor’s expense.
It should be illegal, but it’s not.
Finally, a two-part question for the other Jeff on the Legacy team… Jeff Clark. This time around, a reader wants to know more about the technical aspects of our master trader’s strategy…
Reader question: Hello, Jeff. This is an interesting subject. I would like to ask two questions:
Is there a (reasonable but powerful) charting application/website you would recommend for stocks and currency trading?
Would you recommend a good book about technical analysis?
Thanks and regards.
– Alain N. (Legacy Research member)
Jeff’s answer: I use stockcharts.com. They have a free version that gives users daily charts and indicators. But I subscribe to the premium paid version. It offers intraday updates in real time – which is critical for anyone looking for intraday opportunities to trade.
I’ve never read a book on technical analysis (TA). All we’re doing is looking at past patterns, noting the similarities to current conditions, and then projecting a similar resolution to the patterns. I suspect that a book like Technical Analysis for Dummies will likely cover all the basics.
But TA is more of a study of psychology than it is a study of geometric chart patterns. TA is useful in helping us determine when the market, or an individual stock, is reacting to an emotional extreme (either too fearful or too greedy).
Human emotions are remarkably consistent. So, if we can recognize how a chart might display emotional distress, then we can place a trade designed to profit from it.
Rather than reading about how to draw lines on a chart, traders are better off reading about the psychology of the market.
In that light, and if I haven’t put you to sleep with this long-winded answer, I suggest reading Charles Mackay’s excellent book, Extraordinary Popular Delusions and the Madness of Crowds.
It is not an easy read. But it is outstanding.
If you want more from Jeff’s reading list… Here are the two books he recommended to the audience at our inaugural Legacy Investment Summit in Bermuda last October:
Zen and the Art of Motorcycle Maintenance: An Inquiry Into Values, by Robert M. Pirsig
Beyond Biocentrism: Rethinking Time, Space, Consciousness, and the Illusion of Death, by Robert Lanza, MD, with Bob Berman
Happy reading. That’s all for this week…