Is February a Risk On or Risk Off Trade: Equities or Gold & Bonds

Recent price action in the stock market has many traders on edge. With the market closing below our key support trend line last week, the market has now technically starting a down trend.

While trend lines are a great tool for identifying a weakening trend and reversals in the market, I do not put a lot of my analysis weighting on them.

Most of my timing and trading is based around what I call INNER-Market Analysis (Market Stages, Cycles, Momentum and Sentiment). Using these data we can diagnose the overall health of the market. Knowing the strength of the market we can then forecast short term trend reversals before they happen with a high degree of accuracy.

In this report I keep things clean and simple using just trend lines. During the last three weeks we have seen the price of stocks pullback. And because 2013 was such a strong year for stocks most participants are expecting a sharp market correction to take place anytime now.

So with the recent price correction fear is starting to enter the market and money is rotating out of stocks and into the Risk Off assets like gold and bonds.

Stocks tend to fall in times of economic uncertainty or fear. These same factors push investors towards the safety trades (Risk Off) high quality bonds and precious metals. As more money goes from risk on to risk off, stocks will continue to fall and the safety trades will rise. The move by investors to select the safety of gold and bonds compared to the volatility of stocks will result in these risk plays to moving in opposite directions.

Let’s take a look at the chart below for a visual of what looks to be unfolding…...

 

How to Trade These Markets:

 

While these markets look to be starting to reverse trends, it is critical that we understand how the market moves during reversals and understand position/money management.

Getting short stocks and long precious metals in the long run could work out very well, but if you understand the price action that typically happens during reversals you know that the stock market will become choppy and we could see the recent highs tested or possibly even a new high made before price actually starts a down trend. And the opposite situation for gold and bonds. Drawdowns can be huge when investing and why I don’t just change position directions when the first sign of a trend change shows up on the chart.

Price reversals are a process, not an event. So it is important to follow along using a short term time frame like the daily chart and play the intermediate trends that last 4-12 weeks in length. By doing this, you are trading in the direction of the most active cycle in the stock market and positioned properly as new a trend starts.

What I am looking for in the next week or two:

 

1. Stocks to trade sideways or drift higher for 3-6 days, then I will be looking to get short. Again, cycle, sentiment, and momentum analysis must remain down for me to short the market. If they turn back up I will remain in cash until a setup for another short or long entry forms.

2. Gold remains in a down trend but is starting to breakout to the upside. I do have concerns with the daily chart patterns for both gold and silver, so next week will be critical for them. We will be using some ETF Trading Strategies to take advantage of these moves.

3. Bond prices (not yields) look to be forming a bottom “W” pattern. They have had a big run in the last few weeks and are now testing resistance. I think a long bond position is slowly starting to unfold but if we look at the futures price charts for both bonds and gold, they have not yet broken to the upside and have more work to do. As mentioned before ETFs are not really the best tool for charting but I show them because they what the masses follow and trade.

Get these reports every week free at: The Gold & Oil Guy.com

Chris Vermeulen

Author of  “Technical Trading Mastery – 7 Steps To Win With Logic”

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Mike Seery on Gold, Silver, Sugar and Coffee Futures

It's time to check in with our trading partner Mike Seery to get his take on where our favorite commodities are headed. Say what you want about the current pull back in the indexes we are glad to see the volatility, we finally have us a real market.

Gold Futures

Gold futures finished the week at 1,240 still continuing their choppy trade as investors sold off the precious metal later in the week despite the fact that the S&P 500 is having huge volatility which generally spooks investors into buying gold but the precious metal closed very poorly in my opinion. I have a hard time believing that gold is going to start to rally anytime soon as it might be stuck in the mud and could trade choppy for quite some time. The U.S dollar hit a 7 week high today which is bearish gold prices as the printing press here in the United States is starting to stop which is creating a higher U.S dollar versus the foreign currencies and that is bearish commodity prices in general. I’m recommending investors to sit on the sideline in the gold market at this time as there really is no trend as you have to look for a market that is trending up or down because if you screw around with markets that go up and down and have no trend with constant choppiness that will kill you in the long run. The trend in gold continues sideways and chart structure is very poor.

Gold Stocks are about to create a new class of Millionaires

Silver Futures

Silver futures continued their 9 week consolidation finishing at 19.12 an ounce in the March contract right near contract lows of 18.72 & if that level is broken you have to think prices would head lower in the short term. The emerging market crisis over the last couple of weeks I think is hurting silver prices here in the short term but this too will blow over, as if your long term investor I still think silver prices look attractive as eventually inflation will come back into this market it’s just a matter of when. Silver futures are trading below their 20 & 100 day moving average and the longer the consolidation in my opinion the stronger the move will be when prices truly break out while the breakout to the upside is at 20.67 & the breakout to the downside is 18.72 as prices were unable to rally despite the fact that there was panic selling in the S&P 500 as money poured out of the stock market into the bond market but not into the precious metals which tells me the market still currently looks weak. Silver trend remains to the down side, chart structure is excellent.

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Sugar Futures

Sugar futures in the March contract finished sharply higher for the 2nd consecutive trading session closing at 15.55 now trading above its 20 day but still below its 100 day moving average as I’ve been recommending a short position in sugar for quite some time getting stopped out as today as prices hit the 10 day high as funds liquidated huge short positions so sit on the sidelines and wait and see what develops. I’m a technical trader and I must have some exit strategies in place and my exit strategy is placing my stop at the 10 day high but you can have something different possibly a 15 day high or 7 day high so create some type of exit strategy for your personal account still maintaining the proper risk management as I do think prices are still headed lower but I can’t recommend a short position at this time as the trend has now turned neutral here in the short term. If you’re not a trend follower I would have to believe that you have to continue to sell sugar as supplies are too high as there are some dry areas in Brazil which is causing some concern possibly cutting some crop production, however I think today was massive short covering as the funds covered in today’s trading session. The trend for sugar remains mixed but the chart structure is excellent.

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Coffee Futures

Coffee futures exploded to the upside for the 3rd consecutive trading day hitting 5 month highs at 125.20 a pound up over 1100 points for the week as investors are pouring in thinking that the long term bottom in coffee has finally been hit in the last several months. Coffee is trading above its 20 and 100 day moving average telling you that the trend in the short term is higher but at this point this market has absolutely terrible chart structure so I have a hard time buying it because the 10 day low is at 114 risking around $4,400 per contract so I’m recommending to sit on the sidelines and wait for some better chart structure to develop as I do think there will be profit taking eventually. The U.S dollar hit a 7 week high today and I believe that eventually could start to pressure commodity prices especially with the emerging markets now having difficulties but the trend in some markets have been heading higher despite that headwind and coffee prices historically are still relatively cheap. Keep an eye on this market as the real volatility will start in the month of May when we begin frost season down in Brazil but it does look to me that coffee is in a bottoming process. While the coffee trend still appears to be higher the chart structure is well....awful.

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Is this a turning point for the Junior Gold Stocks?

By Doug Hornig, Senior Editor

 

It's not exactly news that gold mining stocks have been in a slump for more than two years. Many investors who owned them have thrown in the towel by now, or are holding simply because a paper loss isn't a realized loss until you sell.


For contrarian speculators like Doug Casey and Rick Rule, though, it's the best of all scenarios. "Buy when blood is in the streets," investor Nathan Rothschild allegedly said. And buy they do, with both hands—because, they assert, there are definitive signs that things may be turning around.

So what's the deal with junior mining stocks, and who should invest in them? I'll give you several good reasons not to touch them with a 10 foot pole… and one why you maybe should.

First, you need to understand that junior gold miners are not buy-and-forget stocks. They are the most volatile securities in the world—"burning matches," as Doug calls them. To speculate in those stocks requires nerves of steel.

Let's take a look at the performance of the juniors since 2011. The ETF that tracks a basket of such stocks—Market Vectors Junior Gold Miners (GDXJ)—took a savage beating. In early April of 2011, a share would have cost you $170. Today, you can pick one up for about $36… that's a decline of nearly 80%.

There are something like 3,000 small mining companies in the world today, and the vast majority of them are worthless, sitting on a few hundred acres of moose pasture and a pipe dream.

It's a very tough business. Small-cap exploration companies (the "juniors") are working year round looking for viable deposits. The question is not just if the gold is there, but if it can be extracted economically, and the probability is low. Even the ones that manage to find the goods and build a mine aren't in the clear yet: before they can pour the first bar, there are regulatory hurdles, rising costs of labor and machinery, and often vehement opposition from natives to deal with.

As the performance of junior mining stocks is closely correlated to that of gold, when the physical metal goes into a tailspin, gold mining shares follow suit. Only they tend to drop off faster and more deeply than physical gold.

Then why invest in them at all?

Because, as Casey Chief Metals & Mining Strategist Louis James likes to say, the downside is limited—all you can lose is 100% of your investment. The upside, on the other hand, is infinite.
In the rebound periods after downturns such as the one we're in, literal fortunes can be made; gains of 400-1,000% (and sometimes more) are not a rarity. It's a speculator's dream.

When speculating in junior miners, timing is crucial. Bear runs in the gold sector can last a long time—some of them will go on until the last faint hearted investor has been flushed away and there's no one left to sell.
At that point they come roaring back. It happened in the late '70s, it happened several times in the '80s when gold itself pretty much went to sleep, and again in 2002 after a four year retreat.

The most recent rally of 2009-'10 was breathtaking: Louis' International Speculator stocks, which had gotten hammered with the rest of the market, handed subscribers average gains of 401.8%—a level of return Joe the Investor never gets to see in his lifetime.

So where are we now in the cycle?

The present downturn, as noted, kicked off in the spring of 2011, and despite several "mini rallies", the overall trend has been down. Recently, though, the natural resource experts here at Casey Research and elsewhere have seen clear signs of an imminent turnaround.

For one thing, the price of gold itself has stabilized. After hitting its peak of $1,921.50 in September of 2011, it fell back below $1,190 twice last December. Since then, it hasn't tested those lows again and is trading about 6.5% higher today.

The demand for physical gold, especially from China, has been insatiable. The Austrian mint had to hire more employees and add a third eight-hour shift to the day in an attempt to keep up in its production of Philharmonic coins. "The market is very busy," a mint spokesperson said. "We can't meet the demand, even if we work overtime." Sales jumped 36% in 2013, compared to the year before.

Finally, the junior mining stocks have perked up again. In fact, for the first month of 2014, they turned in the best performance of any asset, as you can see here:

(Source: Zero Hedge)

The writing's on the wall, say the pros, that the downturn won't last much longer—and when the junior miners start taking off again, there's no telling how high they could go.

To present the evidence and to discuss how to play the turning tides in the precious metals market, Casey Research is hosting a timely online video event titled Upturn Millionaires next Wednesday, February 5, at 2:00 p.m. Eastern.



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What are Business Development Companies?

By Andrey Dashkov

Business Development Companies (BDCs) are publicly traded private debt and equity funds. I know that description isn’t terribly sexy, but keep reading and you’ll find there’s a lot to be excited about.


BDCs provide financing to firms too small to seek traditional bank financing or to do an IPO, but at the same time are too advanced to interest the earliest-stage venture capitalist. These companies are often near or at profitability and just need extra cash to reach the next milestone. Filling this void, BDCs provide funds to target companies in exchange for interest payments and/or an equity stake.

BDCs earn their living by lending at interest rates higher than those at which they borrow. Conceptually, they act like banks or bond funds, but with access to yields unlike any you’ll see from a traditional bond fund. The interest rate spread—meaning the difference between their capital costs and interest they charge their clients—is a major component of their business.

Oftentimes, a BDC will increase its dividend when market interest rates have not changed. Like a bank, the more loans it has in force, the more it profits. Increasing its dividend payout will generally have a very positive effect on its share price.

Unlike banks or many other traditional financial institutions, however, BDCs are structured to pay out more than 90% of their net profits to the shareholders. In return, BDCs don’t pay any income tax. In essence, their profits flow through to the owners. Many investors like to own BDCs in an IRA to create tax deferred or tax free income. The opportunity to use them for tax planning purposes, access to diversified early stage financing, and the impressive dividend yields they deliver make them a perfect fit for the Bulletproof Income strategy we employ at Miller's Money Forever.

The Clients

 

As a business model, BDCs emerged in response to a particular need: early-stage companies needed funding but couldn’t do it publicly due to their small size. At the same time, these companies didn’t match the investment criteria of so-called angel investors or venture capital providers. Enter the Business Development Company.

BDC teams, through expertise and connections, select the most promising companies in their fields and provide funds in return for a debt or equity stake, expecting gains from a potential acquisition scenario and a flow of interest payments in the meantime. The ability to selectively lend money to the right startup companies is paramount. It makes little difference how much interest they charge if the client defaults on the loan.

With limited financing options, BDCs’ clients may incur strict terms regarding their debt arrangements. The debt often comes with a high interest rate, has senior level status, and is often accompanied by deal sweeteners like warrants which add to the upside potential for those with a stake in the borrowing company.

In return for these stringent terms, the borrower can use the funds to:

•  Increase its cash reserve for added security;

•  Accelerate product development;

•  Hire staff and purchase licenses necessary to advance R&D, etc.

•  Invest in property, plant, and equipment to produce its product and bring it to market.

Turning to a BDC for funds allows a company to finance its development and minimize dilution of equity investors while reaching key value adding milestones in the process.

What’s in It for Investors?

 

In addition to the unique opportunity to access early-stage financing, we like BDCs for their dividend policy and high yield. The Investment Act of 1940 requires vehicles such as BDCs to pay out a minimum of 90% of their earnings. In practice, they tend to pay out more than that, plus their short term capital gains.

This often results in a high yield. Yields of 7-12% are common, which makes this vehicle unique in today’s low yield environment. The risk is minimized by diversification—like a good bond fund, they spread their assets over many sectors. This rational approach and the resulting income make the right BDC(s) a great addition to our Bulletproof Income strategy.

BDCs and the Bulletproof Income Strategy

 

In short, BDCs serve our strategy by:

• Providing inflation protection in the form of high yields and dividend growth;

• Limiting our exposure to interest rate risk, thereby adding a level of security (some BDCs borrow funds at variable rates, but not the ones we like);

• Maintaining low leverage, which BDCs are legally required to do;

• Distributing the vast majority of their income to shareholders, thereby creating an immediate link between the company’s operating success and the shareholders’ wellbeing… in other words, to keep their shareholders happy, BDCs have to perform well.

How Should You Pick a BDC?

 

Not every BDC out there qualifies as a sound investment. Here’s a list of qualities that make a BDC attractive.

• Dividend distributions come from earnings. This may sound like common sense, but it’s worth reiterating. A successful BDC should generate enough quarterly income to pay off its dividend obligations. If it doesn’t, it will have to go to the market for funds and either issue equity or borrow, or deplete cash reserves it would otherwise use to fund future investments. An equity issuance would result in share dilution; debt would increase leverage with no imminent potential to generate gains; and a lower cash reserve is no good either. We prefer stocks that balance their commitments to the shareholders with a long term growth strategy.

• The dividends are growing. This is another characteristic of a solid income pick, BDC or otherwise. Ideally, the dividend growth would outpace inflation, in addition to the yield itself being higher than the official CPI numbers. This growth can come from increasing the interest rate spread and also having more loans on the books.

• Yields should be realistic. We’d be cautious about a BDC that pays more than 12% of its income in dividends. Remember, gains come from the interest it receives from the borrowers. Higher interest indicates higher risk debt on a BDC’s balance sheet, which should be monitored regularly.

• Fixed-rate liabilities are preferred. We need our BDC to be able to cover its obligations if interest rates rise. Fixed rates are more predictable than floating rates; we like the more conservative approach.

• Their betas should be (way) below 1. We don’t want our investment to move together with the broad market or be too interest-rate sensitive. Keeping our betas as low as possible provides additional opportunities to reduce risk, which is a critical part of our strategy.

• They are diversified across many sectors. A BDC that has 100 tech companies in its portfolio is not as well diversified as a one with 50 firms scattered across a dozen sectors, including aerospace, defense, packaging, pharmaceuticals, and others. Review a company’s SEC filings to see how many baskets its eggs are in.

Wrap up......

 

Right now, BDCs look very interesting to income-seeking investors. They provide excellent yields, diversification opportunities, and access to early-stage companies that previously only institutions enjoyed. They also fit in with Miller Money Forever's Bulletproof Income strategy, the purpose of which is to provide seniors and savers with real returns, while offering maximum safety and diversification.

Catching a peek our Bulletproof portfolio is risk-free if you try today. Access it now by subscribing to Miller's Money Forever, with a 90-day money-back guarantee. If you don't like it, simply return the subscription within those first three months and we'll refund your payment, no questions asked. And the knowledge you gain in those months will be yours to keep forever.


Posted courtesy of our trading partners at Casey Research

Gold Stocks Are About to Create a Whole New Class of Millionaires

By Jeff Clark, Senior Precious Metals Analyst

Bear markets always end. Has this one?


Evidence is mounting that the bottom for gold may be in. While there's still risk, there's a new air of bullishness in the industry, something we haven't seen in over two years.

An ever growing number of industry insiders and investment analysts believe the downturn has come to a close. If that's true, it has immediate and critical implications for investors.

Doug Casey told me last week: "In my lifetime, the best time to have bought gold was 1971, at $35; it ran to over $800 by 1980. In 2001, gold was $250: in real terms even cheaper than in 1971. It ran to over $1,900 in 2011.

"It's now at $1,250. Not as cheap, in real terms, as in 1971 or 2001, but the world's financial and economic state is far more shaky.

"Gold is, once again, not just a prudent holding, but an excellent, high-potential, low-risk speculation. And gold stocks are about to create a whole new class of millionaires."

Just a couple of months ago, you would have had a hard time finding even one analyst saying something positive about gold and gold stocks—even some of the most bullish investment pros had gone silent.

But that's changing. Case in point: When Chief Metals & Mining Strategist Louis James and I attended last week's Resource Investment Conference in Vancouver, we witnessed quite a few very optimistic speakers.

Take Frank Giustra, for example, a self-made billionaire and philanthropist who made his fortune both in the mining sector and the entertainment industry. He's the founder of Lionsgate Entertainment, which is responsible for blockbuster movies like The Hunger Games, but he was just as heavily involved with mining blockbusters such as Iamgold, Wheaton River Minerals, Silver Wheaton, and others.

More Upturn Advocates Here's a quick scan of the growing number of voices that think the decline is over, some of which are outright bullish: "The worst is over with gold. It's time to call your broker." —Frank Holmes, US Global Investors "Sentiment is as black as night on gold, so I’m actually long on some gold miners." —Jeffrey Gundlach, bond guru and DoubleLine Capital founder "We'll see a gradual recovering throughout the year, because all the negative factors are already in the price." —Eugen Weinberg, head of commodities research at Commerzbank "Looking ahead, the downside risks seem to be diminishing, and overall we feel that the big shocks we've seen over the last two or three years are done..." —Marc Elliott, Investec "The mainstream narrative on gold is changing, indicating a possible bottom." —Bron Suchecki, Perth Mint "Orthodox investments are working on a cyclical peak, as precious metals are working on a cyclical bottom. The big pattern could be fully reversed by February-March, with gold becoming one of the best-performing sectors through the rest of 2014. The advice is to seriously reduce exposure in stocks and bonds and get fully invested in the precious metals sector. This should be completed in the first quarter." —Bob Hoye, Institutional Advisors

"I'm telling you, you've seen the bottom of the gold market," he told the rapt audience at the conference, offering a bet to the Goldman Sachs analyst who claimed gold is going to $1,000.

The stakes: Whoever loses has to stand on a popular street in downtown Vancouver dressed in women's underwear.

Tom McClellan, editor of the McClellan Market Report, stated in a recent interview on CNBC: "The commercial traders are at their most bullish stance since the 2001 low, and they usually get proven right. It's a hugely bullish condition for gold, and I'm expecting a really large rebound.

"The moment we see a major gold producer announce that it's curtailing production or it's going out of business," McClellan continued, "that'll be the moment we mark the low in gold. I expect to have one of those announcements any minute. We're getting down to the production price of gold right now, and they won't continue producing gold at that level for very long."

Are they just guessing? To answer that, first consider the historical context of this bear market—it's getting very long in the tooth:

• The current correction in gold stocks is the fourth longest since 1879. The decline of 66% ranks in the top 10 of recorded history.

• In silver, only two corrections have lasted longer—the ones that ended in 1936 and 1983.

Some technical analysts have pointed to positive chart formations, most notably the powerful "double bottom" that can portend a strong upward move. Based on intraday prices…

• Gold formed a double bottom last year, hitting $1,180.64 on June 28 and $1,182.60 on December 31, a convincing six-month span.

• Silver formed a higher low: $18.20 on June 28 vs. $18.72 on December 31, a bullish development.

• Gold stocks (XAU) formed a slightly lower low: $82.29 on June 26 vs. $79.73 December 19, 2103, a difference of 3.2%. However, as our friend Dominick Graziano, who successfully helped us earn doubles on three GLD puts last year, recently pointed out…

• The TSX Venture Index, where most junior mining stocks trade, has stayed above its June low. In fact, it recently soared above both the 50 day and 40 week moving averages for the first time since 2011.

Meanwhile, Goldcorp (GG) sent a huge bullish signal to the market earlier this month. It decided to pounce on the opportunities available right now, launching a takeover bid of Osisko Mining for $2.6 billion. The company wouldn't be buying now if it thought gold was headed to $1,000.

As Dennis Gartman, editor and publisher of The Gartman Letter, says, "It's time to be quietly bullish."

The smart money, like resource billionaire Rick Rule, is not just quietly bullish, though—they are actively buying top-quality junior mining stocks at bargain-basement prices to make a killing when prices rise.
To make sure that you can invest right alongside them, we decided to host a sequel to our 2013 Downturn Millionaires event, titled Upturn Millionaires—How to Play the Turning Tides in the Precious Metals Market.

Back then, we made a strong case for this once-in-a-generation opportunity—but it was still undetermined when the bottom would be in. It looks like that time is now very near, and we believe it's time to act.

On Wednesday, February 5, at 2 p.m. EST, resource legends Frank Giustra, Doug Casey, Rick Rule, and Ross Beaty, investment gurus John Mauldin and Porter Stansberry, and Casey Research resource experts Louis James and Marin Katusa will present the evidence and discuss the possibilities for life changing gains for investors with the cash and courage to grab this bull by the horns.

How do we know the absolute bottom is in? I'll answer that with a quote from a recent Mineweb interview with mining giant Rob McEwen, former chairman and CEO of Goldcorp:

"I'd say we're either at or extremely close to the bottom, and as an investor I'm not prepared to wait to see if the bottom's there because it's very hard to pick it. Because … if you're not taking advantage of it right now, you're going to miss a big part of the move. And when you look at the distance these stocks have to travel to get to their old highs, there's some wonderful numbers in terms of performance that I think we're going to see."

Granted, these voices are still in the minority—but that's what makes this opportunity wonderfully contrarian.

After all, once "Buy gold stocks" is investor consensus, we'll be approaching the time to sell.
Our Upturn Millionaires experts believe that our patience is about to be rewarded. And when that happens, gold stocks will be easy doubles—and the best juniors potential ten baggers.

Don't miss the free Upturn Millionaires video event—register here to save your seat. 

Even if you don't have time to watch the premiere, register anyway to receive a video recording of the event.)

Is it Buy Time for Halliburton? Wait for it.....wait for it....

Today we are going to be analyzing the stock of Halliburton Company (NYSE:HAL). On January 27th, a new red monthly Trade Triangle appeared, the first in 12 months for the stock. This indicates a significant technical development and changes the outlook and direction of Halliburton.

Today's in depth analysis is not to say the stock is going to collapse and go out of business, but rather we are noting a confluence of certain technical indicators that do not paint a positive picture for this stock.

There is an old adage in trading and it says "they slide faster than they glide." Translated that means stocks go down a lot faster than they go up.

What Does This Company Do?

Halliburton Company provides a range of services and products for the exploration, development, and production of oil and natural gas to oil and gas companies worldwide.

Chart Legend & Technical Picture (Black Numbers)

1. Classic long term trend line
2. Neckline of a Head and Shoulders Top
3. Head and Shoulders Top
4. Break below the 14 month trend line and Head and Shoulders Neckline
5. Fibonacci retracement levels
6. RSI divergence with price action below 50.

All of the Trade Triangles are red and negative.

To summarize, I expect the current downtrend in Halliburton Company (NYSE:HAL) to continue unless I see otherwise with the Trade Triangle technology.

If we are correct in our analysis, we could potentially see Halliburton move down to the following Fibonacci retracement levels:

38.2% @ $46.13
50% @ $43.00
61.8% @ $39.86

The 61.8% Fibonacci level of $39.86 nicely matches the Head and Shoulders target zone of $40.00. These two measurements confirm one another and make a strong case for this stock trading down to the $40 level in the next few months.


Click here to sample our "Trade Triangle Technology"

Gold and Silver Ready To Rumble Higher?

Let's check in with our trading partner David A Banister, does he think gold and silver is ready to rumble higher?

We have been writing about the bottoming process of the Gold Bear Cycle (Elliott Wave Theory) since December 4th 2013, and our most recent article on December 26th reiterated that the best time to accumulate the Gold/Silver stocks was in the December and January window. Specifically this is what we wrote:

“These types of indicators are coming to a pivot point where Gold is testing the summer 1181 lows…at the same time, we see bottoming 5th wave patterns combining with public sentiment, bullish percent indexes, and 5 year lows in Gold stocks. This is how bottom in Bear cycles form and you are witnessing the makings of a huge bottom between now and early February 2014 if we are right.

The time to buy Gold and Gold stocks is now during the next 4-5 weeks just as we were recommending stocks in late February 2009 with public articles that nobody paid attention to. This is the time to start accumulating quality gold miner and also the precious metals themselves as the bear cycle winds down and the spring comes back to Gold and Silver in 2014.”

Since that article a few of our favorite stocks rallied 40-50% in just 3 weeks or so from the December timeframe of our article. A recent pullback is pretty normal as we set up for Gold to take out the 1271 spot pricing area and run to the mid 1300’s over the next several weeks. By that time, you will be kicking yourself for not being long either the metals themselves or the higher beta stock plays.

A few suggestions that we have already written about we will reiterate here again. Aggressive investors can look at UGLD ETF, which is a 3x long Gold product that will give you upside leverage as Gold moves into elliott wave 3 up. Other more aggressive plays we already recommend a lot lower include GLDX, JNUG, NUGT and others. Picking individual stocks can be even better and we have recommended a few to our subscribers that are already doing very well.

What will trigger this next rally up is sentiment shifts to favor Gold and Silver over currency alternatives. The precious metals move on sentiment, much more so than interest rates or GDP reports or anything else in our opinion. Sentiment remains neutral to bearish as evidenced by the larger brokerage houses running around in January telling everyone to sell Gold, so we see that as a buy signal on top of our other indicators.

We expect the mid 1500’s by sometime this summer, but by then your opportunity will be long in the rear view mirror. Just click here to join us for frequent updates at from David Banister.

New video.....Doc's Favorite Trading Strategy

Our trading partner Doc Severson of Trading Concepts has put together a new free video that does a great job of explaining his favorite trading strategy.

The Iron Condor Trading strategy.  

Watch the video to learn a trading strategy that…

  *    is easy to learn and to execute,

  *    works in any market condition: up, down or sideways,

  *    has a high probability of profit (often more than 80%),

  *    is a perfect “starter strategy” for beginners,

  *   works as a great “add on strategy” for advanced traders,

       and much more.

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Get Positioned Now for the Next Great Natural Gas Switch

The Energy Report: Ron, welcome. You are making a presentation at the Money Show conference in Orlando in late January. What is the gist of your presentation?

Ron Muhlenkamp: The gist of my presentation is that natural gas has become an energy game changer in the U.S. We are cutting the cost of energy in half. This has already happened for homeowners like me who heat their homes with natural gas. We think the next up to benefit is probably the transportation sector.

TER: What is behind this game change?

"Natural gas has become an energy game changer in the U.S."

RM: The combination of horizontal drilling and fracking has made an awful lot of gas available cheaply. There's a whole lot of gas that's now available at $5/thousand cubic feet ($5/Mcf) or less. I live in Western Pennsylvania, and 30 years ago, Ray Mansfield was in the oil and gas drilling business, having retired from the Steelers. He said, Ron, we know where all the gas is in Pennsylvania; it's just a matter of price. If the price runs up, we will drill more. If the price runs down, we will drill less. Any way you slice it, we are just sitting on an awful lot of it.

Two years ago, we had a warm winter, and the price of gas actually got down to $2/Mcf. You saw an awful lot of electric utilities switch from coal to gas. Literally in a year, what had been 50% of electricity produced by coal went to 35%. The difference was made up with natural gas.

In transportation, the infrastructure to make the switch to natural gas has not been in place. We didn't have the filling stations or the trucks. Now, the trucks are just becoming available. You can buy pickup trucks from Ford Motor Co. (F:NYSE) and General Motors Co. (GM:NYSE) that run on natural gas. Furthermore, Clean Energy Fuels Corp. (CLNE:NASDAQ) has established natural gas filling stations coast to coast, every 250 miles on five different interstate highways.

Westport Innovations Inc. (WPRT:NASDAQ) has been producing 9 liter (9L) natural gas engines. Waste Management (WM:NYSE) uses 9L engines on garbage trucks and expects 8590% of its new trucks to be natural gas fueled. Westport has just come out with 12L engines, which are used for over-the-road trucks. I don't expect those engines to get adopted as fast as the utility industry made the switch to natural gas, but there has been a fairly rapid adoption in the waste management industry. I think we're on the cusp of a major trend.

TER: That fuel switching in the power industry has been going on since 2008. Is it still progressing at the same rate or is it picking up?

"The big switch is over in utilities. But we've barely begun the transition with transportation fuel."

RM: It's pretty much leveled off. In fact, there's probably a little bit less gas used than when gas was below $3/Mcf. The latest numbers I've seen show that we're running about 37% coal and about 3334% gas. Going forward, I think coal use will continue to decline, and natural gas use will continue to rise. The big switch is over in utilities, and it will be gradual from here. But we've barely begun the transition with transportation fuel.

TER: So the game has changed for the power industry, and the transportation industry is next. What other changes do you foresee in the future?

RM: We will continue to use more natural gas and less crude. Right now, for equal amounts of power, crude oil is priced at about three times the natural gas price in the U.S. That is too wide a spread to ignore, economically.

The Natural Gas - Crude Oil Spread

source: Bloomberg

Incidentally, in Europe, natural gas is still at $12/Mcf. It's on a par with crude. Most European chemical plants use a crude oil base to make chemicals. U.S. plants use a natural gas base. Natural gas becomes ethane, then ethylene, then polyethylene and then plastic. So producers of plastics or the feedstocks for plastic in the U.S. now have an advantage they didn't have before.

"The natural gas price advantage will be with us in North America for quite a long time. It's huge."

In Japan, the natural gas price jumped from $12 to $16/Mcf just after the tsunami wiped out the Fukushima nuclear power plant. To ship gas from the U.S. to Japan, the cost of compression, liquefying and decompression is about $6/Mcf. Executives at U.S.-based companies like Dow Chemical Co.

(DOW:NYSE) are saying they don't want the U.S. to export gas because that would drive the price up. But domestic gas consumers already have that $6/Mcf advantage. Meanwhile, in Williston, N.D., the natural gas price is effectively zero. Producers still flare it because they don't have the pipelines to take it out of the area. So this price advantage will be with us in North America for quite a long time. It's huge. That's why we call it a game changer.

TER: So how can investors take advantage of these changes?

RM: Well, any number of ways. We hold some fracking services companies, like Halliburton Co. (HAL:NYSE). We own a couple of drillers, including Rex Energy Corp. (REXX:NASDAQ). And we invest in the people who build natural gas export facilities, such as Fluor Corp. (FLR:NYSE), KBR Inc. (KBR:NYSE) and Chicago Bridge Iron Co. N.V. (CBI:NYSE).

I already mentioned companies building natural gas-fired engines, including Westport, which makes a kit to modify a common diesel engine. And because natural gas will require new, larger fuel tanks, investing in companies that build natural gas tanks is another way to play it. One of the disadvantages of natural gas versus gasoline or diesel is compressed natural gas takes about three to four times the volume to get the same range. Liquefied natural gas (LNG) takes about two times the volume.

Of course, compressed natural gas is stored in pressure tanks, so it takes a pressure tank of larger size. Fuel tank conversions have been almost as expensive as the engine conversions. 3M Co. (MMM:NYSE) has gotten in that business, as has General Electric Co. (GE:NYSE). There's another outfit called Chart Industries Inc. (GTLS:NGS; GTLS:BSX), which has already run a good bit.

"We want a foot in each of these camps because we're not quite sure who the ultimate winners will turn out to be, but we know what the product lines will have to be."

We want a foot in each of these camps because we're not quite sure who the ultimate winners will turn out to be, but we know what the product lines will have to be. Don't forget about the companies that own the LNG export facilitiesCheniere Energy Inc.'s (LNG:NYSE.MKT) facility should be up and running in probably 2015, but, again, that stock has run up a good bit, too.

Pipelines will benefit from the switch. One of the biggest pipelines in the country is Kinder Morgan Energy Partners L.P.'s (KMP:NYSE) Rockies Express Pipeline, which stretches from Northern Colorado to Eastern Ohio and ships gas east. Kinder Morgan recently filed to reverse the flow on part of the line. Right now, in Western Pennsylvania, we have a glut of gas. A few months ago, they reversed the flow of the pipeline from the Gulf Coast that used to come up to Western Pennsylvania. There's a whole lot going on.

TER: After some serious oil train derailments in recent months, pressure is building now to increase pipeline capacity, but there is also pressure on producers to reduce flaring, which is happening on a huge scale in the Bakken Shale. How will the economics and the operations of Bakken producers be affected if they can't flare and pipeline capacity is not increased?

RM: The Bakken is primarily an oilfield; the gas is a byproduct. We hear a lot about the Keystone XL Pipeline, which is meant to carry oil from the Bakken south. I can't speak specifically, but if you're going to lay an oil pipeline from the Bakken, you should lay a gas pipeline alongside it. You can ship oil by rail, but it's not economic to ship gas by rail. One way or another, the oil will be shipped.

TER: Bill Powers, the independent analyst and author of "Cold, Hungry and in the Dark: Exploding the Natural Gas Supply Myth," says gas prices are going to rise steadily to as much as $6/million British thermal units ($6/MMBtu) because U.S. gas production has peaked and now is now flat or declining. Do you agree with that?

RM: Our production of gas has not peaked and is not declining. We are using fewer rigs drilling for gas, but each well, particularly if you drill horizontally instead of just vertically, is producing so much more gas. Production is not declining and isn't likely to for at least a decade. At current rates, we can drill in Pennsylvania for another 50 years. Yes, you drill the best wells first but also, over time, you get a little bit better at timing this stuff. I'd be very surprised if the price in the next decade gets over $5/Mcf for any extended period of time because there's an awful lot of gas that's very profitable at that price. I'm willing to make that bet with Bill Powers. But even $6/Mcf gas would equate to $55/bbl crude, which is still a huge spread and wouldn't negate my general argument.

TER: What's your forecast for gas prices in 2014?

RM: My forecast is $4/Mcf, give or take $1. We just had a big cold snap on the East Coast. What used to happen is any time you had a cold winter, the price of gas jumped. For instance, in 2005, when crude was selling about $50/barrel ($50/bbl), gas began the year at about $7/Mcf, which was on par with crude, but in the wintertime, it doubled and ran up to $14/Mcf. The recent cold snap took gas all the way up to ~$4.20/Mcf. Gas is going to be in that range for a long time.

TER: Your advice to investors in natural gas is to get exposure to exploration and production companies, service companies and even LNG plant constructors. What about the LNG plant owners, the pipelines and the railroads?

RM: The pipelines will do well. They've already been bid up. The railroads will benefit from oil and gas, but they're getting hurt because coal tonnage is way down, CSX Corp. (CSX:NYSE) just reported. So for the railroads, it's going to be a wash. They'll haul less coal and more oil. The railroads won't haul gas. How much oil they haul is an open question. We're about to tighten restrictions on how tank cars are built.

TER: What did well in the Muhlenkamp Fund last year?

RM: The fund was up 34.4%. We did very well in biotech stocks. We did very well in financial stocks. We also did well in some energy stocks. Airlines did well for us. Incidentally, airlines benefit big time from cheaper energy, as you know. So it's fairly diverse.

TER: How are you adjusting your portfolio this year?

RM: Not too much has changed. We're no longer finding many good companies that are cheap. So we're monitoring and adjusting a little bit around the edges. We do think banks have further to go. We think the economy will grow somewhere between 2.53% this year. We've owned no bonds for the past couple of years, but with the Treasuries now, the interest rates on the longer end are high enough so that savers can get a little bit of return.

TER: I was surprised to see a really sharp drop in November for Fuel Systems Solutions Inc. (FSYS:NYSE). Why did that happen?

RM: Fuel Systems makes conversion kits for cars to burn compressed natural gas. In places like Pakistan, 40% of the cars run on natural gas; this is not new technology. A number of its customers decided to make these kits in-house. Fuel Systems is a small position of ours, but, yes, it got hit in Q4/13 when it announced that a number of its customers decided to produce their own kits. One of the nice things about this is there's no new technology involved. We've been using natural gas as a power source for generations. What has changed is the amount that's available reliably at a cheap price.

TER: There was another sharp drop in Clean Energy Fuels in October. What happened there?
RM: Clean Energy, so far, doesn't make a profit because it has been shelling out all the money to build all these filling stations. It's just taking a little longer than people expected. The stock is compelling at these levels. A number of these companies ran. Westport doubled, and we took some profits. It's now back down, and we should do a Buy rerating. There is volatility in this stuff, but the economics are undeniable. We still managed a 34.4% gain this year, which isn't bad.

"Royal Dutch Shell Plc is building natural gas fueling stations in concert with another truck stop operator."

Clean Energy has signed a joint venture with Pilot Flying J to build natural gas fueling stations at Flying J truck stops coast to coast. Royal Dutch Shell Plc (RDS.A:NYSE; RDS.B:NYSE) is doing a similar thing in concert with another truck stop operator. For instance, the Port of Long Beach, Calif., passed a rule several years ago that the trucks on the port need to burn natural gas. The Port of Hamburg, Germany, has contracted to put a natural gas-fired power unit on a barge so that when cruise ships come into the harbor, instead of running their own power off their diesel engines and generators, they'll use this barge to supply power to the cruise ship because natural gas exhaust is cleaner than diesel exhaust.

TER: A couple of other companies had surprising drops Rex Energy and Westport Innovations. Rex rose all year until October or November, when it suddenly dropped. Westport also dropped suddenly. You had a wild ride in your portfolio, didn't you?

RM: We bought Rex at $13/share, and it went to $22 or $23, and it's now $19. I can live with that. The dips give you a chance to load up again. That volatility is why we have a diversified portfolio. That's why you don't just bet on three stocks.

As an investor, most of the time what you're looking for is to find a difference between perception and reality. Today, we have two realities: One is the price of crude oil, and the other is the price of natural gas. So it's literally an arbitrage if you can buy energy either at the equivalent of $100/bbl or at a third of that.

Four dollar gas is equivalent in energy content to about $35/bbl crude. So I can buy my energy either at $100/bbl or $35/bbl. Economics says that spread is too wide. It won't necessarily close, but it sure as heck will narrow a good bit. For instance, I own no conventional oil companies. I think the price of oil will be coming down.

TER: So what companies in your portfolio look most promising?

RM: If you really want to get me excited, we can talk about natural gas, which we've been talking about. We could talk about biotechnology, which is exciting but I don't understand it as well. We can talk about U.S. manufacturing, but that's basically based on cheaper energy. I just bought more Rex. At these prices, I'm buying Westport. I just bought Chicago Bridge. I just bought KBR.

TER: What is your main motivation in buying these companies? Is it just the stock price or is there something about the management of the company or the technology?

"I want to buy Pontiacs and Buicks when they go on sale. I don't want a Yugo at any price. I would like to buy Cadillacs, but they don't go on sale very often."

RM: We're in the investment business. What we rely on is good companies, and we look to buy them when they're selling cheaply. Our first measure of how well a company is run is we start with return on shareholder equity. So we like companies that are at least above average in return on shareholder equity. I cannot yet say that about Clean Energy, but we do think Clean Energy is at the forefront of something that's needed for this transition. We're always looking for good companies. Then the question is whether you can buy them at a decent price.

My phrase is: I want to buy Pontiacs and Buicks when they go on sale. I don't want a Yugo at any price. I would like to buy Cadillacs, but they don't go on sale very often. But if I can get Buicks when they're on sale, I'll make good money for my clientele. We think that the companies we have are at least Buicks. If we can get them at Chevy prices, that's when we buy them. I will not pay an unlimited amount for any company.

I've never seen a company that was so good it didn't matter what you paid for the stock. To us, value is a good company at a cheap price. Some people bottom fish. They look to see when they can steal companies, and there are times when you can make money that way. But at that point it's not often a very good business, and there aren't too many well run companies at bargain basement prices. So it's very unusual for us to buy a weak company or a weak industry.

TER: Ron, this has been a good conversation. I appreciate your time, and good luck with your Money Show presentation.

RM: Thanks; it'll be fun.

Ron Muhlenkamp is the founder and portfolio manager of Muhlenkamp Co. Inc., 


Posted coutesy of our trading partners at INO.com

Two Gold Stocks You’ll Wish You Owned in 2013… and Should Still Buy Now

By Laurynas Vegys, Research Analyst

Looking back on 2013, we have to conclude that it was one of the worst years for precious metals stocks in recent memory—despite all the reasons why it should have been a great one.


Here's a sober look at the performance of the most widely followed indices in the precious metals (PM) sector.

It's obvious that 2013 was an extremely painful year for precious metals investors.
Why? Here's a shortlist of some of the most notable reasons.

• We didn't see significant levels of price inflation in the US—the very thing that gold is a good hedge for—so there was no major flow into precious metals in America.

• Precious metals ETFs, like GLD, flooded the market with a massive amount of gold liquidations.

• The European sovereign debt crisis eased up (unless, of course, you live in the PIIGS countries, Cyprus, or pretty much anywhere else in the Eurozone).

• Rumors of the Fed tapering QE continued throughout the year, depressing the gold market and causing extreme volatility. (Oddly enough, the actual taper in December did much less harm than the rumors that preceded it, suggesting it was already priced in when it arrived.)

You can probably think of other reasons, but these no doubt contributed to the industry's precipitous decline.
In such a depressed environment, it's not surprising that almost all gold stocks were down, though our International Speculator portfolio outperformed the market indices. And in fact, two of our portfolio companies—both 2013 recommendations—saw their share prices rise substantially.

Here's how these two stocks performed last year relative to gold and the indices:

The good news is both of these stocks are still "Buys" today, and we're convinced there's much more joy to come…

2014 Winner #1: Profit at Just About Any Price

Never mind simply beating the indices; this company gained a whopping 47.9% last year, due to its unique business model of processing third party gold ore at its plant in South America.

We'd previously been skeptical of this model because ore suppliers are typically small scale and operate with no mine plan. This often causes irregularities in the quantity and quality of the ore received by the mill, which can lead to output and earnings seesawing wildly.

A very compelling angle to this story emerged, however, when the jurisdiction where the company operates decided to crack down on illegal and environmentally unsound ore processing practices. This instantly created a bottleneck, allowing the company to pick and choose its potential suppliers and accept only the highest grade deals.

Our 2014 Winner #1 has been steadily increasing output while keeping tight control over its ore grade and gross margin. One of the most attractive characteristics of its model: The company has been able to lock in a margin that remains stable even when the gold price fluctuates.

On the exploration side, our pick recently delivered high grade drill results at its South American gold project, including some bonanza grade hits. A large, high-grade discovery here could easily drive this stock to become a 10 bagger (i.e., produce gains of 1,000% or more).

However, successful exploration is not required for the shares to continue rising in the coming years, as the company will continue to profit from its gold processing operation.

This gold processor is still one of our favorite International Speculator picks. It will continue to earn record profits this year, even if the gold price goes nowhere—in other words, this stock still has plenty of upside with almost no downside risk.

2014 Winner #2: High-Grade Metal with Proven People

 

Our second favorite pick in 2013 was a new high-grade copper-gold producer in Colombia.

We had been following the story for a while, primarily because we know and trust management (and if you've read Doug Casey for any length of time, you know that "People" is the first and foremost of his Eight Ps of Resource Stock Evaluation).

We didn't recommend the stock the first time we were on site, as metals prices were falling and the company had a big property payment coming due. Flash forward to today: The company raised the money it needed, the resources in the ground have been expanding and at excellent grade, mine upgrades are under way, and the keys to the plant have just been handed over.

The dual copper-gold production is a real boon in our current, low-price environment: Even if gold were to stay down for the rest of the year, the cash flow from the copper (a base metal and, therefore, subject to different economic factors than the precious metals) should keep the company's profits humming along.
We have yet to see financial results from the operation, but we have a great deal of confidence in this mine-building team, one that has delivered for us repeatedly in the past.

Cash flow, and soon thereafter net profits, are an imminent push in this story—though the real jackpot potential comes from the large land package surrounding the company's mine, which holds multiple outcrops of high-grade mineralization that have never been drilled.

Currently, the company is busy expanding its mine, so that exploration work probably won't happen until later this year. But we do think there's a good possibility of some very big news in the second half of 2014—so you'll want to position yourself now, while prices remain relatively low.

Why You Should Own These Stocks This Year

 

Both of the companies—and their share prices—are poised to benefit greatly from increased cash flow, a ramp-up in production, and high-grade drill results.

In addition, 2014 Winner #1, with its ingenious long  term growth model and its ability to profit at just about any gold price, offers minimal downside risk. This company found a creative and profitable way to not only survive last year's downturn but to thrive in the midst of it—and with an effective model in place, it will continue to prosper this year. The tide doesn't need to turn in the precious metals sector for this stock to continue to do well.

Out of fairness to paying subscribers, we can't give you the names of these two companies. But you can find out all about them—plus how to invest and what to expect this year—without any risk to you whatsoever.
Here's what I suggest: Take us up on our 100% satisfaction guarantee and try Casey International Speculator for 3 months. If it's not everything you expected and more, simply cancel for a prompt, courteous refund of every penny you paid.

Even if you decide to cancel ANY TIME after the 3 months are up, you'll still get a prorated refund on the remainder of your subscription. That's our iron clad guarantee, so what do you have to lose? Just click here to get started.


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