Today, after a discussion of my views on the economy, a friend asked me for a stock pick based on my views. Well, I don't "do" personal stock picks. There are many reasons for this. First, the advice is generally wasted. People use it as a test to see if you know what you are talking about. If the market goes against you, you are an idiot (despite the fact that pro money managers aren't always right either). If the chart plays out like you thought it would, then of course you just got lucky (I have been getting lucky quite a bit of late). Another reason for not wanting to give specific stock advice to a person is that they profit if the advice pans out while giving you nothing. But if the advice doesn't work out then they don't want to take personal responsibility for their own actions and so you hear "you lost me money"...
In other words, unless you are a paid professional who is compensated for the risk of having to hear customers whining, its a no win scenario. So I don't give stock picks or investment advice, period. But I do like to draw people's attention to situations that I find interesting so that they can do as they please with the data point. Under these rules of engagement I think that GDX is... wait for it, a screaming buy. Yes, that's right, I just used the uber secret buzz phase for the 2nd time in the history of my blog. Here was the first time I used it, right at the exact bottom of the solar bust. Since then solar has skyrocketed. What else can I say except that it was indeed a screaming buy?
So why are the gold miners a screaming buy IMO? Well first of all I would not buy any single miner. I would buy the GDX Gold Miners ETF. With this basket of companies you are less exposed to the potential shenanigans of any individual CEO or company. As for "why now", well, first rule is buy low sell high, right? the miners have clearly taken a beating since late 2011. Of course, they could always go lower. But not, I think, any time soon.
In other words, my EW modeling of this chart tells me that after a series of waves up into what I have marked as red 1, the shares got killed in a big A-B-C swoon. That swoon led to an inclining double bottom. And it did so not on great volume but on ridiculous, exponentially rising, panic stampede volume. That volume is now declining. This means the panic sellers have all sold. The selling mania is over. The downside is most likely (as in 90+% likely) already on the chart.
In addition, this smash down improved the fundamentals of the miners greatly and, in several highly visible cases, convinced them to cut costs across the board. So now their PEs are much more reasonable, and their P/B and P/S are just down right low in many cases. Their dividends exist and in several cases are better than average. The smash down just made them better investments IMO and in many cases it woke management up. So they will not just go back into their spendy ways again as gold price rises IMO. They will be reporting record profits over the next few years as a result.
There is also another important "fundamental" at play here: the fact that the federal reserve is fundamentally screwed in achieving its stated goal of tapering by now. The fed was supposed to taper its monthly economic manipulations (AKA stimulus) today but in reality the fed could not taper. Instead, it soft-sold the fact that the economy is still fundamentally weak (in spite of 85 billion worth of entitlements being printed from thin air each month). But the simple bottom line is that they have to remain in the mode of propping up the economy to the tune of $85 billion per month. Smart people should be thinking to themselves, "If they could not taper right now, then when? When will it ever be a good time in the future to pull the drugs from the drug addict? There will never be a good time for less debt drug and in fact a case will likely be made for MORE debt drugging going forward".
With socialists running the show, entitlements drive their thinking. Without the new debt, treasury cannot fund all the current entitlements. And so we will have new debt, and lots of it. But without someone to buy that debt, interest rates will skyrocket. In doing so, all new debt will require huge wads of cash to pay the rising debt service on it. That cash will either have to be taxed from the weak economy (good luck) or printed up from thin air (ding ding ding). But worse still, existing debt that is short term will need to be rolled over and it will be hit with higher interest rates if the fed stops printing and buying treasuries with the cash.
In any case, my current target price on GDX is $75. Today it rose nearly 9% based on the non-tapering admission by Bernanke and the con men to close at 28.51. Buy the dips, not the peaks IMO but do consider buying. Dollar cost averaging into a position over a period of weeks is really a great strategy IMO. For real chart followers out there, yeah I know that this is looking more like an expanding triangle than a standard 1-2-3-4-5 motive wave. Where do you think the $75 price target came from? Draw the lines and see for yourself.
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