Crazy Mans Rant - He's Crazy Like A Fox!

By: Dudley Baker | Tue, Feb 21, 2006
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You may recall one of our subscribers' recent views in the article, "A Crazy Man's Rant - Or Right On." We would like to share his current opinions with you.

"I had been genuinely enjoying the run up of gold, silver and my mining stocks the last while. I kept wondering when the correction would occur and now that it has I would like to again share my views.

These markets advance and correct when they are oversold or overbought. I read all kinds of technical analysts whose charts tell me at what points each is to occur. In fact this correction in precious metals has been long overdue given the length and size of the recent gains. There were all kinds of folks recommending that we take some gains off the table for the last month coupled with a large number of folks strongly recommending that investors wait for the inevitable pull back to buy. The large gains before the current correction started to make this advice look suspect, but reality always prevails. Since I am for the most part a buy and hold investor, not a trader I didn't take that advice because I can't be bothered to manage my portfolio that closely and I am invariably going to be a bad market timer.

So, the current correction in precious metals and energy stocks comes as no surprise to me. As long as the secular bull market in commodities - especially hard commodities such as precious and base metals and energy remain intact - there is nothing to worry about. This reality is confirmed when there are always higher highs and higher lows. In other words, two steps forward and one step back. I fully expect that to continue for the next several years and will culminate in some rather parabolic rises and then almost a straight spiral southward followed by the dead cat bounce rebound to half its prior high followed by a rapid decline and long term slump.

Think about it. The $850 mid day gold bullion high of 1980 translates into $2,175 current dollars. We therefore have just begun and have a long way to go to match that blow off level. As you know, I look primarily at fundamentals in my analysis and for my conclusions and I have total certainty that the mess looming in the US and global economies will drive precious metals northward in a huge way. Sure there will be corrections with some being significant but they will be invariably brief, although some might be a little steep. This is one bull I intend to ride the distance but taking some money off the table periodically. I'm even convinced that my earlier expectations about my precious metals assets doubling are far too modest. Patience is what I tell myself. We've just begun!

As for my portfolio, I have mainly precious metals stocks, both large and small, in mutual funds as well as a few individual junior 3 - 4 year term warrants. I also have some energy stocks in oil, gas and a uranium warrant. Overall, at the present level of value in the current correction, I have lost some of my incredible paper gains which had grown substantially over my original investments.

But I am not worried. We will probably see some choppy sideways action in prices over the next few months and then some serious and quick moves northward again. Over the longer term, perhaps the next four or five years, I see some serious gains in the metals and energy areas because of supply issues, demand growth and geopolitical uncertainties especially in base metals and energy.

In terms of precious metals, it will be driven by concerns about inflation, the value of paper money and crises brought on by highly leveraged hedge fund investments gone bad. Trade deficits and imbalances coupled with excessive creation of new money vis a vis GDP growth, as well as budgetary deficits, will all impact gold prices.

Higher interest rates designed to continue to cause foreigners to buy US debt will definitely bring about a recession, unemployment, repossessions of assets like houses and cars from highly indebted consumers. I am one who believes that it won't be a soft landing in part because we are at the stage of permanently high energy prices which will fundamentally change the economies of the developed world and bring about a permanent lowering of the living standard for the average person.

To conclude, I don't worry about the current correction because the commodities bull remains intact and will for the next several years. I feel safer being invested in that area than any other segment of the financial world.

So am I a 'crazy man' or just crazy like a fox?"

Seems the key to playing this bull market is to strategically pick your investments, exercise patience and give this bull some room (time) to run.


Dudley Baker

Author: Dudley Baker

Dudley Pierce Baker
Founder/Editor - Guadalajara/Ajijic, Mexico
A Market Data Service for Warrants

Dudley Pierce Baker is the founder and editor of Common Stock Warrants and its predecessor, Precious Metals Warrants and a 1967 graduate of St. Mary’s University in San Antonio, Texas with a major in accounting.

Disclaimer/Disclosure Statement: is not an investment advisor and any reference to specific securities does not constitute a recommendation thereof. The opinions expressed herein are the express personal opinions of Dudley Baker. Neither the information, nor the opinions expressed should be construed as a solicitation to buy any securities mentioned in this Service. Examples given are only intended to make investors aware of the potential rewards of investing in Warrants. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions involving stocks or Warrants.

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