In Search of the Perfect Investment

You play this market short-term. Hot stocks go up. Y0u jump in. You watch the charts. When the stock turns over, you sell it. If it stabilizes and you still like it, you get back in. I sold PCX yesterday because it was turning over. I’d made a handsome profit on it. Hot stocks include ones mentioned in the right column, gold (SGOL and GLD) and silver (SLV).  The good news is that online brokerge accounts cost nothing to trade. I’m not a trader. But I’m aware that things are squirrely.

My friend, the trader, told me last night, “Everyone is expecting a pullback. When it happens, they’ll be major buyers.”

I asked, “When will that be?”

Answer, “They think it’s coverdue.”

Maybe, it was yesterday?

Excellent reason to be bullish on America. We’re not Europe. Graydon Carter is the editor of Vanity Fair. He wrote this in the December issue>

What headline writers a generation or two ago called the Silent Majority has become the Angry Majority. And we should have seen this coming. Both Bush and Obama, believing that their elections gave them mandates for seismic change, yanked the nation away from the center, which Bill Clinton, despite the morass of his personal life, knew was the place to be. Thanks to these dramatic political lurches—and aided by the exponential magnification of the Internet and the seething blogosphere, and with the martinets at the command center at Fox News marshaling forces—the fringe has achieved considerable purchase on the middle ground. Indeed, the fringe has almost become mainstream.

This anger-fest is in no way confined to America. Indeed, in Europe it is becoming even uglier, what with anti-immigrant sentiment on the rise, especially against Muslims and Gypsies. In Britain, a growing anti-Islam group, the English Defence League, holds demonstrations almost monthly, usually in areas where there are high concentrations of Muslim immigrants. These protests are almost always accompanied by violence. In Germany, where 30 percent of the electorate believes the country is “overrun by foreigners,” Chancellor Angela Merkel gave a speech recently in which she declared that the country’s attempt to build a multicultural society has failed utterly. (And the Germans are usually so good at this.) French president Nicolas Sarkozy and Italian prime minister Silvio Berlusconi have both ordered the expulsion of Romanian Gypsies. In Sweden, a small number of Jews, having suffered at the hands of the local Muslim population, have just given up and immigrated to Israel. Even in sleepy little Holland, Geert Wilders, the far-right politician who heads the third-largest party in the country—and who holds the balance of power in the Dutch parliament—is on trial for inciting hatred against Muslims by, among other things, comparing the Koran to Mein Kampf.

It is not surprising that during these times we yearn for tales of another era, when the stakes were high and the choices more clear-cut. A spate of superb World War II books have come out this season, including Juliet Gardiner’s The Blitz: The British Under Attack (published in September, in the U.K.). When Americans refer to 9/11 as the day the world changed, they should be mindful of what London went through in the early days of the Second World War. On September 7, 1940, 348 Luftwaffe bombers crossed the English Channel. They were over London by late afternoon and for the next two hours ignited the city with incendiary bombs. That same evening, the Germans were back, raining 625 tons of high explosives on East London. The Blitz (from the German Blitzkrieg, for “lightning war”) went on for 57 consecutive nights and then spread to other cities in the U.K. It was estimated that by May of the next year more than 43,000 people had died in the strategic air raids. The English, being the English, just got on with it. A survey taken during this period found that weather had a greater impact than air raids on the day-to-day worries of many Londoners. As Gardiner observes, “egg rationing produced more emotion than the blitz.”

Americans were not without their own tales of epic struggle during the war. One such saga is told in Unbroken: A World War II Story of Survival, Resilience, and Redemption, by Laura Hillenbrand. Her last book, Seabiscuit, published nine years ago, was a masterpiece of nonfiction narrative, and made for a pretty terrific movie too. Unbroken is a more than worthy follow-up. In it, Hillenbrand tells the story of Louie Zamperini, a former Olympic track star for the U.S. who at 23 came close to breaking the four-minute mile. He made a heroic but losing effort in the 5,000 meters at the Berlin Games, in 1936, and would have been a gold-medal contender at the planned 1940 Tokyo Olympics had they not been canceled because of the war. Louie entered the service a few months before Pearl Harbor. Serving as a bombardier in the Pacific, he and the rest of his B-24 crew set out from Hawaii on May 27, 1943, on an emergency search-and-rescue mission. Louie wouldn’t set foot on American soil again for almost two and a half years. His wartime saga began, as does our excerpt, with a plane crash, followed by an almost unbelievably harrowing experience adrift on a life raft in the middle of the Pacific. He and two fellow airmen battled starvation, eating only the occasional raw albatross or fish. Zamperini’s story is certainly one of the most remarkable survival tales ever recorded. What happened after that is equally remarkable. Do yourself and the publishing industry a favor and buy the book after you read our excerpt, “Adrift but Unbroken.”

When you consider what this one man endured, or the entire city of London, whatever annoyances are bothering you, whatever problems you have in your own life, will seem minor by comparison.

America, you have it pretty damned good. Smile.

What’s Richard Russell, the doyen of stockmarket newsletters, telling his subscribers? Remember the man is a bear. I agree with him on gold, but not stocks.

So what to do? What should I tell my subscribers?My best advice is that the stock market is too unsettled, too questionable, for me or my subscribers to assume an all-out bullish or bearish position. It never pays to be greedy or impatient in the investment business. My thinking is that “the market is here today, and it will be here a month and a year from now.” There are times when the market’s trend is clear, and there are other times when the market’s trend is questionable.

My own reaction and conclusion is that I don’t want to take the risk of buying or owning common stocks at this perplexing time.

But there is a satisfactory alternative. The alternative is the precious metals. The great primary bull market in the precious metals is still in intact. The action in both gold and silver continues to be good. On October 8, the active contract for gold (December) closed above 1400, a new all-time record high.

Big bull markets tend to end amid extreme speculation. We have not yet seen this kind of action in gold. The majority of Americans don’t own an ounce of gold. Most Americans have never even seen an actual gold coin. Americans read about “new record highs” in gold, and their reaction is that “gold is in a bubble.” They read the warnings of know-nothing gold detractors, and they believe that gold is too speculative and “too bubbly” for them to even think about buying into the gold or silver markets.

Gold has closed higher for 10 years running. That’s news to most Americans. “How did it happen? How is it that we’re just hearing about the ‘great gold bull market’ now?”

I’ve written before that in order to make real money, you’ve got to assume a big position in some item, be it a stock or a currency or silver or gold. I’ve been writing about gold for about a decade, and during that time I’ve urged my subscribers to build positions in gold, as much as you’re comfortable with.

From e-mails received, I know that many of my subscribers have done just that. These courageous subscribers have now accumulated greater paper profits for themselves than they ever have before.

But what of those subscribes who have bought only five or ten one-ounce gold coins or those subscribers who have placed only a conservative amount of money into GLD or GDX or NEM?

Ah, this isn’t easy for me or for them. I’m going on the thesis that the highly speculative phase of the gold bull market lies ahead. Now I’m depending on my experience with other bull markets:

(1) Most great bull markets go higher and further than almost anybody thinks possible.

(2) Most bull markets progress in three psychological phases.

(3) I believe the first phase of the gold bull market has passed. It’s over. This is the phase where students of great values take their initial positions.

(4) I believe we are deep into the second phase of the gold bull market. This is the phase where the institutions and funds join in the bull market show.

(5) Often, more money is made in the third or speculative phase of a bull market than is made in the first and second phases combined. This can mean that the late-comers to bull markets often make a fortune, more than those who had the courage to buy early in the game, but they have to have fortitude to sit in the highly volatile second/third phases.

(6) Obviously, I could be wrong, but I believe that gold and silver are both still a buy.

(7) I’ve said this before, but I’ll repeat it. You do not trade in-and-out in a confirmed primary bull market. You take an early position and add to your position as the bull market progresses.

(8) Great bull markets don’t usually provide marvelous entry points. Those who are waiting for the ideal or “safe” place to enter the bull market in precious metals may have a long and frustrating wait.

(9) In a great primary bull market, you just “shut your eyes and buy.”

(10) Are you buying right or are you buying wrong? Great bull markets tend to bail you out of your mistakes. Perfect timing is nearly impossible in a great bull market. You’re either in or you’re out.

(11) Great or fabulous primary bull markets may come along once or maybe twice in a generation. I believe the bull market in precious metals is just such a one — a once-in-a-generation bull market. We may never see another one to match this one in our lifetimes.

(12) I started writing Dow Theory Letters 52 years ago in 1958. Three times I’ve staked my reputation and my business on a bullish market call. The first instance was in 1958, when I told my subscribers that the third phase of the bull market lay ahead, and it was time to load up on stocks. I said so in my first Barron’s article. That call and that article put me in business. I thank Barron’s late, great editor Bob Bleiberg (who had faith in me and went out on a limb for me).

In late-1974 at the end of that horrendous bear market, I told my subscribers that I thought the bear market was over, and it was time to buy stocks.

In the year 2000 I told subscribers that I thought the bear market in gold was over, and that it was time to buy what was left of the gold stocks and “put ’em away.” I told my subscribers that we should treat the gold shares (many under five dollars) as perpetual warrants. “Buy ’em and forget them.”

(13) Lucky thirteen. I’m confirming what I said in 2000. Buy gold and silver, put ’em away and sit tight. The great speculative phase of the precious metals bull market lies ahead. My advice is concentrated in four words — Buy, and be patient.

Neat charity event last night. Met the man in charge of keeping kids healthy in new York City schools, Dr. Robert Platt. I asked him what are the biggest problems facing our kids. His answers:

1. Asthma. He surmises it’s caused by coackroach dust — dead ones and their droppings. I kid you not.

2. Obsesity. 30% are overweight. 30% are obese. 40% are normal. The fatness is caused by sugar,  especially regular soda. Solution: tax the heck out of sugared sodas. It worked with cigarettes. Once they were 20 cents a pack in New York City. Now they’re over $10. And smoking has dropped in 40 years from 50% to its present 15%. Funny, orange juice is as bad as soda. Just as much sugar. Don’t drink so much O.J.  Don’t drink whole milk.  Drink only 1% milk. Best drink: water.  (How boring!)

Fascinating stuff.

I hate computers. Just as I feel serene that they’re finally acting fine, they taunt me. They’re in control, they say. And I ought be aware of my subservient position. This morning Outlook is dropping important emails and duplicating irrelevant emails — often to making 13 copies of the same email. Why does my computer hate me this morning? Must be the boiler. It blew up this morning. I’m freezing my tushy off. It’s even colder than in Portland, Oregon.

Progress at the supermarket.
A new supermarket opened. It has an automatic water mister to keep the produce fresh. Just before it goes on, you hear the sound of distant thunder and the smell of fresh rain.

When you pass the milk section, you hear cows mooing and you experience the scent of fresh mown hay.

In the meat department there is the aroma of charcoal grilled steaks with onions.

When you approach the egg cases, you hear hens cluck and cackle, and the air is filled with the pleasing aroma of bacon and eggs frying.

The bread department features the tantalizing smell of fresh baked bread & cookies.

I don’t buy toilet paper there anymore.

Harry Newton who wonders why the world’s most expensive apartment has no heat this morning. The boiler man is coming, I’ve been told. And so is Christmas.