Summer is almost gone and two of the most volatile financial market months will be upon us. While seasonal factors tend to be overblown at times, having respect for what September and October can bring is very worthy both for hurricane and market watchers. Given what world markets have gone through, investors are advised to keep one eye on the weather channel and the other one on Bloomberg, Fox Business or Canada’s Business News Network. As always, red flags fly whenever it comes to CNBC-TV.
Come October, it will be twenty-five years since I first began publishing the Grandich Letter. Despite thankfully being blessed to have foreseen the three biggest market falls in 1987, 2000 and 2007, I don’t ever make the assumption markets are going to act in the manner I believe they should. After all, we all know when we assume we usually end up making an Ass-U-Me. The days of being a legend in my own mind are long gone (thank God) and the mental and financial beatings I endured for that will forever remind me that there are really only three types of investors:
1 – Bulls
2 – Bears
3 – Pigs
The bulls and bears will each have their days but the pigs always end up going to the slaughterhouse.
Having CNBC-TV as the world’s largest slaughtering house for pigs is more than enough.
U.S. Stock Market – The “Don’t Worry, Be Happy” crowd on Wall Street has had a great spring and summer. More importantly, they’ve managed to once again make like the recent past never took place and instead have their followers count “green shoots” when falling asleep. This is always evident whenever you watch that financial network who back at the top of the Internet bubble “boldly” stated in an ad about them that they “apologized for putting investors into a higher tax bracket.”(I’ll bet their video vault has lost those tapes among many others.)
While yours truly “crossed over” to their side in early March (causing my perma-bear friends to “persona-non-grata” me), I now am more like “Switzerland” in that I’m neutral (but will not give up any names to the “happy” people of who joined me).
IMHO, we’re in the eye of a storm that in the end will have forever changed the United States for the worse. The beginning of the end is more than just underway. But, like any good first act, an intermission has come allowing the audience to fully grasp what they just saw. The dimming of the lights that will signal the next act is yet to come. We’ve enjoyed the refreshment break and tucked away many goodies that should get us through what looks to be a much longer, albeit somewhat less pronounced, second act.
I continue to believe there won’t be another similar selling opportunity like we enjoyed in October 2007 until such time as the DJIA hits the 10,500 area. With visions of grandeur again for good economic times ahead, I would make sure your bear suit has been cleaned and pressed as our “curtain” call may come sooner than we think. Stay tuned.
U.S. Dollar – Back when the U.S. Dollar Index traded well north of 100, I began to make a statement that I repeated over and over again. It needs to be said constantly because whenever these little blip up opportunities come from very oversold conditions, the “Don’t Worry, Be Happy” crowd on Wall & Broad will come out like clockwork and declare the U.S. Dollar undervalued. That statement is again worth repeating after yet another short-term interruption in the dollar’s march to oblivion: “The only party that doesn’t know the U.S. Dollar is dead is the U.S. Dollar.”
The dollar has had reasons to rally despite the market turning upside down a long standing factor that was once quite dependable. In the “good old times,” a stronger economy meant rising interest rates which usually coincided with a rising U.S. Dollar. In the “New World Order,” the U.S. Dollar is a lose-lose. Stronger economy means less need for it as a supposed “safe haven” play. Weaker economics mean low interest rates translating into less demand for the dollar.
Poor old Uncle Sam. The glory days are gone. Other than some temporary relief rallies (believe it or not, we just had one), the dollar’s long-term path is a slow march to death. Only one song should come to mind when you think of the dollar long-term.
10 and 30 Year Treasuries – My no-brainer pick for 2009 has given back some of the nice gains but IMHO, as given those not yet on the short side a chance to position themselves. While the “happy” crowd believes in having your cake and eating it too, you can’t have stock markets rising on better days ahead yet interest rates falling making bonds a buy, too.
In addition to being bearish on longer-term treasuries, I’m starting to look at turning bearish on corporate bonds as well. Stay tuned.
Oil – While day-to-day fundamentals beg some sort of bearish call spread(s) and/or short positions in oil, the “happy” crowd has taken hold and fundamentals rarely matter to them. A falling U.S. Dollar and a belief all will be well again economically seemingly are all that matter at the moment. Like 10,500 or so on the DJIA, the $85 area on oil would be a dream-come-true selling opportunity.
Natural Gas – Despite a continuous questioning of why I wasn’t bullish on natural gas, especially when I was aggressively bullish on oil from well under $40, I maintained my bearish position on natural gas until now. Price wise, it was a very good move but natural gas equities rose with the rest of the market making my eventual entry into the bullish camp tougher as many of the equities will be far from undervalued.
Who said this game is as simple as buying low and selling high?
The CFTC is widely expected to introduce stricter position limits for non-physical investors in commodities before the end of 2009. Such an act should seriously curtail one of the driving forces currently lifting oil prices. A combination of this and an oil price $10 or so higher in the next couple of months could present a superb selling opportunity, so let’s put on those CNBC (Can Never Be Cautious) pom-poms and cheer oil on for now. 
Precious Metals – In 25 years, I’ve never seen an investment perform as it was intended to yet receive little praise (and much dismay) as gold has. Throughout 2008 and early 2009, many in the media questioned why gold was not performing well given the so-called market conditions for it. Forgive me, but I suspect any and all investors who lost money in the more “touted” plays like stocks would gladly take what gold was up versus their own losses in those great blue chip stocks.
Now gold’s supposed inability to go much higher if not fall dramatically is being bantered about and such talk is not limited to the usual anti-gold crowd. This is music to my ears as after nearly increasing 300% this decade, such a great bull run usually doesn’t end in a whimper but instead a busting of over enthusiasm – something we’re not even remotely close to.
Gold’s seasonally weak period ends in a few weeks. Any and all selling bouts are quickly met with strong physical buying. Central bank sales, once the darling of all carrots dangled by the bears, has little or no impact any more on the price. A tremendously long-term bullish reverse head and shoulders pattern is setting gold up for its next leg up. A four-digit gold price is not a question of if, but when. Not too long after that, the lowest four-digit price should become the floor, not the ceiling.
Base Metals – I believe the time should soon be here again to overweight in precious metals equities over base metals. This is not because I expect a sharp fall in base metal prices but rather the belief we’re about 10% higher from levels that would be fully priced for most base metals IMHO. An example would be $3+ copper. I would greatly limit any new exposure to copper and copper-related investments much north of $3 and would even consider becoming a scale-up seller. That’s still a ways off and we’ll worry about that bridge when we come to it, but not before.
In the meantime, current base metal prices do still offer opportunities in base metal equities but no longer with the wild abandonment they did six to nine months ago.
I was asked on Friday, “If you could buy only one stock, what would it be?” I gave my answer through my mouth, heart and pocket by saying it would be Continental Minerals, symbol KMK on the Toronto Stock Venture Exchange (KMK $1.17 OTC Bulletin Board KMKCF $1.09). It’s now by far my largest holding. The company is managed by the Hunter-Dickinson Group who I believe is the premier junior to emerging-producer management group in the world today. While I don’t presently work for KMK, I do work for other companies managed by HD.
In my heart of hearts, I can’t see them remaining independent much longer. This is a natural for a buy-out whether it’s by a current Chinese company that owns 14% of KMK and/or one or more other Asian-based companies. There have been rumors of such and management is totally mum (really) on this. The deposits are among the best known in the world today and a takeover price of at least twice the current one is not far-fetched.
Special Note of Interest – With the 8th anniversary of the 9/11 attacks nearing, the media will do its usual reporting. Unfortunately, the real story of America’s biggest tragedy will hardly be discussed: the 40,000 Ground Zero First Responders (police, fire, medical, demolition personnel and volunteers) who are now sick, dying or dead because of their 9/11-related illnesses.
I want to invite and encourage you to help me help these true American heroes receive the dignity and support they so much need and deserve by participating and/or supporting the FealGood Charity Ball on September 11th.
As you know, I’ve been truly blessed to work with many current and retired professional athletes through my other business, Trinity Financial Sports & Entertainment Management Company. Several former and current professional athletes will be in attendance at the gala. Attendees will have the once-in-a-lifetime chance to get up close and personal with them, including obtaining autographs and pictures. If you’re not attending but would like to purchase signed footballs from our celebs, send me an email for details on how this can be done.
There’s going to be a very special live auction. As you can see, there are a couple of truly fantastic sports fan items.
Please let me make note of just two:
• NY Yankees pitcher Brian Bruney is a great, down-to-earth young man who I find both humble and sincere. Brian’s normal appearance fee starts around $7,500. For this great auction package, the winner and three friends will have lunch with Brian then be whisked-off by private transportation to watch a Yankee game from Brain’s personal seats. I’m taking bids ahead of time and up to the day before the event. I will bid on the highest bidders behalf at the auction. Right now I have a very low bid of $1,600 for this event with Brian.
• NY Jet Jay Feely, a tremendous golfer who just happened to help lower my golf score this year, will play a round with you and two friends at the exclusive Trump National Golf Club in Colts Neck, NJ. Take the cost of a round for three plus what it’s worth to spend 4+ hours with Jay and make a bid ASAP.
Help turn the 8th anniversary of America’s darkest day into a brighter one.
Left – Grandich and Bruney Right – Grandich and Feely 
