By: Sean Hyman
Head Course Instructor
www.mywealth.com

Back in early January, I wrote an article that focused on a bubble forming in the Treasury bond market. Back then I saw money getting ready to jump from one seemingly safe asset to another gold. (I wrote about this on January 2nd. I’ll include the links to all of these stories at the bottom so you can check it out for yourself.)

This was my first tip off that money was about to start flowing elsewhere and gold was the next logical choice since it has held up fairly well in this bear market downdraft.

So when bubbles form, you have to ask yourself, Where will this money go once it starts flowing out of U.S. treasuries? Money was still in defensive mode and I knew that it still wanted to run for cover but was getting uncomfortable in being in the treasury bubble. Therefore, the next stop off that seemed stable to many investors would be gold. That’s how I came up with my thoughts for the January 2nd article.

Then on Jan 22nd-23rd, I wrote a two part article about why gold was going to break out to the upside soon. At the time, gold was trading at $853 an ounce. Yesterday, gold was $100 an ounce higher, piercing the $950 level.

In the second article, I provided a chart of gold before it broke out and gave some reasons why it would break out. Aside from the bond bubble, I saw the money supply exploding and a stimulus package coming that would eventually flood the market with money (once the government got the Drain-o out and unplugged the banks). So that is a bullish thing for gold as huge sums of dollars are printed, it eventually dilutes the value of the dollar and boosts gold.

However, in the mean time, while we’re waiting on that to happen, I also see that fear was dominate in the markets as we had a new administration coming into office (with the uncertainties that it brings) and a bear market in stocks and a global slow down. All of this would take time to work itself out, and that is bullish for gold now even before the eventual inflationary story kicks in.

South African mines; the icing on the cake!

Also, I noticed that South Africa (one of the biggest gold miners/exporters in the world) was having electricity problems that were causing a 14% slow down in gold production, which hasn’t happened since the 1800s. That slow down in production was also bullish for gold (less supply, yet growing demand).



Then on top of this, we have U.S. interest rates, which are right at zero. That will unleash its inflationary effects at least by latter 2009 to early 2010.

I noticed that gold has held up relatively well even though the dollar has rallied strongly in the previous months. I also noticed that gold has held up better than most other commodities out there. So there was quite a bit of relative strength that I saw with gold. Imagine what it will do when the dollar does actually start to crumble once again?

So what do smart investors do when they see all of this? They position themselves AHEAD of the move like a surfer that looks for his wave to come. The investors ride this fundamental wave for quite some time to come.

This is exactly what they did. The smart fundamental investors positioned themselves just ahead of the breakout while the technical investors (chart readers) bought in right after the break upward. Both are enjoying nice gains right now.

In fact, gold is one of the few investments out there breaking higher right now. Check out the chart above.

Gold consolidated multi-year gains and then broke higher! How you can get in on this gold rally?

For the investor: You can buy the Gold ETF (GLD) through your stock brokerage account. I encourage the purchase of ETFs over the commodity contract because you can buy with cash, no margin and you don’t have to worry about expiring contracts this way either. There are other gold ETFs out there but most do not have the volume that this one does and so they would have wider spreads to overcome and possibly may not have quite as good of fills on your orders due to there being less liquidity.

For the trader: You can use the Gold Double Long ETN (DGP). Remember, that this will be much more volatile and therefore carries more risk. However, for a near term trader that wants to trade the newly formed uptrend, this could be one way to do it.

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Former Articles to Reference:
Get Ready for the Transition from Bonds to Gold

Gold will shine once again in 2009

Gold will shine once again (part 2)

Traders and investors alike have been waiting for Geithner’s speech. It got delayed once, so investors just knew that when he stepped up to the mic that he’d really have something to say.

However, what he ended up doing was opening up more questions than answers. The market promptly showed him what it thought about it too. It reminded me of the movie Fun with Dick and Jane where Jim Carrey gets on T.V. to talk about Globodyne’s stock as he watches the stock chart plummet from $100 a share to a penny while he’s on T.V.

It seems like Geithner didn’t know any more than Carrey did at that moment too.

Basically, Geithner ducked the tough questions that investors wanted answered like: Will banks laden with toxic debt be forced to fail? How will illiquid assets be removed from the bank balance sheets? What will be done to arrest the decline in house prices?

The risk now is that the plan could fail before it even gets off of the ground because the Treasury basically said, they are going to do something in the coming weeks to months. We don’t know what exactly that’s going to be yet. And we’re going to partner with investors to do it. However, investors are the ones they are leaving in the dark. How are they supposed to step up to the plate when they don’t even know if some of these banks will be allowed to fail.

So Geithner really missed a shot at sending a stronger signal, which would have been a great time to distinguish himself from Paulson.

The Dow dropped 382 points. Bank of America dropped 19%. Citigroup dropped 15%!

Geithner makes his first rookie mistake! I guess we’ll get ready for round two as Geithner testifies before the Senate to see if he has anything noteworthy, but don’t count on it. This guy is already making rookie mistakes.

While we don’t know the first detail, at least he painted some broad brush strokes though. The government will be injecting fresh capital into some of the country’s biggest financial institutions. They will establish a public/private fund to buy up to $1 trillion of bad bank assets. They will also start up a credit facility of up to $1 trillion to promote lending to consumers and businesses.

So unfortunately, we know some basics but no details. He should have kept his mouth shut until he really had something concrete to say. The market wants details of a "defined plan of action" and the market did not get that yesterday.

This rookie mistake is about as bad as Maria Bartiromo getting information out of Ben Bernanke. I think she must have gotten him sauced and batted her eyelashes at him or something because he lost his mind just long enough for her to get the information she needed. Well, just as he had his rookie mistake, we’re now seeing it in Geithner.

In the mean time, it could end up being months before a final program is in place. However, right now each day is like dog years to the market. Every passing day means so much right now. The market has been in a holding pattern while Obama and Geithner get it together. However, if they wait too long, the market may sell off to new levels.

However, if some rays of hope could come soon enough, the market could break out of its range into new highs. Until we get some light as to which way this will all go, the markets will continue to be choppy and erratic.

At least, we may know if the stimulus package gets truly passed by the end of the week or middle of next week. If so, that might buy the market some time while Geithner gets his head out of his butt.


Author: Sean Hyman
-Head Course Instructor at www.mywealth.com

Interested in learning more about the stock market? Check out our $25 online course that comes with live instructors there to answer your personalized questions. http://www.mywealth.com/investing.html

Most stocks continue to perform poorly in these uncertain times. That is why it is time for you to start preparing for our next growth cycle, and buy stocks when they are very cheap. Investors should be making strategic investment decisions when the market is down. You should be asking yourself, "What companies are going to come out of this recession on top?" because companies are made and broken in recessions.

One company has maintained relative stability, even in rough times, and it has been able to stay under the radar. 21st Century Holding Co. (TCHC) is a property and automobile insurance company based in Florida. 21st Century has just started a new marketing campaign to gain new customers. You may have seen the television ads on CNBC and a few other channels advertising 21st Century Insurance.

21st Century Holding Co. (TCHC)
Price 2/2/09 : $4.28
Market Cap: $34 million
Shares Outstanding: 8 million

This is a great stock for the more speculative side of your portfolio. They have a Market Cap of only $34 million and only 8 million shares outstanding (less than 7 million not held by insiders). With such a low number of outstanding shares and a small market cap, any kind of public interest/demand for the stock will cause this stock to rocket straight up.

This is something that both William O'Neill (founder of Investor's Business Daily) and Jim Cramer(Mad Money, etc.) agree is great for small cap investing. Small cap stocks with a low number of outstanding stocks (usually < 15 million) shoot way up when it is discovered.

If 21st Century gains a large number of new customers with its new marketing initiative or improves their business strategy, this company could enjoy a ride up to a $250 million+ Market Cap. At that market capitalization, the stock price of TCHC would be $31.25! At market close on Feb.2, 2009 TCHC's stock price was $4.28. That's a theoretical gain of 630%.

Tags: stock investing, stock investing advice