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XMFSinchiruna (27.09)

Where to Turn When the Markets Go Haywire

Recs

43

May 20, 2010 – Comments (15) | RELATED TICKERS: SVM , BIP

One Fool's thoughts about some defensive positions to consider during this nasty market correction.

http://www.fool.com/investing/general/2010/05/20/where-to-turn-when-the-markets-go-haywire.aspx

"Here we go again!"

"Uncertainty is back. If this were a boxing ring, we'd see Europe hanging on the rope trying to avoid a knockout call for the world's secondary reserve currency."

"We might find China dangling Cirque-du-Soleil-style on a trapeze high above the ring ... wondering if gravity could come back into force upon its lofty growth. We might even see the United States banging its head into the post out of frustration with the sheer persistence of this global debt crisis that was never truly over."

"Near the center of the ring, those high-flying commodity stocks that investors have turned to -- both for exposure to pan-Asian demand and for protection from projected inflation -- are being pummeled by punches below the belt. If you are the referee wondering how to officiate such a free-for-all, you may just be hopping out of the ring."

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Brookfield Infrastructure Partners (NYSE: BIP) is more than a mere blip on my radar screen. Following a strategic purchase of highly attractive assets last year -- which included a 49.9% direct stake in the Dalrymple Bay Coal Terminal in Australia -- this well-managed, diverse portfolio of infrastructure assets offers the kind of reduced correlation to economic activity that can translate into safety at a time like this. With a dividend yield currently above 6%, and a nod from three of The Motley Fool's newsletter services, it's no wonder I already converted this watchlist selection into a full-fledged CAPS pick back in December.

Shares of fertilizer producers Potash (NYSE: POT) and CF Industries (NYSE: CF) have been hammered recently amid softness in product prices. In the longer-term, however, I agree wholeheartedly with Jim Rogers and others that the agricultural sector will experience a dramatic growth trajectory based upon market drivers that are only lightly correlated to the state of the global economy. After listening to Potash President & CEO William Doyle suggesting that, "the pressure on food supply around the world is going to be enormous" over the coming years, I will be watching those shares closely for an attractive entry point.

Leading mining equipment manufacturers Bucyrus (Nasdaq: BUCY) and Joy Global (Nasdaq: JOYG) recorded some breathtaking intraday declines Wednesday, and I believe that even the array of concerns over reduced demand from China and Europe and a potential super-tax on resource profits in Australia are insufficient to derail what remains a multi-year bull market for mined resources from coal to copper. These are global market leaders in the niche industries they serve, and I view further weakness in these shares as compelling long-term investment opportunities for even the most nervous equity investors.

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The safest safe haven of all
"It's been only a matter of days since gold notched a fresh all-time high above $1,240 per ounce. Already, the surreal moments that saw even vocal dollar-champions like Larry Kudlow referring to the metal as the "world's new reserve currency" are fading into the shadows of short-term memory loss. You see, during a major sea-change like this one, from boisterous rally into uncertain future, many investors are conditioned to move quickly into cash or U.S. Treasuries as their default flights to safety."

"Since the last major market sell-off took place, however, many more investors have come to realize that gold is indeed a currency, and that cash and Treasuries carry their own sets of risks in this macroeconomic environment. Therefore, I expect gold and silver to display some weakness only during the earlier stages of any significant market correction."

"When Fools consider raising cash to improve their defensive posture, I encourage them to consider carrying a portion of that liquidity in a reliable gold bullion instrument like the Sprott Physical Gold Trust."

"Finally, those who share my long-held conviction that silver and gold prices are still headed substantially higher may wish to seek opportunity in this surprisingly fierce sell-off ongoing in gold and silver mining equities. After an abrupt retreat from recent highs, I view my top pick Silver Wheaton (NYSE: SLW) and low-cost miner Silvercorp Metals (NYSE: SVM) as particularly attractive investments at this juncture. Whatever strategy you decide to pursue as this bout unfolds, remember to keep your guard up, maintain your balance, and don't let yourself get knocked out of the ring. Please share your comments below, and join us in CAPS ... where investors are helping each other hone their strategies."

 

Please be sure to rec the article (as well as the blog post) if you appreciate the content, and to share yourown thoughts about how best to navigate the corrective action that's presently unfolding.

Thanks as always for your readership, and Fool on!

 

15 Comments – Post Your Own

#1) On May 20, 2010 at 5:03 PM, Option1307 (30.17) wrote:

share yourown thoughts about how best to navigate the corrective action that's presently unfolding.

Stay the hell away from equities, especially China, ahhhh run!

Nice article Sinch as usual!

While I'm not sold that this "correction" is over and presents a great buying opportunity, there certainly are starting to be a lot of relative bargins out there. It definitely was rather tempting today to scoop up some shares of stocks that have been obliterated recently. However, this may be the start of something bigger and I'd prefer to mainly stay on the safe side.

Best of luck out there! One things is for sure, volatility sure is fun (or something).

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#2) On May 20, 2010 at 5:19 PM, 4everlost (29.62) wrote:

Sinch,

I thought I was in a defensive position.  The miners I have owned for about a year have recently been hammered (as you know).  So, what do you do when the safe haven stocks are down?  Buy more!  I'm adding to existing positions and opening new positions in miners, equipment and service providers as well as energy and coal.  (Western Coal has been crazy!) 

 

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#3) On May 20, 2010 at 6:38 PM, outoffocus (22.35) wrote:

Its funny because EVERYTHING is tanking, even the dollar.  In all this carnage what exactly is increasing in value (besides put options)?

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#4) On May 20, 2010 at 7:14 PM, TMFAleph1 (95.27) wrote:

Hi Chris,

I'm curious to know why you recommended the Sprott Physical Gold Trust rather than the SPDR Gold Shares ETF (NYSE: GLD), or was there no preference implied in the mention of the former?

Alex Dumortier

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#5) On May 20, 2010 at 8:23 PM, 100ozRound (29.41) wrote:

"Therefore, I expect gold and silver to display some weakness only during the earlier stages of any significant market correction."

I just need a couple more down days and then we can resume upwards.  Can you make that happen?  ;)

 

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#6) On May 20, 2010 at 8:42 PM, XMFSinchiruna (27.09) wrote:

TMFMarathonMan

No, that was no accident. :)

I do not consider GLD to be a reliable bullion proxy.

http://www.fool.com/investing/general/2010/04/05/is-your-safe-haven-a-house-of-cards.aspx

Investors with exposure to the popular gold and silver "bullion" proxies have some very critical assessments to make. Fools are encouraged to note that HSBC is the custodian for the holdings of the wildly popular SPDR Gold Trust (NYSE: GLD). On the silver side, we have JPMorgan Chase serving as custodian for the holdings of the iShares Silver Trust (NYSE: SLV). Both trusts indicate that underlying metal holdings are held on an allocated basis for the trusts, although the silver vehicle permits some 1,100 ounces of unallocated silver per trading day. This allocated nature of the holdings is enough to reassure many investors, but I still have my concerns.

A.) The very fact that the same bullion banks implicated in fraudulent manipulation of the bullion markets through massive, leveraged, naked short positions is enough to keep this Fool in proxies where that conflict of interests is not present.

B.) If you own GLD, I highly recommend a careful and skeptical reading of the prospectus ... there are more red flags in there than there are crooks at a banker's convention.

Somewhere in these archives I have a discussion that spells out several of my specific concerns within the prospectus. They are many.

Researchers have also encountered oddities in the published list of bullion serial bar numbers.

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#7) On May 20, 2010 at 8:48 PM, XMFSinchiruna (27.09) wrote:

outoffocus

Its funny because EVERYTHING is tanking, even the dollar.  In all this carnage what exactly is increasing in value (besides put options)?

Yeah ... we're hard pressed to find something that's up in recent days. This is an indiscriminate liquidation event that has some similarities to the 2008 event, except, as I mentioned, that the prospects for gold and silver prices are very different this time around. In 2008, few were paying serious attention to gold ... that is no longer the case. If the flight to safety continues to gain momentum, gold and silver will soon reverse sharply and break out to new highs. On the flip side, if Euro fears are somehow eased and the USDX begins to retreat a bit, there again we may see some buying interest returning to the table even if the pace of selling abates among the equities.

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#8) On May 20, 2010 at 8:50 PM, XMFSinchiruna (27.09) wrote:

100ozRound

I hear you ... I'll call JP Morgan in the morning and ask them to keep the pressure on. :P

As I mentioned in a prior post, I have already starting repurchasing positions I inched out of at $1,240 gold, and will accelerate that buying activity on the way down.

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#9) On May 20, 2010 at 9:04 PM, XMFSinchiruna (27.09) wrote:

4everlost

I thought I was in a defensive position.  The miners I have owned for about a year have recently been hammered (as you know).  So, what do you do when the safe haven stocks are down?  Buy more!  I'm adding to existing positions and opening new positions in miners, equipment and service providers as well as energy and coal.  (Western Coal has been crazy!)

Bullion exposure is downside protection during sell-off events, as bullion never drops by as large a percentage as the relevant mining shares. If you've had only mining share exposure and no bullion exposure, then you may be exposed to nasty volatility ... but not to fear. This is a temporary dip. I bought today, and I will buy more tomorrow if the mining shares move lower still. If need be, I will convert a portion of bullion exposure into mining shares to maximize my cost-averaging through this sell-off.

Best of luck to you. Remember, only when we sell into weakness do we take a loss. I stood pat on my mining shares in 2008 through a ridiculous sell-off that amputated as much as 70% from many of my core holdings ... but I never lost a dime because I sold nothing.

I sell a minute portion of my precious metals exposure into strength to raise cash, and buy into weakness. Of the portion of my allocation (80%) that remains strictly long-term buy-and-hold, there is nothing that could shake me from my positions. If the 2008 correction couldn't shake me out, then nothing will. I know where gold and silver are headed in time, and I know the mining and quality exploration shares will have their days in the sun.

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#10) On May 20, 2010 at 10:09 PM, mcornice1 (27.79) wrote:

Sinchi,

 

First, thanks for all your work. You've made me a convert in the process and I've done my own share of investing in silver since I've read your articles.

I am interested to know if you also follow agriculture stocks/commodities as well. I've seen you make some mentions to POT but no major articles. Since reading on silver, I've also become aware of the growing giant that is Ag. I'm interested to check out a few companies and was wondering what your thoughts on them were. So far, POT, AGU, DE, ADM, and MON are on my radar. Any thoughts on these or some of your favorites? 

Thanks again. You've opened up a field of investing to me that I never thought I could understand.

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#11) On May 20, 2010 at 10:26 PM, topsecret09 (44.83) wrote:

Thanks for the heads up on SVM....    Keep the articles coming,they are always very Informative.....  TS    From my blog on April 16th.....   http://caps.fool.com/Blogs/ViewPost.aspx?bpid=394382&t=01006124249416869148&source=ihpsitcag0000002&lidx=3#comment394552

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#12) On May 20, 2010 at 10:28 PM, topsecret09 (44.83) wrote:

   Not sure what happned above....   http://caps.fool.com/Blogs/ViewPost.aspx?bpid=378369&t=01008014497619256705

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#13) On May 21, 2010 at 6:14 AM, SnapDave (64.95) wrote:

Unfortunately the world may see massive starvation before farming makes a significant comeback. I'm not sure it's really happening yet. 

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#14) On May 21, 2010 at 9:58 AM, outoffocus (22.35) wrote:

I made an even better investment in agriculture. I joined my local CSA (community supported agriculture).  Though I don't believe in the doomsday theory of hyperinflation coming to the US, its nice to know that if something bad does happen I have the option of getting my produce directly from the farm. The produce is often fresher than anything you get at the supermarket and theres less of a chance the produce is genetically modified.  Either way its food for thought (pun intended).

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#15) On May 21, 2010 at 10:12 AM, zCreator (95.15) wrote:

@TMFSinchiruna: I've been following Marc Faaber and he recommended Canadian gold. What's your opinion on AZK?

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