It’s hard to believe we have come so far.
Since the crash of 2008, the markets have raged on taking everything along to the upside. If you look at prices over the past years since the crash, everything has climbed dramatically – especially the precious metals sector which we have been extremely bullish on (see Playing Ball With Resources, April 2009.)
While there have been pull backs, those who have been bearish about this climb have lost an amazing opportunity to profit.
Just take a look at the following price chart comparison:
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Since 2008, we have been placing big bets on gold, silver, and the junior miners. One look at their performance relative to the Dow Jones and S & P 500 and you can see why it has been an extremely successful year for our readers who made bets on the Big Three.
Last year alone, all three silver companies in our Special Report Editions have gone up over 100% from their lows*
But can this last?
Despite the slight pullback, especially in the junior commodities market, I think it will.
While I am an investor by nature, I can’t help but see the price patterns that urge me to trade and buy on every possible dip and rebound. These trading patterns remind me of the lessons taught by one of the greatest traders of all time, Jesse Livermore. The shocking similarities presented will shock you, so read on.
Legendary trader Jesse Livermore once said that we should trade with the trend – buy in a bull market and short in a bear market. It was during the panic of 1907, where he made some of his biggest bets and returned his biggest rewards.
The Panic of 1907 began very much like our recent financial crash of 2008. It was caused and fuelled through an ill-fated exercise of unrestrained greed – a financial crisis that occurred in the United States when the New York Stock Exchange fell close to 50% from its peak the previous year.
Panic occurred, as this was during a time of economic recession, and there were numerous runs on banks and trust companies. The 1907 panic eventually spread throughout the nation when many state and local banks and businesses entered into bankruptcy.
By October 24, 1907 the panic had reached its zenith. It was then when J.P. Morgan, along with the help of other major banking institutions and the US government gathered together to lend money to restore confidence in the banking system and end the crisis.
Jesse Livermore then decided to make big bets going long, as the rest of Wall Street remained panic-stricken and in shambles. He made big bets on the big financial names – it didn’t matter which ones. As the crisis turned around, he became known as the Boy Plunger who made several millions, while panicked investors sat on the sidelines.
There are some shocking similarities between what happened in 1907 and 2008. Both were caused by greed and over-leveraged investors. Both required a major bailout with the help of the government. Both reached the peak of panic on October 24 (interesting correlation, isn’t it?). And both allowed smart investors to become extremely rich on the rebound.
If you would have invested in stocks after the crash of 2008 as we encouraged, including the miners (see Playing Ball With Resources, April 5, 2009) and the financial sector (see Financial Crisis Not So Bad, October 5, 2008), you would have made a fortune. For example, companies like Teck Resources traded below $4 but now trades well over $60 (see A Lesson in the Making, October 12, 2009).
There is one more thing that happened after the 1907 panic: Gold prices never looked back.
While minor pullbacks have occurred, gold prices have continued to climb over the last century from less than $19/oz in 1907, to over $1300 today. And there’s no reason why it shouldn’t continue.
If you have missed the past few years with your head in the sand panicked by the crash, it’s about time to pull your head out.
Both gold and silver should continue their climb this year, along with other resource plays. While investing directly in gold and silver can be rewarding, the real money will be made from the junior companies that explore for new resources and develop new projects to mine for these precious metals.
We already know that shares of junior gold and silver exploration companies can skyrocket overnight – especially when they make new discoveries. With the amount of money that has been poured into this sector (see The Next Big Boom,) you can bet we’re going to see more spectacular drill results. And spectacular drill results can often lead to strong increases in share prices, especially for the juniors.
We maintain our position that the market will continue its rally this year. Keep in mind that doesn’t mean we won’t see a pullback as mentioned in our last issue, Beyond Comprehension. We’ll be looking at junior explorers and miners with undervalued market-ascribed prices and looking for plays with strong management teams. Over the next few months, the junior resource market will begin heating up as companies prepare for the PDAC 2011. We’re going to see a lot of action soon, so be prepared.
That’s all for this week. It’s time for the Superbowl. I love a good fairytale so I am going for the Packers, but my money is on the Steelers.
Until next week,
Ivan Lo
Equedia Weekly
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