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Monday, January 21, 2008

Awful Day in Canadian Markets

There's no way to sugar-coat it – Canadian stocks are getting hammered along with the rest of the world. US stocks are spared only because of Martin Luther King Day. We can expect more bloodletting tomorrow.

The gurus I've been listening to at the conference were very bearish for the next few months, and the market echoed their opinions by crapping out today.

One speaker said the market faces five problems through the Spring …

Five major problems

  1. The Spring builder starts will be awful – not just in the US but in the UK and Spain.
  2. "Sell in May" is a seasonal event, and this will accelerate the downside slide.
  3. In the first two weeks of April, big banks start reporting their earnings, and they'll be awful. Credit card failures will really hit the banks hard. Banks have no other way to make income. Mortgages, commercial loans, bridge loans have all gone away.
  4. Used home sales in the Spring will be bad. 80% of the yearly home sales occur between January 15th and June 1st.
  5. One million mortgage resets will hit.

The recommendations from the opening panel could be summed up as:

1 & 2) Buy silver juniors in Mexico, which he thinks are undervalued and will ride the rally in silver he sees coming later in the year. Two panelists recommended this course of action, and one of them added that the junior gold mining sector has a minimum 2 to 4 years to run.

3) Accumulate gold shares that have big reserves in the ground – the value of those reserves will soar along with the price of gold later in the year.

4) Just get out! A bear market will hurt all stocks, and even good companies can be bad investments in a bear market. Later, in the fall, you can look at extremely beaten down sectors.

We can't add new positions today as US brokers are closed. Obviously, I called a bottom too early last week, though with 4% and 5% declines around the world today, I think the Fed will be moved to action sooner rather than later. The question is, can the Fed or the White House stop the market from going lower. We may want to use the next bounce to add more short positions.

I have to rush back to the conference. Stay tuned for more updates.

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