Toro Creek Investments

Keep Your Powder Dry

2009-10-04T03:22:00.000-07:00

As the title suggests, we are at war, or at least, in serious and dangerous times.
For those that aren't familiar with the phrase, "keep your powder dry" it is a reference to firearms.

In the early evolution of firearms, Flintlocks and later, Muzzle Loaders were the state of the art in weaponry. Where Gun powder was poured into the barrel of a gun followed by wadding, then one or more projectile(s). This layered mix was then tamped down and ready for a some type of ignition. The problem comes when moisture is introduced. If your gun powder becomes, even slightly damp, you are done. Now, if you are in a stressful environment, and those days were filled with them, pulling the trigger and hearing nothing but a "click" could have dire consequences. Later "bullets" as we commonly call them, came into use, more properly called cartridges. These made firearms much more dependable and rendered muzzle loaders obsolete.

I like the imagery that the warning evokes. It conjours up visions of being in stormy weather with dangerous people and/or animals, prowling in the darkness, ready to do you harm, as you hunker down, out of the rain, trying to keep your gun dry and ready to fire when needed.

I do think that this is precisely the position we are in right now. If you listen to the financial community as a whole, you might conclude that we are heading out of dangerous waters, with the storm behind us and conditions improving.

I couldn't disagree more.

If you consider the bigger picture, what really has improved? True the stock market has recovered much of it's losses, but the fundamentals behind it are, at best, wounded and limping along at an anemic pace. At worst, hemorrhaging and desperately looking for someone with a hot iron to cauterize the wound. Recovery is a long ways off and we have yet to stop the bleeding. The longer this economy goes on bleeding, the longer and more painful the recovery.

This administration is trying to give the economy a transfusion, but it is also using failed methods, to heal the patient. It's "bleeding the patient" and applying leeches faster than it can pump fresh blood into the veins. Unfortunately the pool of blood donors(US Taxpayers) is dwindling at an alarming rate.

So where does this leave us?
Waiting.
If I had not already done so I would be taking some profits and keeping cash ready to be deployed. Yes I sold a little early and missed some of the gains over the last month. Much of those gains have evaporated in the last few days, so all in all, my timing may prove to be pretty good. It all depends on what happens next. Is the market taking a pause before proceeding higher? I doubt it. I am expecting a broad pullback in most, if not all sectors.

Most of the resource stocks that I talk about on this blog have pulled back to support levels. If support holds and the stocks move higher from here, I'll look for a point to re-enter those positions and call it a missed opportunity. If you've followed my examples, you've made some nice gains in KOL and MOO. I'm not willing to risk those gains. Remember, it's not only about profits, it's also about preservation of capital, and your gains are also your new capital. There is always another opportunity around the next corner.

If I am right and those support levels don't hold, I'll be able to sit back and let the carnage happen to others and wait for the trend to reverse so I can pick up shares at a discount.

As for my core holdings of gold and silver, I never sell. I am a buyer at all opportunities and I don't think this is one. These are also at support levels and I am concerned about a pull back here. Again, watch and wait and keep your powder dry. Next week may tell the tale and I'll post if things are resolved.

Good Luck and Godspeed

JT

Back To Work

2009-08-22T06:22:00.000-07:00

Back to work.
Here's where I'm at; I'm selling. I'm locking in profits(40% in KOL alone).
But then what?
It's very simple, I'm going back to work. I believe that the markets, if not at their tops, are nearly there.
If I'm wrong, the only thing I'm losing is potential gain.
I called oil at $70 when it was trading at $50. True it went down to $40 before moving back up, but that is what trend investing is about. I don't try to hit the tops and bottoms exactly. Just identify the broad trend and get in at attractive levels. Then stand back and let the markets overshoot the range.
I will be posting ideas as I develop my new portfolio structure, but for now, look for oil to correct lower as well as the broader markets. This will probably take metals lower, but I am not selling silver or gold. Those are my core holdings, and part of a mega trend that isn't even close to playing itself out. As always, pullbacks in prices are buying opportunities. Same holds true for my short on treasuries(TBT). I am accumulating.
Stay tuned and stay nimble(in cash).
I may be moving quickly if things turn the way I think they will.

Good luck and Godspeed

JT

The Whisky Fish

2009-08-02T05:06:00.000-07:00

My apologies for the lack of attention to this Blog of late, but I have just returned from a week of fishing in Alaska.
So for those of you not interested in that story, I will again apologise. My attentions in this post will be toward that trip. However after reviewing my portfolio and the current financial climate, I find no pending emergencies and I am quite pleased with current positions.
Now on to the fish story:
It occurred to me upon arrival on the Prince of Wales Island in the city of Craig, Alaska, that part of the Alaska experience, is the journey to reach it. While not difficult, compared to 50 years ago, it is still a bit of a jaunt by today's standards. With the last connecting flight being a float plane, you are truly primed for an Alaskan fishing trip. The first day on the boat was amazing. Making our first run to the fishing grounds through the fog, we began to get a "feel" for our captain(Lee) and guide; a young native Alaskan, who upon making a wrong turn in the fog, grinned and explained that he wasn't used to this boat. hmmm.
As we made it through the islands and open Alaskan ocean and into the fishing grounds, I looked and saw several other boats drifting through and hooking up with fish, the adrenalin started flowing and I couldn't wait to get my line in the water.
After receiving instructions from our guide and one of the other, more experienced, members of our group(Eddie), I dropped in my line and began the "top to bottom" technique that would dominate the trip. This simply means dropping your bait to the ocean floor and immediately retrieving it all the way to the surface and then repeating the process. This gives your bait exposure to the bottom feeders as well as the more aggressive and unpredictable Salmon who, as the captain explained, could be hanging out at any depth.
I'm not sure if I hooked up with any Silvers(Salmon) first or whether it was a King that first took my bait, but catching a King salmon first, makes for a better fish story, so I'll stick with that. It wasn't a huge fish by King standards but it was big and it was a King Salmon and I was thrilled. Time went on, several Silvers were boated and another King was nabbed by Eddie, of roughly the same size, and then it happened;
At first I thought I had just hooked up with another fish but as the momentum built, our guide said confidently that I had a King on my line, a big one. He directed everyone to pull in and the fight was on. Later, someone said it lasted for a half hour, another said 45 minutes, again I'll stick with the better story of 45, because afterwards it felt like an eternity. During that time that fish almost spooled me twice(ran out all my line). At one time, Lee said "how much line do you have left?". I looked down at my reel and it looked like a single wrap of cellophane around a thimble.
I grunted "not much!"
He replied "reel faster" as he gunned the little outboard "kicker" toward the chase.
At another point the stubborn salmon ran under the boat. The danger here is that if he rubs the line across the keel or other sharp part of the boat he can cut your line. So all I could do was jam the tip of my rod underwater to try and clear the bottom of the boat. It was at this point that I turned into Captain Quint from the movie Jaws. "he's gone under the boat!" I yelled and I might have even included the pirates "arrg" with it. Lee spun the boat and cleared my line and it was back to work again.
At one point, I'm not sure of the chronology of it, a snapshot was taken by my brain that will stay with me forever. A picture of a brief moment in time, that took my breath away; there in the distance, running directly away from me and toward the open ocean, he broke the surface. With the line singing off my reel, he came out of the water like a torpedo, straight as an arrow and not losing any momentum. As he sailed through the air, something unintelligible escaped my mouth and "click" the moment was eternally captured in the camera of my mind.
As time wore on, my arms began to burn and the only things that kept me going were pride and the repeated urging from the captain of "reel faster". Then the fish gave me a break. He bunkered up at about sixty feet and took a break. He kept swimming and so kept tension on the line, but at that point the real fight had left him. I was able to shake out my arms and get the blood going back into my hands, sending oxygen to my starving muscles.
After the short respite, he began again and the gut check was back on. As I continued to make ground on the stubborn fish, I was exhausted to the point of reeling in square circles. A hurky jerky motion, no angler would be proud of, but anyone has been there, knows what I'm describing.
Another surreal moment came when at one stage of the fight, Eddie who is never given over to much exaggeration, quietly and calmly said "Now JT, I don't want to make you nervous but, remember that fish you caught a little while ago?(my first King), well this one's twice that size."
He made me nervous.
As the King neared the boat, he gave a few more attempts at escape. It was at this point that I really began to think of everything that could still go wrong, I thought "don't you dare let him get away" and the terror of losing this fight began to materialise. More adrenalin kicked in and I summoned up enough strength to finish the fight.
As Lee finally got the net around him and, with help from Eddie, they hauled the fish aboard I got my first good look at the Whisky Fish.
Now, not being familiar with the term and clearly not aware of what I had just accomplished, I was curious about why the captain was jumping up and down hugging me and yelling "you got the Whisky Fish!"
I looked around at my girlfriend Lynn, who, only moments before was struggling against sea sickness, was jumping up and down screaming with delight and stoic Eddie had a big wide grin. Our other group member, Jim gave me a high five which I was barely able to return with a shaky hand and the reality that, hey, this might actually be a really big fish, began to take form.
After the Captain finished calling his fellow captains from the lodge on the radio and telling them that, not only were we "on the Kings", but that we also had caught the elusive Whisky Fish, the rest of the boat started fishing again.
The rest of the day was wonderful.
Eddie nailed another really big King, but even as he was reeling it in, he gave me a wink to tell me "don't worry you've still got the biggest fish". He also hammered the bottom fishing out in the deep water and the Silvers were piling up at his feet.
Lynn, Bravely fought the sea sickness and continued to fish. And while she boated a halibut and caught a couple monster Ling Cod that we had to cut loose, she didn't have many fish to show for her efforts. She was having fun, but was clearly yearning to catch some Salmon. A curse that she would later destroy on our final day of fishing.
Jim had a respectable day and went on the following day, to catch his own monster King.
As for me, that was the last King I would catch on this trip.
As we finally came back to the lodge, word had gotten out that we had bagged the Whisky Fish, and the dock was filled with the other boat captains as well as all the guests. There was back patting and picture taking and generally a bit of a festive mood all the way around. It was my tiny 10 minutes of fame and it was great.
But what's with the Whisky Fish?
After the group on the docks dispersed one of the deck hands from the biggest boat came over and said that Lee wanted to see me on it. So I went over and was invited aboard and into the cabin. There sat all the captains from the lodge, around a monster bottle of Crown Royale, which we proceeded to pass around as I recounted my fish story. Their excitement was genuine as I told of the various aspects of the fight and they interjected their own fishing tales throughout, with much laughter and many more tugs at the bottle. I was briefly invited into their world as I had passed the test and was temporarily a fisherman in their eyes. The following day I would return to being just another guest, but for that brief moment, I was on an episode of "After the Catch"
Any fish over 50 pounds is a Whisky Fish and the owner of the boat buys the captain a bottle of Crown.
Mine was the only Whisky Fish of the season it weighed in at 54 pounds and it represented the return of Captain Lee's Mojo. He had been on a losing streak this season and was clearly relieved that it was broken.
One of the captains informed me that he had fished all his life and his best was 49.
Sure there have been bigger fish, Lee bagged a 64 the year before and further north in the Kenai they get bigger still.
All in all it was a phenomenal trip and I am eternally grateful to the Whisky Fish. Cheers!

Good Luck and Godspeed

JT

A Moment Of Clarity

2009-06-15T05:55:00.000-07:00

In a rare opportunity to sit and enjoy the ambiance and view of the Bay with one of my favorite people, I met up with Fred at a local seafood shop. We finally had a chance to sit and talk about investing. Fred is a broker for a great company many of you would recognize by name. And as with most large brokerages, their policy is buy and hold for life. So I'm not giving away any trade secrets.

Fred, being the really great person that he is, has felt his clients pain as they have taken a beating in this last stock crash. I can see the concern he has for people he has known for years, clients as well as friends, and I can tell that my oft stated opinions on the direction of the markets and economy, don't sit well with him.
We discussed many things but I'm afraid I missed an opportunity to illustrate my concerns.
Fred asked me why I believed that the markets were going to crash again. Rather than explain my overall view, I pulled out just one of the many things that come together to complete "The Big Picture".

So Fred, here's what I should have said;
It all started a few years ago when I read a book by Harry S. Dent, The Next Great Bubble Boom Ahead. Mr. Dent, while not perfect, has been spooky accurate in his predictions. His research on demographics are incredibly insightful and it is not possible for me, to ignore the implications. One of his overarching concerns was the cycle of retiring Baby Boomers. The economic effects of this segment of the population have been, and continue to be, profound and they are impossible to deny. Mr Dent does an excellent job of explaining this. That's just one piece of the puzzle, and his book contains a multitude.

Another piece comes from my research into precious metals and as my regular readers know, the historical cycles are well established and we have been following those patterns perfectly.

Yet another chunk of evidence comes from the political climate that we are in and it seems as if, for years, our leaders have had no regard for the lessons of history and indeed seem to be rushing toward disaster with oblivious glee. If my aim was to destroy a country's financial health, I would do everything that these clowns have been doing for the last 20 years. Starting with "Read My Lips, , ," and culminating with "Hope and Change". And yes, I am including Alan Greenspan, Ben Bernanke Hank Paulson, Et all, on the list of big shoe, red nose and funny hat crowd.

And then there are the Kondratieff Wave theories. Without boring you to tears with the details, suffice to say that, when applied to the last 300 hundred years, these cycles have repeated themselves roughly every 50 years without fail. With the current downtrend looking to bottom in 2020. That's 10 years of decline before we can look toward expansion.

Just the one fact, that no country has ever devalued it's currency with successful financial results, in 4 thousand years, is enough to make me trade in my cash for tangible assets. But when you add in all the above and think about levels of Government debt, spending and revenue generation, and the ignorance of a population willing to embrace socialism, it is impossible for me to come to any other conclusion than this, we are facing the perfect storm.
I am constantly researching and for every positive economic argument I come up with, there are 5 counter arguments which negate it.
There is one intangible positive out there. and while it is impossible to quantify it is also impossible to ignore. That is the inventive, ingenious, stubborn, indomitable American spirit.
That's our wild card.
So while I can't ignore the gathering storm clouds, I still have some hope that we can sail around it. But I am continuing to rig for stormy weather.
So Fred, I hope that answers your question more precisely.
Will I be right about my dire predictions? For once in my life I would welcome being wrong and Lord, I hope I am.
With all that said, the portfolio I have put together should do well in a booming economy as well. I will continue to look for those assets that are in demand no matter what the economy does. People will always need to eat, they will always consume energy, they will always need clothing and shelter. And even in the worst of times they will always seek entertainment. Which brings me back to seeing Fred over looking the bay and sipping a glass of wine. Alcohol should be added to my portfolio. I'll find us a good one for next time.

Good Luck and Godspeed

JT

Just The Facts Ma'am

2009-05-31T04:17:00.000-07:00

For those of you too young to remember, the title is a quote from a TV series named Dragnet, starring Jack Webb. Webb as Sargent Joe Friday delivers this line as an admonishment to an emotional rant from a crime witness. In other words, stop with the hysteria and give me the straight poop.
I strive to be as positive and constructive as possible. Sometimes I fail. Sometimes I am driven to failure by people who are determined to pee in my Cheerios. Some of the things that I unearth in researching investment opportunities have that same effect on me.
That having been said, in an effort to avoid tainting your breakfast cereal, don't read this if you want someone to blow sunshine up your butt.
Here's the link for those of you who can handle the graphic image and to follow along at home; http://www.usdebtclock.org/
Warning; this stuff is scary.
So here goes, Just The Facts;
National debt, 11.3 Trillion and rising
US Spending year to date, 1.68 Trillion and rising
Tax revenue, 974 billion and rising
Budget deficit 749 billion and rising
Here is the impact on you;
Debt per citizen, $36,920.00
US Govt. spending per citizen, YTD, $5,387.00
Private debt, 6.97 Trillion
Private debt per citizen $22,862.00
US Unfunded liabilities (what we are committed to pay for Medicare, Prescription drugs and Social Security) 57 Trillion
Liability per citizen, $188,406.00
So if we add up US Government debt per person, private debt per person, and unfunded liability per person, we come up with, $248,188.00.
Just the facts.
These are the numbers, as of Today.
If we stop right now.
Now for my personal opinion;
We won't stop now. Washington is just beginning to ramp up the spending.
Please understand that these numbers reflect a trend that is relatively new in this country. 30 years new.
It is not, however, new in historical terms. It has happened over and over again throughout history and every time it happens, countries, governments and civilizations fall.
So just because we have seen deficit spending and increasing national debt for most of our lives, please don't for a moment, think that this is sustainable, it is not.
The question is, which generation will pay our debts?
Even if we wanted to pass the buck down the road to our kids or grand kids (which I believe to be despicable and morally bankrupt), I seriously doubt that the "buck" will last that long.
I used to think we could stop this and reverse the trend, but I no longer believe that we have the ability, collective societal education or self discipline.
So where does that leave us?
With the absolute need to remain positive.
I realise after my dire predictions that sounds ludicrous, but it is not. Being prepared is positive. Being proactive is positive, looking to not only survive, but to thrive is positive. With every crisis comes opportunity. And while we may wish that we could avoid the pain in the future, we can be confident in our ability to turn adversity into advantage.
Be ready and stay financially nimble.

Good Luck and Godspeed

JT

Update

2009-05-20T10:21:00.000-07:00

Well, since the various schools around the country are starting to wind down for the summer break, I thought it would be a good time to evaluate my performance on a few picks.
Here are my grades;
Gold A+
I have been championing gold personally and publicly for more than 8 years and I'm still an advocate. In fact more today than ever before. I'm up over 400 percent on this one.
Hold, Buy below $800

Silver A
While I am more bullish on silver than ever, it has taken more abuse than gold in recent pull backs. That having been said I think this grade will be A++ before all is said and done. I'm up 100% here.
Strong Buy/Accumulate. Buy below $16.50

Dow Chemicals (DOW) F-
Wow did I ever screw up on this pick, I caught the falling knife, blade first on this one. I would have been fine had I set my stop 50 cents lower. I was looking for support at $8.50 and it broke down below that, triggering the sale and then, it proceeded to rally to over 16 bucks a share, which is what I paid for it. Oops! That's proof that I make mistakes too. I took a fifty percent haircut on this one. This also demonstrates the importance of position sizing.
Position closed

Johnson and Johnson (JNJ) C-, D+
Down 10%
Hold

Van Eck Global Market Vectors Coal (KOL) A
Up %19
Accumulate

Market Vectors Agri-business (MOO) A
UP %27
Accumulate

Kinder Morgan Energy Partners (KMP) A
Up %5 in 2 months
Accumulate

ProShares UltraShort 20+ year Treasuries (TBT) A
Up %22 in 5 months
Accumulate

Chesapeake Energy (CHK) C
Unchanged
Buy

Not too bad all things considered.

This is not my whole portfolio. This list, just represents what I have been writing about in this blog. I have many other positions in resource and junior resource companies that I have been accumulating for quite some time. Since I am in the accumulate mode in this sector, the radical pull back that wiped out so much value for so many people, allowed me to add to those positions at bargain basement prices. This is the speculative portion of my portfolio and I would not recommend these stocks as investment vehicles for any one, other than a seasoned trader.
The ones listed here, however, should continue to perform going forward, beware of a pull back this month, as I wrote about in my last post. This may or may not happen, if it does, I plan on using it as an opportunity to expand the positions in my "accumulate" rated stocks.
As for my percentages on gold and silver, they represent a much larger time span and they predate this blog. For instance silver; I acquired some shares or ounces at around 4 bucks, some at 5,6,10, 11, 17, 18, 14 and 12. The %100 gain is from the average cost of my holdings. Which works out to about 7 bucks an oz. The thing to be observed here is that you can afford to mistime the market if you are always buying on pullbacks in a cyclical bull market. That is how to "accumulate" a position. The trick is in knowing when it turns from a bull to a bear. We ain't there yet but it'll be dramatic right before it turns.

Good Luck and Godspeed

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post

Sell in May? Or right now?

2009-04-27T03:57:00.000-07:00

The old adage of "Sell in May and go away" is well known and well played by many on and off The Street. The thought is that many traders simply take the summer off. Whether this is truly the case, is debatable. There are indicators that show a drop in volume during these summer months and trends tend towards the negative. The problem is, as always, determining how to play this. Is this simply a case of self-fulfilling prophesy? I think it probably is. Whatever the cause, I believe this May will be a good time to visit Hawaii.
Does this mean sell everything? absolutely not. But I am moving out of some of my more speculative holdings and shoring up my core positions. I think, at this time, being in cash is not the answer. If you are a short seller I think that this would be a great time to go short several areas. The financials are ripe for another sell off. This would probably cause other stronger sectors to sell off as well and may present another buying opportunity for some other sectors like commodities and energy. Look for disappointment in the usual summer oil rally. I do think oil will return to the $70 neighborhood but not for some time.
Furthermore, this move in precious metals may be another head fake but it doesn't matter I'm still extremely bullish on precious metals and am enjoying buying silver anywhere around 12 bucks. I can't believe that the markets are letting me accumulate at these prices.
I apologise for the short post today but things have really not changed much. The overall Macro picture is playing out exactly as expected and the trend is still in place. The only thing to concentrate on is your short term trades and those moves are typically difficult to predict, so protect yourself against next month and don't be surprised if a sell off happens before May. Traders don't like to "react" They want to be in position ahead of time. If you are reacting, you are probably loosing money and setting your self to lose more of same.

Good Luck and Godspeed

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post

To my Friends and Family

2009-04-05T05:57:00.000-07:00

For my regular readers this weeks post may seem a little redundant, but as the title suggests, I am targeting my family and friends with this article. Why? because the time is upon us to act decisively.

But before I launch into my speech I would like to preface it by making the following distinction;

This is not a political issue. It's just fundamental analysis. I don't care to evaluate the policies just the implications of those policies. If you are on the right I apologise, if you are on the left, I apologise and if you are in the middle, I probably don't have to apologise, but I will just in case. Sorry everybody.

The reason for my concern for family and friends, is that I don't want to see you suffer the consequences of a government gone mad. I don't see anything that can reverse the path that we are on and that path will lead to inflation. Serious inflation. The creation of money on this magnitude can only lead to inflation.

Let me say that again in a different way.

There is no other reaction to an increase in the supply of dollars, than inflation. It's a cause and effect relationship.

If you take that at face value and forget politics, there is only one reaction that you can have; And that is to protect your family and friends from this hidden tax increase.

How is this a hidden tax?

The best way to look at that is to think about what a politician must do if he wants a new program and there is no available money to pay for it. They can either borrow money or increase revenue, that's it, those are their only options. Wait, there is one more option they have now that we are no longer on a gold standard, they can just wave a magic wand and create more money.

Well heck, waving the magic wand sounds pretty easy. You don't piss off voters by raising their taxes, in fact you make them happy by giving them what they want. You don't have to make those annoying debt payments on borrowed money. In fact by making more money out of thin air you actually make the existing debt smaller. Even better!

What politician wouldn't like this. The best part is that when voters look at their savings and their paychecks they won't see that hidden tax, they'll just say that "man, things are getting more and more expensive, it must be those greedy Wall Street guys or those damn oil tycoons". They won't see that there are simply too many dollars chasing too few goods or services.

Why do you think politicians(on both sides of the isle), over the years, have moved us away from a currency backed by gold? It's because you can't create gold by government decree. There is a finite amount of gold in the world and when you peg your currency to that supply, you essentially cap the amount of currency that can be created to the amount of gold that exists.

The problem here, is that we have 4000 years of monetary history that tells us that every nation that has debased it's currency has failed and ended their future prosperity. It's played itself out over and over again throughout the ages and we are doing it again.

People will ultimately return to tangible wealth. Things of value, that can't be created out of thin air. Things that can't be devalued by morally bankrupt politicians. Things that are a store of value. Gold and silver have always been that store of value and they will increase in price, relative to the value of the dollar.

So to my friends and family, you have to save your money in the only form, that the government cannot devalue by endless borrowing, spending and printing. Buy real physical gold and silver and keep it somewhere safe. My preference is silver for various reasons, but I don't care, buy which ever you prefer. If you need help, let me know, I have several reliable sources I can send you to.

There are a lot of talking heads in the financial world that are advocating re-entering the stock market at these levels. I have had a lot of people telling me that I missed the boat on Bank of America. Maybe I did, I can't pick every one correctly. But I still wouldn't touch the financials with anybodies money. I don't have any faith in them and now that they have relaxed regulations on Mark to Market accounting, I am even more afraid of the banking sector. Keep in mind that while they may take off in value, there is no foundation under that house of cards and they can tumble just as fast as they did last time. If you want to come back into the markets, please do so, cautiously and buy stocks with strong underlying value and little or no debt. This storm is not over yet, in fact it's about to take a new turn, an inflationary one.

Debasing the currency has always resulted in it's destruction. This has always happened throughout history. I don't know if it will happen today, tomorrow, next year, in the next 10 years or even the next 100 years, but it will happen. What I do know with certainty is that inflation is here and now and for every dollar that they print, every dollar I have, is worth less and less. I want my friends and family to be safe and prosperous, so trade in those dollars before they are worthless.

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post

Bear Market rally

2009-03-29T04:56:00.000-07:00

As the title suggests, I'm not buying into the notion that we have reached the bottom and it's all smooth sailing from here. I find myself firmly in the camp of the profit takers. What this represents to me is opportunity. If you've made some money here, it's a good time to take something off the table and/or reallocate your portfolio. The thing to remember here is that the fundamentals of the economy haven't changed. In some data, conditions, although not as bad as forecast, are still abysmal. Don't be sucked into the argument that we've turned the corner. Nothing goes either, up or down in a straight line and until now, it's been a free fall for most asset classes. The overall trend for the broader markets is still down.

This is indeed a rally, but a rally in a bear market. This is no different than a bull market sell off.

What I mean here is treat it the same way you would if the markets were doing well and then pulled back. You would add shares on the pull back in price right? The only difference here is that we are given a chance here to either, take some profits from our new investments or recoup some losses from our older, beaten down positions, then reallocate those funds in more profitable sectors.

All of this applies to other assets only. What do I mean by "other assets"?

Everything except gold, silver and anti-dollar investments such as TBT. These things should be accumulated over time because their overall trend is up and fundamentally, that trend is still in place.

I still see serious times ahead, this rally just puts me in a place where I can correct earlier mistakes, such as DOW, sell it off and either, wait to reallocate those funds, after the next leg down, or play the down move with a short position.

So what's the best sell technique here?

Set your stops.

This is the absolute perfect time to use this sell strategy. There are a couple ways to do this, but essentially I'll be letting the market take me out.

Let's look at the DOW trade. First let me repeat, I screwed up on this one. I bought into the old line about buying blue chips and I realise now that the old blue chips are just that, old. But my mistake wasn't in buying DOW, all investors pick losers every now and then. My mistake was in holding DOW as it continued down. The buy and hold mentality took control and I figured that over the long term it was a good acquisition. It may well be, given enough time, but is it the best acquisition?

That's where we let the market decide. I'll be entering a stop loss order. What that means is that it is a conditional order to sell if the price hits a certain price level. In this case I'll dump it if it hits $8.50. Current price is $8.96. That's about 5% down from here and it's a critical support level. This trade will automatically execute with or without me around.

The advantage here is that it removes emotion from the decision. If DOW holds the support level and continues higher the trade doesn't go off and I can participate in an ongoing rally. In that case I would cancel the stop loss order and issue a new one at a higher support level. Or I can issue a trailing stop order which is the same thing, but it works off of percentage drop rather than set price levels and the stop level ratchets up with the price on it's own. I prefer to be more active and use predetermined support levels. But either method works. Your own broker may have different procedures to accomplish these trades, so do your homework and consult with your broker to learn their methods and restrictions.

If, on the other hand, DOW breaks the support level, the trade is automatically entered and executed with no further action from me. I just wake up with a new account balance and no shares of Dow Chemical.

Good luck and Godspeed

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post

New stuff!

2009-03-22T05:14:00.000-07:00

Before getting into the main topic of today's Blog, a quick note on the silver action of the past week; After what appeared to be a bounce off the support level of 12.50, silver looked poised to rally, then it collapsed. What happened?

I don't know for certain, however it looks to be a failed attempt of the short sellers to bring down the price. I'll know more this week as the details unfold.

The interesting thing here is the action of silver after the close in New York on the 18th. After it tumbled during the day, it shot up, as the overseas markets took control. Which leads me to believe that there are some short sellers here in America that are having an Imodium AD moment.

The "gap up" in price tells me that the rest of the world thinks that silver below 12 bucks is too cheap. I agree. Personally I think silver below 50 is too cheap, but only time will tell. Depending on what happens this week, I may do a mid week post, so keep an eye out.

On to our main topic.

KMP and CHK.

Kinder Morgan Energy Partners and Chesapeake Energy Corp.

Here's how these two companies fit into the macro picture. We all witnessed the collapse of the financial sector, and how this took out many people that didn't deserve to get hit. Chesapeake was no different. In fact the CEO of this company literally put his money where his mouth was and was buying massive quantities of his own stock. He, as did many others, misjudged the severity of this downturn and as a result, got called on margin and lost a ton of his personal wealth. What he saw in his company was value, intrinsic and substantial value. They are a natural gas company with first rate drilling and transportation operations. I've been watching this company for years and the thing that attracted me to them in the beginning was the insider trading activity. Some people believe insider trading is illegal, it's not. It just has to be done under close scrutiny by the SEC and in the full light of day. The thing that flagged CHK for me was the fact that all the top people in this company were buying the shares for their personal portfolios, consistently. This is what you look for under normal market conditions, which we are decidedly not seeing right now. But the fact remains that the people in the best position to see the condition of a company, thought pretty highly of CHK before everything tanked. Now if you are of the opinion that a recovery will come some day, as am I, then we want to buy the stuff that is on sale right now and has real tangible value. A look at their chart(which I encourage you to with all stocks) shows that they have stabilised in the 15 to 20 dollar range. As a trader, I'm a buyer in the 15 dollar range and a seller at 20, but for you buy and holders, this is a great one at 15 bucks. I see some great basing action here folks and that just means that they've consolidated nicely. In addition to that, I believe the price of Nat gas is unusually low and as the price climbs, as I think it eventually will, their P/E ratio of 15.5 should plummet, making this company a steal at $15, but if I wanted a long term play, I still think it's a buy under 20. Oh yeah, their 52 week high was $74, cool huh?

Okay let's look at Kinder Morgan.

A very different story but still a Nat gas company with first class assets in place. Their volatility is quite a bit higher so if I wanted to hold this one, I'd buy the dips and avoid watching it every day. That helps cut down on the Tums. As a trader the volatility aspect only makes it more appealing. Another appealing aspect is it's yield, check this out, 9%! And there is little danger of them losing that yield. They have an interesting tax status that requires them to pay out 90% percent of their profits or risk losing exemptions. (It has been some time since I researched that, so don't quote me exactly on the 90%. There are some timber companies with that same tax status so maybe I'll dust off that research and do a blog on that in the future).

KMP's P/E is a little high at 23.6, but in this environment that just indicates that they've got some pretty good institutional support, and again that will drop as pricing power in gas improves.

Their 52 week high is $60.89 so don't expect a home run on this one. conversely their low is $35.59 which indicates some risk to the downside, but with high yielding investments being a rarity these days, I think they are relatively safe.

Good luck and Godspeed

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post

Resistance and Support

2009-03-16T05:01:00.000-07:00

It's all about Resistance and support.

I called the top in silver back in my February 22 update at 14.50. The following week, March 2, I called the bottom at 12.50. In both cases I was wrong by 6 cents. I guess in the grand scheme that's not too bad, but what's next?

While no one can know with certainty, things are looking very nice right now. The current price action is encouraging in that, the markets seem to be consolidating nicely in preparation for a new run at the 14.50 resistance.

But lets talk about resistance and support as a concept for a minute. What are they?

Resistance is simply a technical analyst's term for an overbought condition, a condition where market psychology is such that the smart money gets nervous and takes some or all of their profits off the table. It's the "how and why" of the way to make money as a trader.

Support is the other end of the trade. When an asset hits a support level, it is simply another way of saying that the asset is at a fair value at that given time.

Are these indicators always right? of course not. But they are right a majority of the time.

Here is an important point to remember; Each time resistance or support holds, it gets stronger.

Another important point to remember is that, if you can break through resistance, say in this case 14.50, that resistance level becomes the new support level. And the reverse is true as well, if the support level, 12.50, is broken through on the downside, it, in turn becomes the new resistance level.

Important point #3; These concepts hold true in both bull and bear markets, the distinction that needs to be made is that in a bull market support is more likely to hold and resistance is more likely to be broken through. Conversely, in a bear market resistance is the strong one and support is more likely to be broken through.

Sometimes these things happen very quickly and are difficult to spot. But they do happen and whether or not the smart money is creating a self full filling prophecy is irrelevant. This is what they do, it's what they talk about over drinks and it's how they consistently make profits. As small players in an ocean of big fish, we can become big fish too, if we stay out of their way and feed off the scraps of their kills. Does this mean we are scavengers? no, it just means we are smaller smart money.

Here's where I see us right now, I think we will bounce around here for a very short time before moving higher. I will be surprised if we don't break through the 14.50 resistance level and have that in turn become support for a run at 16 bucks. After that we'll wet our finger and see which way the wind is blowing. If 14.50 does hold, it is simply another opportunity to add to our position down to the 12.50 level.

We are still in a bull market correction, but strength is building for a strong upward move.

James Turk is reporting of continuing backwardation in the silver futures market as well as rumors of physical bullion shortages. I'll save the definition of backwardation for another post, but suffice to say for now, this is a very bullish sign for silver.

Good luck and Godspeed

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

Is Ted Butler right?

2009-03-04T14:41:00.000-08:00

For those of you not familiar with Theodore Butler, he is a former precious metals futures player turned market analyst/crusader. It is his contention, that the precious metals markets are manipulated and the silver market, in particular, has been manipulated down to artificially low prices by large investment banks taking massive short positions. On the other side of the fence his critics claim that his conclusions are fantasy bordering on fanatical. Rather than going through his claims and his reasons, I will let you do the research yourself, Mr. Butler explains it far better than I. http://www.butlerresearch.com/archive_free.html
So is he right?
Yes and No
I tend to come down on the same side of the road as David Morgan of Silver-investor.com. To paraphrase his position, Mr. Morgan believes that the overall market price is not manipulated but it can be temporarily influenced.
My position is similar, mainly because I, as well as other analysts, have been successfully calling the market tops and bottoms through the use of various charting techniques as well as fundamental analysis. This is not to say that the people who may be manipulating aren't using those techniques as well. Of course they are.
Market forces will have their way. Manipulation can only work temporarily, but "temporary" can be a relative thing. It could be weeks, months or years.
Where I find Mr Butlers position to be very useful, is in taking his analysis from the COTs (Commitment of Traders report) data and use it as a confirmation of my technical analysis. If he flags an unusually large build up or spike on the short side at the same time I find overbought or topping indicators, it just strengthens my conviction to put on a trade.
The question remains as to which comes first. Are the manipulators causing the top or are they just taking maximum advantage of technical analysis.
From a moral standpoint I stand firmly behind Mr. Butlers concerns because these banks are not merely taking obscenely large short positions, his contention is, that they are colluding with other shorts to force the price to extremes. These are not the actions that can be allowed in a free market. So his crusading, as some have called it, is a just cause.
That the regulators at the CFTC are not responsive to this issue, is of course, to be expected. Having worked for the government for so long, it comes as no great surprise that there is incompetence in the government and this ineptness, actually lends credibility to Mr. Butlers arguments.
Illegal activity right under the nose of regulators?
Can anyone say Bernie Madoff?
Stick to your analysis and look to all sources for information. It is a mistake to dismiss Mr Butlers analysis as fantasy. Puzzle pieces often take on strange and unfamiliar shapes, but when correctly put together, can present a very pretty picture.

Good Luck and Godspeed

JT

Nothing new. Metals are still the place to be.

2009-03-02T05:32:00.000-08:00

Here's the scoop; There isn't one. At least nothing new.

As I pointed out last week both gold and silver were up against strong resistance and probably, could not break through. Look for a consolidation period here before they continue their upward trends. I am sticking with 850 support for gold and 12.50 for silver. These are my buy levels. If they break below these levels we could be in for another dance with 11 bucks and 750, but I view that as highly unlikely. With current world economic events, I see a much more likely chance that they will turn around even before those support levels and resume their climb.
In times like these, I would worry about the future for precious metals, if the Government was doing anything that would strengthen the dollar. They are not. In fact the inverse is true.
If I were writing a strategy to ruin the dollar, I would be advocating everything the government is doing, as well as what they are planning on doing.

This is not a criticism of President Obama, it is a criticism of all politicians, past and present from both sides of the isle. It would be charitable for me to say that they are just uneducated in monetary history. They know, but they are saying that "this time is different".
For almost a hundred years, politicians have refused to acknowledge history's precedents.
Rather than going through examples, suffice to say, that no country has ever successfully debased their currency.
Our founding fathers were mindful of past monetary catastrophes, that is why they spelled out, very carefully, what a dollar is. When we departed from that definition, we set ourselves on a path, the destination of which, is the destruction of the dollar. Can we turn from that path and save our currency?
Probably not. In fact the opposite is true, as I already stated, I couldn't come up with a better plan to destroy the once mighty Greenback, than what our leaders are doing. Not only are they continuing past practices, the are ramping up debt at a geometrical pace, with monetary supply following closely behind.
From psychology we know that true and lasting change will not come without a "significant emotional event", and we have yet to see that happen. It's beginning but, unfortunately, much more economic pain has to occur before that significance can be realised.
Back to the gold standard?
Yes, but I realize that in our current climate, that will not happen. The entire world will have to realize the necessity of a currency backed by silver and gold, and again, that will not happen without a world wide "significant emotional event".
Am I hoping for it to happen?
Absolutely not.
In fact, I would give away every ounce of silver and gold, as well as every dollar I have, to avoid it and return to our previous standard of living. But that would do no good. Instead I am trying to get friends and family to prepare for the hurricane ahead.
I am, by nature, an optimist. I know that sounds strange following my dire predictions, but I do think we will find a way out of this and my optimism is illustrated by the belief that I will emerge from the future events in much better shape than I am entering them, but not without being prepared.
As Doug Casey from Casey research is fond of saying "Rig for stormy weather!"

Good Luck and Godspeed

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

Market update

2009-02-22T05:59:00.000-08:00

With silver at 14.44, it is right at overhead resistance.

What happens next is a coin toss. If I was day trading silver futures I would take some profits now but retain some exposure in case it breaks through resistance. If it does break through and move higher look for more, strong resistance at around 16 dollars.

If it can't break through resistance here, it will likely fall to support levels around 12 and a half.

That is simply another buying opportunity.

In all likely hood silver can't move past 16 without some type of correction in between.

Gold is in similar circumstances with strong resistance all the way from here, 997 through to around 1020. I expect a corrective pullback from here and that will be likely to put more downward pressure on silver, further reducing the odds that it can move past 16.

I don't try and trade the silver market. I am in acquisition mode when it comes to metals. I use pullbacks as buying opportunities. Silver is too volatile to day trade without hedging. I use other markets to day trade, markets that offer more investment vehicles to reduce risk.

Despite what some experts are spouting in unified voice, "Buy and Hold" isn't dead as they would have you believe. "Buy and Hold" is alive and well, as long as you are buying the right thing.

Good luck and Godspeed

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

Silver is performing. What's next?

2009-02-15T05:19:00.000-08:00

So far, so good for silver, so what do we do now?
Besides wait and watch there are some things we should be looking at.
Let's start by examining where we are.
First nothing has changed to derail my overall "big picture" view of hard assets. If anything the new "stimulus" package strengthens my prediction for a weaker dollar moving forward. I still like TBT which is an ultra short position against Treasuries and the Dollar. This is a long term play, whereas I see people fleeing the dollar when the effects of the stimulus take hold and we flood the world with our currency.
So logically, since we are positioned to benefit when that happens, we are going to be selling into that price strength. But here is the rub, once we sell our position in TBT, we are going to be sitting in a cash position. The key word being cash.
You may be asking, "Well didn't you just say that you don't like cash?
I'm glad you asked.
We want that time frame, when our cash exposure is the greatest, to be very short. Having an escape plan is vital. But it's not enough to just have a selling strategy, because in this case, the asset class we are betting against, is the medium of exchange we must use to settle the trade. So where do we go to grow and protect our wealth.
More gold and silver?
Maybe, but maybe not.
The problem is that, if the dollar slides, as I believe it will, gold and silver will be much more expensive too. And they can't go higher forever. They will have to top out at some point and go the other way. So increasing our exposure to the metals, will start to appear very risky. It all depends on how deeply the damage to the dollar goes. Remember many things can happen that we don't expect. So view this as a broad and flexible plan.
The problem is determining value.
What is an apple really worth?
If it costs a dollar today for one apple, then what's it worth when, because of inflation, it costs 10 dollars?
That's the beauty of silver and gold.
Today one ounce of silver will buy you a crate of apples. When inflation hits in ernest, maybe it will buy a truckload of apples, maybe not. Who knows, there might be a shortage of apples that year or maybe a glut. The point is, that we need to identify, at that time, what value is.
For some time, I have been feeling that real estate will be that truck load of apples. If real estate continues to fall as I believe it will, it will be falling in conjunction with a falling dollar and creating a massive, once in a lifetime, buying opportunity for real estate. A perfect storm of low price relative to the dollar, a weaker dollar, and overvalued precious metals. It is at that point that you will probably be getting as sick of me writing about real estate, as you probably are, sick of me writing about silver now.
If real estate turns around before the run on precious metals, so be it. There will be a buying opportunity in some other, under valued, tangible asset at that point.
I believe that commodities like food and clothing as well as energy and materials will retain or grow their value in the future and will appear to be very expensive, but in actuality, will be fairly valued.
Real Estate will appear to be fairly valued but will actually be dirt cheap and no one is going to want to touch it. That's when we will start accumulating, with the profits from our positions against the dollar.
So from here, this is where I am concentrating my efforts; I will be increasing my knowledge about real estate and I will begin to value properties and real estate investment vehicles in terms of silver, instead of dollars. For instance if a property is valued at 300 thousand dollars, I will refer to it as being worth about 22 thousand ounces of silver. Or if you prefer, that same 300 thousand dollar house is worth 320 ounces of gold.
By doing this I will get a better idea of the true value of the investment and where it sits relative to a true measure of wealth.
I don't believe that the dollar can be counted on to be a good yard stick anymore.
One more thing, with houses being foreclosed on in record numbers, the need for rentals is going to increase, be it houses, condos or apartments, I'll be educating myself on these markets as well. Particularly apartments. All those displaced homeowners are going to need a place to live and most likely a cheap place. This may be a good interim investment before housing and commercial comes back.
Remember I am looking at long term strategies here, so I am not purchasing anything yet. Just as I am not selling anything yet. I am still accumulating real tangibles and moving decidedly out of the dollar.

Good luck and Godspeed

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

Silver is making a move!

2009-02-07T03:23:00.000-08:00

It's starting to look good for silver.
For those of you in SLV or the bullion market, I see some good times ahead. I see clear sailing up to around 14.50 an oz. But expect some resistance there and maybe a temporary pull back. Breaking above 14.50 will signal a major run up so don't miss it.
Here's how and why I'm playing it;
SLW, Sliver Wheaton. Currently $6.72 a share. Their 52 week range is $2.51-$19.54.
I'm not thrilled with their PE ratio at 17.47 but I can tolerate that.
And here's why, SLW is a pure silver play, and while they refer to themselves as a mining company, that's not really what they do. They acquire silver cheaply and sell it at the market price.
SLW has several long term contracts by which they are committed to purchase a mining company's silver output for a fixed cost. Which according to their website, http://www.silverwheaton.com/main/?en&home is $3.90 per ounce with their averaged realized price over $13 an ounce. That's a nice little profit.
What is their risk? That the price of silver will tumble to below 4 bucks an ounce.
We already know that's probably not going to happen.
The interesting thing about silver is that it is not the target of most mining companies. It's a byproduct. Those miners are looking for gold, copper and zinc. Silver just happens to be deposited in the same locations and it is pulled out and sold. Often financing the operation so that their target ores are obtained for free. That's why mining companies are willing to lock themselves into contracts for such a ridiculously low price. They are guaranteeing their continued operation no matter what prices do. They simply don't care about the silver.
But Silver Wheaton does.
So where does all this lead us?
I'm building up a position in SLW, but (now pay attention here), because SLW is announcing 4th quarter results on Feb 19th, I'm hedging.
So what does that mean?
I am buying the shares outright but I'm also buying puts, as insurance for the earnings release. Which could be bad due to the recent price collapse.
I am not concerned about the long term prospects of the company because their business model is so good and I know that silver is here to stay, at least for the foreseeable future. But you never know how the traders will react to news of any type.
Of course the news could be good, in which case I will probably lose a couple bucks on the puts, but, again, it's insurance, not a trade.
I'm buying short expiration, in-the-money puts.
Now if I didn't know what that meant, I wouldn't try it. I would simply wait until they report and then either, buy at a discount if they fall in price or take my lumps and pay up for the shares.
The mining sector has sure taken a beating lately, some of them have been hit 70, 80 even 90%,
but as a trader I view this as a golden opportunity and as you know, I like gold too!

Good luck and Godspeed

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

Will President Obamas plan work?

2009-01-29T02:43:00.000-08:00

Will President Obamas plan work?

It depends on how you measure success.
If you want to re inflate the bubbles, then yes it might possibly. The amount of money we are looking at is truly mind wrenching. This has never been done before. At least on this scale. But what are the longer term ramifications?
Ken Gerbino writes an excellent article, that lays out the details but his overall conclusions are very plausible. While the collective wisdom is that, this is the collapse that all the gold bugs have been waiting for, Ken believes that there is one more recovery before that happens.
I have been pondering this for some time.

This is how I see it panning out;

As this year unravels there will be ups and downs in the market at various levels of volatility. essentially a sideways market. Strangely, times of violent sideways action.
As the "stimulus" money works it's way into the market and these new funds are monetised and ultimately "realised" by the economy. There will be some measure of recovery. This is when I believe inflation will begin. The stock markets will recover much of their losses, but commodities will begin to soar as the supply pendulum swings from over supply to under supply as a direct result of this current climate of demand destruction (people and companies belt tightening). As money floods the system and economic activity returns, companies will rush to ramp up production and the supply will be strained. We still have China and India to deal with. They have had a taste of a higher quality of life and it would be naive to think they are going to give this up.

Here is where my cracked crystal ball, begins to distort the image of the future and it all hinges on time. How long and how far will the recovery go?
Who knows. But I do believe that commodities will soar and the dollar will suffer hugely.

What is the ultimate end game?

Whatever it is, it'll be one for the history books.
And most likely it will be something no one expects, including myself.
But if you stock up on tangible assets now while they are incredibly cheap, you will be in a position to take the best advantage of the situation when the direction becomes clear.

Take a look at MOO, it's a play on Agri-business. And again this is a long term buy and hold.

Good luck and Godspeed

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

Is buy and hold, a bad strategy?

2009-01-22T05:59:00.000-08:00

With the recent collapse of so many icons of American capitalism, is a strategy of "Buy and Hold" such a good idea?

I think that taken by itself it is more important now than ever.

If taken in the context of buying and holding Blue Chip stocks, I am not so sure anymore.

My approach to navigating this market, while I've been unconsciously doing it for some time, is to buy and hold real tangible assets as my core portfolio. I didn't realize that I was doing this until I went to analyze my over all position and portfolio allocation, which I do periodically to check my"investor psychology".

This is really a 180 degree shift.

The collective wisdom of the past was to buy and hold blue chips and speculate with risk capital(money you can afford to lose), in other markets such as commodities, energy, tech and Bio-Tech.

As it stands now I find that I sleep better at night knowing that my real wealth is protected by hard assets. When you look at some of the monsters in the financial industry teetering on the brink, I wonder if they are in any stronger position than Bernie Madoff was prior to his collapse.
Take for instance B of A, a year ago they were trading at 40 bucks now they are worth 5 and standing under the bailout TARP

Yeah I know that Bank of America deposits are insured by the Government, but who insures the Government?

We do, the people, with our tax dollars. And despite what some politicians believe, that is a finite and unpredictable number. It is a dangerous merry go round that the Government is on. As the economy worsens, they continue to bail out failing companies. Companies that still cut jobs and production with the end result being a smaller tax base.

Fewer workers, fewer payroll taxes.

Less production, less profit for the corporations and therefore less corporate taxes.

Less sales, less sales tax collected.

President Obama has stated that he is not concerned with deficit spending, but I am and we should all be. With foreign nations less willing to buy our debt, the only other way to fund his stimulus plan and various other programs is through the printing press.

Sure he could raise taxes but I doubt that he will do this. Despite the rhetoric the Democrats know that tax hikes in this financial environment would be a disaster.

So that leaves increasing monetary supply as the only avenue.

This is the big picture; Monetary supply has doubled from this time last year, which means that you have half the spending power that you had a year ago.

Don't let the fact that we have had a dramatic drop in the price of fuel as well as other commodities, lead you astray. These things take time to work through the system.

In fact this lag is itself the very opportunity that we should be looking at.

I am looking at this sale in precious metals the way I would have looked at a major pull back in Boeing two years ago.

Or Johnson and Johnson, Dow Chemical, Lockheed Martin even Exxon. Had someone told me last year that I would be able to buy these names at the current prices, I would have thought them insane.

But now, looking at precious metals, I see that they must rise in price and I don't have to know when, I just have to know when they are on sale and then buy and hold.

A very good analyst that I trust, points to a possible, further pull back in metals before they take off to new heights. It's possible. I don't think it will happen, but because I trust his conclusions, I am putting some extra cash aside in case it does. And no, I'm not selling my real metals. Those I will hold for the foreseeable future. Don't try and time this market it is still way too volatile. Buy the dips and hold. Build your positions.

Another position that I will be hanging onto is the short position on treasuries(TBT)(see Obama Bounce? Dated 1/08/09) Again I don't know when these things will happen but in the big picture they must happen.

Good Luck and Godspeed

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

TEOTWAWKI?

2009-01-18T04:35:00.000-08:00

It is very difficult, while searching all the resources on the net, to avoid all of the analysts that believe that this is "The End Of The World As We Know It". But in some ways, I think that they are right.
"The times, They are a changin'"
As those of you who read my stuff regularly know, I think that the dollar is in serious trouble. At the very least I believe that in addition to some really awful times ahead for Real Estate, Auto Makers and Financials, I see some scary hyper inflation in the future.
But do we need to employ the bomb shelter mentality?
In my life time I have experienced several times when this was the "fringe" tendency. While growing up it was The Cold War, with the policy of "Mutually Assured Destruction".
When that threat ended, it was time to create another, Y2K. Remember when the computers were going to ruin the world because they couldn't count from 1999 to 2000?
Then came the very real and frightening 9/11. And now we have the, also very real, collapse of the financial system.
But the question remains, Is this financial Armageddon?
I don't believe that it is, yet.
and I don't really believe that it will be.
It all depends on what Washington does in the next few months.
But, have I stocked my shelves with a few extra cans of Beenie Weenie?
Maybe.
Being prepared is not the same as being paranoid. Having been part of a disaster response team I have been at ground zero for some serious events. Hurricane Ofa, Typhoon Russ, and the Loma Prieta earth quake in San Francisco in '89. I've had to eat MREs, out of necessity before. Here at home, I have also seen a time when our rivers flooded and took out bridges, leaving us isolated for days. So I do believe in being self sufficient and managing risk. That is a crucial element of investing, as well as surviving in any situation.
So let them call you paranoid, stock up on the Beenie Weenie and SpaghettiOs (and maybe some silver and gold) so that if something does happen, be it a man made or natural disaster, you can say "I told you so", as you toss your neighbor a spare can.

Good Luck and Godspeed

JT

Re: Obama Bounce

2009-01-10T06:44:00.000-08:00

I received a comment on my latest blog(see Obama Bounce below). When this person read that I was interested in Proshares Ultrashort Lehman 20+ year treasuries. Symbol TBT. They asked me "Didn't you know that Lehman Brothers went bankrupt?".
My apologies to any of you that had the same concern. I should have explained. Yes I did know that Lehman Brothers no longer exist. Their Index, however, lives on. The company that manages the fund in question is Proshares, part of the ProFunds Group. The reference to Lehman is simply an index, collection or list of stocks in a sector or in this case, treasuries. Just like the Dow Jones industrial average or Standard and Poors.
Kudos go out to the reader that pointed out this concern, because in times like these we need to beware and ask questions, keep it up!

Ah yes, another question was raised about my sign off slogan "Godspeed"
Here's the Wiktionary definition that most describes my intent in using the term;
An expression of good will when addressing someone, typically someone about to go on a journey or a daring endeavor.
Or from Wikipedia; Godspeed, as a word, is a wish for a prosperous journey, success, and good fortune.

The key here is that educating yourself is a journey and becoming financially liberated is one of the best gifts that you can give yourself and your family. Please keep the comments coming, because they help all of us on that path to freedom.
Email me at Torocreekinvest@aol.com

Good Luck and Godspeed

JT

Obama Bounce?

2009-01-08T03:14:00.000-08:00

The other Night, while chatting with some friends over a couple of drinks the topic of the latest stock market rally came up and someone asked me what I thought (always dangerous when I've had a drink). My answer was, "If you've made a profit, sell". Another friend, who had the good fortune and sense to buy silver around it's current lows, asked if that advice applied to silver as well (I think she was testing me). My answer of course was no. And here is why.

This is not a market that any of us has ever witnessed before. I am even questioning my decision to buy and hold blue chips. So many people have made comparisons to the Great Depression, but there are too many differences to think that we would follow that pattern exactly. I don't know what is going to happen, nobody but God knows that, but here's the thing, if you walk out your door in the morning and the sky is cloudy and dark, grab your raincoat.

The sky is looking very stormy. In fact it looks more like a hurricane is right on our doorstep.

Many people are predicting an Obama bounce in the markets and I think they are right, in fact I believe that is what is happening right now. How high is the bounce? Who knows. But when Mr. Obama says that we are looking at "trillion dollar deficits for years to come" I pay attention.

He is going to kill his own rally.

That is a really negative thing to say to Wall Street. They hate uncertainty. They know how to make money in any environment, the trouble is in determining what your environment is. That statement, so emphatically stated, is not uncertain, it tells Wall Street exactly what environment that they are in and it tells them exactly what to do.

Bet against the dollar.

The President elect has told us exactly what he is going to do. Print more money and sell more debt. Without real economic growth, there are no other real options for generating revenue. Sure he could sell some stuff, like maybe Air Force One, some presidential ash trays or Hawaii or something, but why bother when you own the printing press.

Here's how to bet against the dollar;

Of course buy real silver and gold, but you can also short US Treasuries.

Well how do we do that and what does it mean? First going short or shorting something is just a another way of saying that you are betting that it will fall in value. You can short something by borrowing shares from your broker and sell them, then hope the value will drop so you can buy them back on the cheap, repay your broker the shares and pocket the difference. But you really can't do that with treasuries. For you and I it's not all that easy to take a short position in the US Treasuries market but thankfully there are some ETFs out there that will fit the bill perfectly.

Pro shares Ultra short Lehman 20+ year Treasury Symbol TBT and Pro shares Ultra short Lehman 7-10 year Treasury symbol PST.

Both are designed to move opposite the treasuries. And right now Treasuries are expensive and extremely over bought. There has been a flight to safety which has caused this bubble and that bubble will burst at some point in the future. When? who knows. So, as with other things I'll be buying slowly and building a position.

Remember I'm not advising you to do this, I'm just sharing my strategies. Do your own homework and check with your financial advisor before buying anything.

And as always,

Good Luck and Godspeed

JT

Who Madoff with the Dollar?

2008-12-27T03:45:00.000-08:00

So what is a Ponzi Scheme?

In the early 1920's Charles Ponzi successfully convinced a large group of people that he was an investment genius. His supposed investment vehicle of choice was postal reply coupons, with which he claimed returns of 400%. Postal reply coupons where postage stamps purchased in another country and redeemed in the target country whose currency was stronger than the country in which they were purchased. In short he was supposedly playing a currency exchange program. Essentially an early type of Forex trading.

What he was really doing was paying returns to earlier investors with the deposits from new investors. There were no real returns from the initial investors deposits. Those and portions of subsequent deposits were skimmed off by Ponzi to fund a lavish lifestyle and continue the illusion of success. As the mania grew and grew, people were throwing money at Ponzi to cash in on his promised riches. At one point taking in $250,000 a day.

Eventually, of course, the pyramid scheme crashed and investors were financially destroyed.

Ponzi schemes are simple to pull off if you have no moral compass. They are also extremely easy to detect if you have the desire and easier yet to avoid if you apply the common sense.

How many times have we heard the mantra, "if it sounds too good to be true ..."? You know the rest.

Bernie Madoff pulled it off for years before the end came. In fact his scam would probably be rolling right along still if the markets hadn't tanked. These scams are always out there in one form or another. In fact our government is running two of the biggest Ponzi schemes in the history of the world. In broad daylight none the less!

Social Security and Medicare. The scary part is that we know there is no money in the Social Security "Trust Fund" Yet we let politicians get away with that term and the term, Social Security "Lock Box".

The money just ain't there.

If nothing is done to change these pyramid structures they will fail. Unfortunately the political will to accomplish those changes, doesn't exist.

And yet there is one more Ponzi scheme developing out there that will dwarf these two government mandated schemes. The US Economy.

I know that sounds hysterical and unpatriotic, but bear with me for a moment longer.

This is the greatest country the world has ever seen. We have been a force for good throughout the world. Whenever a disaster hits anywhere in the world we are the first to offer assistance, even to our enemies.

Our workers are the most productive, innovative and determined people on the planet.

Medically we are second to none. Our compassion for and reverence of life is a wonderful thing to behold. Even our pets and livestock enjoy a quality of life seldom seen anywhere else.

When we defeat an enemy we give back the territory as long as they demonstrate that they will play nicely with the other kids in the sandbox. Germany, Japan, Italy, half of Korea and Grenada. We are attempting to do the same with Afghanistan and Iraq.

Of course there are exceptions to all of these. However the vast majority of the time these statements hold true.

The one thing that makes this possible is wealth and the promise to attain it. That is the American dream. The American Capitalist is the reason we can be philanthropic as a nation.

The reason we make advances in medicine, quality of life, even environmental awareness.

It is the reason we conquer our enemies but don't expand an Empire.

All of these things make good business sense.

Take away that dream and you take away our greatness as a nation.

The financial world knows this is true as well, that is why the dollar is the reserve currency for the world. For now.

If we continue to try and print our way out of this financial crisis and into even more and more international debt, there will come a time that the international financial community will see the Ponzi scheme that is building in our economy and want out. Even if we reverse course right now, the national debt, if applied to every household throughout the country, would be around 500 thousand per household.

There will be only two ways we can pay off that debt. One is to grow our way out of it and, at the same time, have the politicians stop spending our money. That is apparently, not going to happen. The other way is through hyperinflation.

If you borrowed 100 dollars 20 years ago and had to pay it off today, no big deal right? back then you could have dinner and a movie for 2 for around 25 bucks. Today it's about $75-100 . That's mild inflation. With hyperinflation, foreign creditors would be lucky to receive 10 cents on the dollar, return on investment.

Will hyperinflation happen?

I believe it is already a done deal.

Bernanke has stated that he will print his way out of a deflation, to whatever extent that is required. He is in the process of doing just that.

So where does all this leave us average Joe's and Josephine's? Out in the cold, unless, , ,

We buy real, tangible assets.

In addition to our core holdings of real gold and silver, held in our own possession, we should be acquiring food and energy related stocks, various mining companies as well as shares of companies that provide products, which will be required no matter what happens with the economy. These will hold their value as the dollar drops. The more indispensable the commodity, the more it will hold it's value.

The unbelievable part of all this is that these things are on sale right now.

Even small amounts of tangible stock can become very valuable in a hyper inflationary market.

I'm building that house brick by brick, as we speak.

Even if I'm wrong about all this, these sectors should, at the minimum, hold their value or return to it, first as the economy turns for the better.

Good luck and Godspeed

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

The most common mistake.

2008-12-11T05:55:00.000-08:00

What is the most common investment mistake that people make?

"This time it's different"

That's it. Ask any investor, either amateur or professional, if they have said this before and then ask them how it worked out for them.

My guess is that, if they were being honest, they would tell you, overwhelmingly, that it was a failure as a strategy.

It is what people do when the markets are going up and they should be selling into strength and taking profits because they believe that the bad times are behind them never to return, because "this time is different".

It is also what people do when markets are falling and they should be buying quality stocks when they are dirt cheap. They are selling on the way down because things are awful and they will never recover because, "this time is different".

Things do repeat themselves in the markets. That's because capitalism is predictable, with known outcomes. And while history doesn't repeat itself precisely, the frame work remains constant. It is mostly the timing and intensity that varies.

The LAW of supply and demand.

This really is a law. You can't screw around with one and not effect the other. This is one of many things that Capitalism teaches us. And it is born out time and again.
But don't confuse capitalism with democracy. That is also a common mistake. Capitalists have existed in every form of man made government since the beginning of time. Some systems of government tend to promote capitalism, like democracies and some try to crush it, such as socialistic systems. Both systems of government will, however, ultimately fail in their efforts to manipulate markets either up or down, because market forces will always prevail in the long run and overthrow the forces of governments, whether well intentioned toward capitalism or not.

Our government has forgotten that market down turns are corrections, necessary corrections for a healthy economy. They balance out supply and demand.
After the Internet crash in 2000 the Fed came in and re inflated the economy by lowering rates and pumping up the housing markets sky high all the while congress was pushing banks to make as many high risk, low reward, loans as possible. They should have let the markets correct.

Why the attempted lecture on Social Sciences? And what does this have to do with investment mistakes?

The answer is that we are in the middle of major market forces at work and, unfortunately, the collective wisdom of our government is to move toward socialism in an attempt to prevent natural market forces from reaching their inevitable goals. By nationalizing some banks, insurance companies, even mortgage rates and apparently to some degree the auto makers, they are trying to stop those forces from doing what they have to do. Which in this case is a long overdue and massive correction of those market places. Will they succeed?

Not in the long term. We have the ability to look into the past at 4000 years of monetary history. But much to my dismay no one in the halls of power has the desire. Or maybe I should say the intelligence or the integrity.

That history, were it heeded, would tell the tale that NO country, state or empire has ever successfully devalued their currency without destroying it. We began devaluing our currency under FDR around 80 years ago with the complete conversion to fiat currency occurring in 1971 when Nixon closed the gold window. Fiat money is money that is backed only by our faith in government, or more accurately money created by government decree. Since 1971 we have steadily been creating money out of thin air.

The framers of our constitution and overall government, were students of history and they knew the dangers of fiat currency. In fact they specified what a dollar was, and that was Silver. A very specific weight and purity of silver. Furthermore they imposed a penalty against anyone who devalued that currency and as penalties go, it was a little severe. Death.

I am not saying we should ship off our elected officials to the gas chamber, although I'm sure there are those who would disagree, but we should look at how serious they felt about this and why, instead of doing what our politicians have been doing. Which is saying "This time it's different".

People tend to look at the time in which they are running around in this world as the most important time in history. In doing so, they over emphasize their importance in the world and forget that in the context of all of human history, their time on this earth amounts to little more than flea flatulence in Yankee Stadium. Thinking that we are larger than this, is delusional and it leads one to believe that, "this time it's different" because "now I'm here".

Socialism has never worked in the past but it's sounds so compassionate and noble that it has to succeed now because "this time is different".

Printing money will stave off deflation and save the economy but it won't cause inflation because "this time is different".

I know I should buy Silver and Gold to protect my wealth, but I don't believe that inflation is a problem and I don't believe that Gold and Silver are valuable as money anymore because "this time is different".

As historians look back on this time, with the clarity of hindsight, I believe that they will scratch their heads and say, "How could they ignore 4000 years of monetary history? All the clues were so obvious, how come they couldn't see it coming?".

And I will answer for them one more time.

Because they thought that "this time was different".

Good Luck and Godspeed

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

Santa Claus Rally?

2008-12-08T04:20:00.000-08:00

Are we in for a year end rally?

I think so.

Looking at past crashes(I think this officially qualifies as a crash) tells us some very interesting things.

First is that the big ones, have all started about the same time of year. This one falls into that category.

The second is that, within the context of crashes, about this time of the year the markets rally. If you look at charts for broad sectors you will see basing patterns are occurring. This indicates a good possibility for a rally.

Let me sidetrack a little here because I know I haven't done much in the way of discussing charts.

Charts are not the be all, end all of investment techniques. But the interesting thing about charts is that, it is a very technical way to gauge investor psychology. Just that concept alone is enough to make Sigmund Freud shriek from his grave. That aside, human behavior is fairly predictable. Particularly large groups of people. And the larger the group, the more predictable. The investment community is a pretty big community.

What charts do is to illustrate patterns. They point out what the majority is doing and by comparing past patterns they give you an indication of what could happen in the future. But here is the catch. Humans aren't technical creatures.

While we are fairly predictable, we don't always repeat the same behavior. That ability to adapt, invent, innovate and improvise is what makes us so strong. It not only allows us to survive, but it makes us thrive and succeed and it is also what points out the inherent flaw in charting techniques.

The difficulty in charting is in applying the right historical behavior, to the current climate. Therefore the question is; Is this the same environment that existed in the early 1930's?

The fact that so many people are comparing today's markets to those of the Great Depression, makes me instinctively nervous. Group Think is invariably inaccurate.

Group Think makes you reevaluate what you instinctively know and believe and then question it.

Taking all this into account, what my research and instincts are telling me is that, we are in for an INTERIM rally. And the charts confirm it.

And that is what charts should be used for. Do your research, develop reasons, check your fundamentals and then confirm it with the charts.

We are still in a falling market and we have a lot of work to do before we get out of it. But every crash has some up days and I suspect that we are close to those days.

So, if you've been paying attention, you probably already know what I'm going to say.

IF we do get a rally, I'm going to ride it up and then sell, sell, sell. Everything except my core holdings of Silver, Gold, mining companies and blue chips. It is entirely possible that commodities will decouple from the broad market and continue up or stabilize on their own. Watch for this.

In closing I will say that human behavior is unpredictable and history doesn't always repeat itself precisely. The only thing we can do is prepare to the best of our abilities and execute what we know. The outcome is only uncertain to us. It's all part of the plan and our job is to deal with that plan as it unfolds.

Good luck and Godspeed

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

Last Chance?

2008-12-03T09:34:00.000-08:00

It's always dangerous calling tops and bottoms. So I won't.

OK maybe I will.

I am already on record saying that silver will rise. I have already said that I don't know exactly when.

But what do I really think? you might ask.

I suspect that it will be soon, possibly within the next three or four months. Indeed I would not be surprised if, upon finishing this post, I discovered that the next major upswing in the price had begun.

So why do I believe this? After all I'll be the first to admit that I was completely surprised by the intensity and depth of this pull back (some would call it a price collapse).

The reasons for my confidence are many but here are a few. First is Ted Butlers commentary on the COT structure. I'm no expert on the Commitment Of Traders report and I wouldn't even attempt to explain it to you( I'll leave that to the experts). But it is Mr Butlers opinion that the Big Money is setting itself up to make a killing and he presents a pretty powerful case. His analysis is followed by the analysis of many of the most respected people in the metals market.

I have seen more and more of the experts that I follow, convinced of the very timing I'm sharing with you. Then there is the list of spectacular fundamentals that I've been writing about for some time now. Another piece of the puzzle that has been coming together lately is that the fundamentalists and the chartists are beginning to agree with each other. In fact my own conclusions, after analyzing a multitude of charts, Elliot waves and oversold levels, couldn't be more bullish.

My timing could be off, but if I'm wrong, I have the company of people that are smarter than I and I also have the confidence that, being wrong on the timing really doesn't matter because Silver is such a wonderful buy at these levels, it simply prolongs the buying opportunity.

Could I be wrong about Silver? Of course. There are no guarantees in the market place. The markets are going to do what they do. All we can do is analyze as best we can, make sure we haven't missed anything and have the courage to execute our plans. History will tell the whole story in due time. But I'm OK with that, it's what makes this such an exciting business.

But what if I'm wrong? These markets have been pretty screwy.

I have back up plans and trading discipline to fall back on.

But what if that doesn't work? Everything could fall apart.

If that doesn't work folks, the only thing that is going to help is guns, ammo, food, water, shelter and faith.

I've already gone over that check list and I got 'em covered.

As always

Good Luck and Godspeed

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

Time to fill up your gas tank?

2008-11-30T04:52:00.001-08:00

Is it time to fill up that old gas hog before prices start going back up?

First let's take a look at the world of oil.

The price of oil has been slashed from it's high near $140 to somewhere around $50 where it seems to be seeing some support. At the 140 dollar level, everything was different. Any and all alternative energy sources were being explored and developed because they were profitable with oil north of $100 dollars. The average consumers(myself included) were being absolutely hammered at the pumps. Businesses were being equally hammered and some areas of commerce, like trucking, were dangerously close to being completely shutdown. Impossible you say? Go ask an independent trucker what he was doing back then. The answer I got was that they were looking for cheap, long term parking.

The message is that the US Economy can not function at $140 per barrel. At least not yet. Not without higher wages and higher prices across the board.

Oil will eventually return to the $140 level if new technologies and/or new sources are not developed. But the equation will have to change before we can get there. Wages and productivity will have to rise and prices will have to rise for all goods and services. In short, the market has proven that $140 per barrel is not a sustainable price level.

At that level something called demand destruction occurs. People stop using the commodity in question. This is a long way of saying that the cure for high prices is high prices. But how low will we go? The reverse is also true. The cure for low prices is low prices and low prices call for supply destruction. There is no incentive for the producers to supply the product. In other words it's not profitable. These are basic tenants of capitalism. At $140 everyone with a shovel was out there looking for oil. At $50 it's not so exciting. We are already seeing supply destruction beginning in the oil sector.

Here is my opinion on the course of things; We are at or near the bottom for oil. It could go lower but I don't believe it will stay there because the fundamentals(there's that word again) have not changed. The Middle East has not suddenly become stable, Venezuela has not changed dictators and their oil services sector has not been suddenly revitalized. There have been no major, new oil field discoveries.

And much to my disappointment there have been no new technological breakthroughs on alternatives. And with oil at these levels I don't expect any. There is no longer the great financial incentives for entrepreneurs to take risks on alternatives.

But here is what I believe will happen; Something will break loose in the Middle East, China and or Russia. This new administration will be tested by one or all of the above mentioned. This is no great prediction, it always happens with new administrations. In addition there will probably be some government intervention in the price level of oil. Indeed President Elect Obama has already indicated his interest in a gas tax hike. Whether or not it's a good idea is irrelevant from an investment perspective. We need to be in position to profit from all of these things.

I believe that 70 or 80 dollar oil is a sustainable level and I think we will eventually stabilize around there.

I'll be building up holdings in large oil companies, top quality oil service companies as well as natural gas companies. Slowly and consistently, starting small and buying incrementally. This will be a little expensive in terms of extra commissions but it will give me some measure of downside protection if prices fall further. By doing this I don't use up all my capital(money) at once, saving some to buy more shares cheaper, if the price moves down, thus reducing my overall cost for the position. If the price moves up from here, I'll either buy more, wait for a temporary dip or reallocate entirely to a different strategy. This is investing 101, it is a technique that is tried and true and it's how the big boys and girls do it.

To put all this together into an overall investment strategy We are positioning ourselves for a ten year time frame. I don't think everything is going to turn around overnight. There is more pain coming but it's time to build core holdings by putting money aside regularly and buying undervalued companies that have tangible assets. Spending huge amounts of money on each position is not necessary, in fact with today's climate, it just might be stupid.

In conclusion, to answer the gas tank question, yeah it's time.

Fill 'er up!

Good Luck and Godspeed

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

I don't want silver to rise!

2008-11-25T14:50:00.000-08:00

I don't want silver to rise, , , , yet!

I'm not done buying and I don't think it will ever be this cheap again. I know we have all been beaten up lately, but turning tough price moves to your favor is what makes the difference.

Most people who invest do everything backwards. They see the price of an equity rising and rush in and buy. As it continues to go higher they either hold on in anticipation of further upward movement, or worse yet, they add to their position.

It is important to point out that, when I say that they add to their position, I am looking at the whole sector. For instance if you have Exxon shares and you buy Occidental Petroleum, you have added to your position, because you are positioned for an advance in the oil sector. If Exxon makes an upward move chances are Occidental will follow and the inverse is particularly true. Equities tend to move in sync. Some follow and some lead. Very rarely does a stock move unilaterally unless it is because of company specific news.

As these amateur investors feed into the hysteria and are buying on the way up, the pros are slowly selling into the price strength, reducing their position in the sector in anticipation of the fall. When the price rolls over and starts to nose dive, the pros bail out of their remaining shares and don't look back. The amateur investors hang on and ride the train over the cliff.

When a stock bottoms out, it doesn't bounce right back, it usually bounces along the bottom for quite a while, here is where the amateurs finally get shaken off and this is where the pros move back in. You'll hear them use words like "nibbling"or "dipping my toes in the water"or "take a taste", cautionary statements indeed. This is what you must train yourself to do because it's not in our nature to buy investments that are cheap. If it's that cheap nobody wants it. It isn't valuable, right?

Sometimes, but sometimes it's not right.

That's where you have to dig into the fundamentals, to find it's value and compare that to it's price. Find the diamond in the rough or in this case, the silver.

I am continually blown away by the professionalism of the silver investors. They haven't panicked. They know the value of silver and no one is selling. The supplies of bullion, when you can find it, are not coming from the private investors. For the most part, suppliers are getting the bullion from the large institutional holders or from various mints, government and private. Imagine if you will, a crazed, raging, wild horse, bucking, spinning, and flipping about while the cowboy tenaciously hangs on, refusing to be thrown. This has been the ferocity of the private investors in this price collapse. I am not hearing capitulation from them, in fact I'm not hearing much in the way of complaints other than the usual cry of foul about manipulation from the speculators. They, or maybe I should say We, are resolved to dig in deep and build a large supply of bullion and good quality junior mining stocks.

But why such strong resolve?

I have yet to hear one rational, reason why not.

Everything is in place for a colossal price movement. Will it happen today? tomorrow? next week? next year? I don't know but I really hope this weakness lasts for a long time and allows me to build an even larger position, but I know that won't happen. This is because the price is too low to support the miners. They have already halted work in their more expensive operations and in projects that haven't been completed and many have gone out of business altogether. Coupled with the facts that financing and credit have dried up and stock prices throughout the sector have tumbled, many more operations are threatened. It is true that manufacturing demand has fallen off somewhat, but the extent of that is not yet fully known. I suspect the dramatic increase in investor demand will more than compensate for this.

These factors are enough for me to be bullish on silver. When you take into account the monetary aspects of silver it becomes even more imperative to buy bullion. The amount of money that governments across the globe are printing, is far too large to even contemplate. In fact the latest buzz on the financial news networks, Internet and papers is that, it is the stated policy of governments to stave off depression by inflating their respective currencies. How scary is that? They are not even being secretive about it!

Just so you understand the seriousness of this, think of it as a hidden tax. As they inflate, your savings lose purchasing power. You become poorer and the governments spend to their little hearts content. If that is not a tax what is?

Buying gold and/or silver checkmates the the monetary manipulation. It denies the government the ability to impose this hidden tax on you. It preserves your wealth.

Add in the potential to dramatically increase your wealth and we have the perfect relationship. I know of nothing that can match silver in all the areas that I have mentioned.

Good Luck and Godspeed

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

Fairness Doctrine oportunity?

2008-11-19T15:38:00.000-08:00

I try to avoid taking a position on political matters, because as I've said before, you run the risk of alienating half your clients. This is one, however, that goes to the heart of capitalism and free market principles as well as free speech and freedom of choice, so I am afraid that my somewhat Libertarian tendencies might show through in my analysis. But please bear with me and forgive me if I gore your Ox.

I remember when the Fairness Doctrine was in place. It essentially said that anyone that uses the public airways, must program equal time for both sides of any political commentary. If I remember correctly, it was very unwieldy, highly subjective and extremely unpopular with the conservatives and they believed that it was anything but fair. To prove this last point I present to you Ronald Reagan who, promptly upon taking office, did away with it. Fast forward to Barak Obama and democratic majorities in both houses and you guessed it, there is renewed interest in reestablishing this doctrine with an eye bent squarely at conservative talk radio.

If this occurs Talk radio as we know it today may become history. Some of you might be saying so what? or who cares? The answer is that WE care. Remember we are here to make money.

This is not about politics.

Yes, I think it is more of big brother getting involved in more peoples lives, I think it is Government meddling in the free markets and it worries me to think about who is going to be judging what speech is liberal and what is conservative. All that aside let's take a look at the investment potential here.

The conservative side of the argument goes something like this. Liberal talk radio has failed in just about every AM market out there. The demographics are such that people who tend to listen to talk radio tend to be more conservative. They believe that liberal political speech, can't compete in this particular market. If the government mandates equal time for the opposing view, there is the fear that listeners will turn off the radio during the liberal hours and that the stations will loose advertising revenue and thus move completely away from the talk radio format to another format that is still working. Bottom line is revenue.

The question is, will this really happen? and the answer is I don't know. But here is what I do know, "buy the rumor sell the news".
If the above scenario plays itself out here's how the speculation goes; If the radio stations begin to change formats, away from talk radio, these syndicated talk shows will make adjustments. They are big business. Big, profitable business. They will simply migrate to the Internet and satellite radio. The fairness doctrine can't touch them there. Remember that it is only the fact that they are using the "public airways" that gives the government any control over them.
So here's what I am going to do; Since I can't figure out a vulnerable position on the Internet side of this equation, I'll be buying Sirius Satellite, symbol SIRI. I'll be using risk capital(money that I can afford to loose) and I'll be establishing a very small position. If I do get some upward movement in the stock price, I'll take profits early but maybe leave a little on the table just to see what happens.
This is a 16 cent stock that trades at a negative P/E ratio, the company has a legal monopoly on satellite radio and that means zero competition and they have been beaten badly lately.
As far as I know, no one else has made this connection from an investing perspective and maybe no one else will, but if I can't have a little fun and take a wild speculation every now and then, then why bother with this stock market stuff anyway?
So know this, I am not recommending this trade, I'm just sharing my intentions with you.
Good luck and Godspeed

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

Put up or shut up

2008-11-14T05:30:00.000-08:00

OK so every investment advisor says they can help you make money in any market, up, down or sideways. Right? Well come on bring it.
What's that sound?
Sounds like nuthin'
Nothing is working in this market right? Nobody is making money right?
Of course you know what's coming.
Yes there are ways to make money in this market and I'm going to tell you how I'm doing it. It's not for everyone but it does work. If you decide to use any of these strategies, do your homework, and learn everything you can before trying these.
Here's the key; don't get cocky. Cause there will come the day when it stops working. But let us start at the beginning.
There are three good tools that I am using right now. Here is the first.
Until the trend is broken; I am buying puts and calls on the diamonds and spiders. When the Dow rallies like it did yesterday, I will move in and buy puts on DIA and SPY. These are ETFs that follow the moves of the Dow Jones industrial average and Standard and Poors.
Puts are options contracts that bet on a downward move in the underlying security(I am betting the Dow and S and P are gonna fall).
When they do fall, which has been the trend, I wait until the drop exceeds the rebound, which again has been the trend, I sell my puts and buy calls. The call side is the tough side and where you can get caught. Listen carefully here. TAKE PROFITS. Any profits and get out, Then start over again with the puts.
Here is what is going to happen. One day the rally is going to be real, and you will lose on the put side. It is going to happen. Whether it's today, tomorrow or five years from now I don't know and I don't care. The trick is to NEVER get cocky and increase the amount of money you commit to this trade. Let's say you put a thousand into this strategy. Then stick with it. I know this sounds superstitious but as soon as you say to yourself "This works so well I'm going to put 5 thousand into this and really make a killing" That's when the market is going to turn around and punch you right in the freakin' nose. Mark my words.
This is known as channel trading and it involves the use of charting techniques. Do your education thing on this one, it's worth it.
Strategy two. This is a variation on the same strategy above. It is a much more conservative strategy and you will have to do some more studying on your own to understand it. But here it is in a nutshell. It's a Bear credit spread. This is a nuts and bolts trade that is designed to bring in consistent revenue. It is simple really, but it sounds complicated. If you think a stock is NOT going up, You write(sell) an "at or near the money" call option and buy a further out of the money call for protection in case it does go up. The result is a net credit because the call you sell is worth more than the one you buy. Expect about 50 to 200 bucks per spread after commissions. The nice part about this trade is that you have two directions on your side. If the stock moves down you win, if the stock moves sideways you win, however if the stock goes up you will have to unwind the trade quickly(buy back the call and sell the further out of the money call), so it does require your time and attention. Again do your own research and understand this trade fully before you try it. Your on-line broker will have tutorials to teach you all about this trade but it is safe if you pay attention.
The third and last trade is simply covered call writing and since I have already written about that (See Covered calls dated 9/7/08), I will only say that down markets are perfect markets for this trade. Even if you do get caught and are forced to sell, you will most likely be given an opportunity to get back into your stock on the cheap.
You can use these strategies and make some income or you can sit on the sidelines and wait out this screwy market. It is, as always, up to you. Good luck and Godspeed.

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

Veterans Day

2008-11-10T05:01:00.000-08:00

I know it's tomorrow but many, particularly civil servants, are observing Vets Day today.
Just a quick note to say thanks.
No agenda.
Just thank you for your service to this great country.

JT

Of Oyster Jacuzzis, Music, Smokers, Dogs and Butter

2008-11-09T02:58:00.000-08:00

When I began this blog, my intention was to write about whatever I was interested in at any given moment. In this crazy market that we are in, dealing with investing has been like baby sitting a spoiled child.
We are doing what we have to do to get through the temper tantrums that the markets have been throwing, waiting desperately for the parents to come home and take this brat off our hands.
So naturally most of my thoughts and energies have been directed toward navigating these tough financial markets
In so doing, it is easy to forget some of the fun things that make life such a wonderful journey and I thought I'd take a minute or two and jot down some of those things. So for those that only want to read about investing, you can skip to the bottom, I'll throw in some incoherent thoughts that I had the other day, toward the end of this post.

A week ago we had a little BBQ.
Assembled for our considerable enjoyment, were wonderful friends, 8 dozen oysters, three smoking BBQs, tri tip, pork ribs, tasty side dishes, ice chests full of beer, a classic car show parading by and a rain threatening sky which respected our fun and frivolity and waited until we were done with our day, to let loose with a beautiful early winter rain.
Oyster Jacuzzis, Here's how I did them;
Oysters
Butter
Lots of minced garlic (always fresh, never jarred)
Chicken stock
Chopped green onion
Red pepper flake
Cholula or Tapitio brand hot sauce
Combine all but the oysters and hot sauce over low heat and make a nice broth. Put oysters on the grill and let them cook. Eventually they will start to open, using one gloved hand take them off and with a knife separate the meat from the top shell, peel the shell back and remove it. It can be tricky on some shells to find the top, but whichever side gives you a deeper bowl, is the bottom. Loosen the meat from the bottom so it will be easy to eat. Return them to the grill and cover them with your broth. Very soon they will start to bubble in their little tub, all happy, covered in bubbly, buttery, garlicky, goodness.
Remove from heat, slap away eager hands to allow them to cool slightly, add hot sauce to taste and enjoy!
Once you try them you'll be forever addicted.
It made for a beautiful day. Indeed the only thing that was missing, due to technical difficulties beyond our control, was some good music. But that will be remedied before our next get together.
Thanks to all who showed up and thanks to Ray for finding those awesome oysters!
Speaking of music, that takes us to my next topic.
As soon as I can figure it out I am going to post a link to my favorite artist, Martin Sexton.
Martin is a bit of an acquired taste for some, for others like myself, it was instantly obvious that I had found something extraordinary. I will leave it to you to discover whether or not his music is your style. For a sample of his stuff, you can check out his "My space" website. It's got a great jukebox on it. Just Google, Martin Sexton and it'll pop up for you.
There is no smooth way to move into my next topic so I will just hit you with it.

Smokers.
I'm currently in deep discussion with my girlfriend Lynn, my buddy Ray(of the supplier of oyster fame) and many others, on the design and construction of a trailer mounted combination, Santa Maria style Grill and BBQ smoker. If anyone has any good tips or links email me at Torocreekinvest@aol.com. Thanks.

Dogs.
Still looking for a new dog. I'll know it when the right one comes along. When I get one they become part of the family, so I want to be sure it's a good fit for all concerned. I've been checking the shelters regularly, so we will see what happens.

And finally
Butter.
(believe it or not, this is the investment part)
I was checking the sales paper for our local supermarket, and like always, I found some stuff we needed that was on sale. I also found plenty of stuff we didn't need that was on sale. But while I was looking at the butter (2 for $5, lately it's been goin' for 4 bucks a pop) I started a chain of thought that I still haven't completely worked through.
It went something like this;
We don't need any butter I still have plenty left over from the oyster jacuzzi party.
But it's cheap.
Can you freeze butter?
Probably, but will it taste funny?
I don't know.
Naw I'll just pay the usual price next time we need more.
It's worth it for good tasting butter.
What else is on sale?
Beer.
Now that I can store without it going bad. My shop stays nice and cool especially this time of year.
What else is on sale?
Gasoline
I can't store enough of that to make it worth the hassle.
What else is cheap right now?
Hey stocks are on sale too, aren't they? and you don't have to store them, but they do go bad sometimes, not all of them go bad, but that's the hard part about stock picking, but that's what I do, so I better keep buying stocks, I just gotta keep buying good companies, and what about gold? naw, silvers better, yeah I know
and, , , one time, , , at band camp.....

Did someone say beer was on sale?

JT

Election Ramifications

2008-11-06T14:36:00.001-08:00

I am on record as not wanting either of the candidates elected. Having worked for the Government for 20 years, I am painfully aware that there are only a few things that the Government does well. Despite the best intentions of even the brightest, most ethical and competent people in civil service, one saying always stands out as accurate, "We are the Government, if it ain't broke, we'll fix it till it is". And neither politician, convinced me that they would be any different than most of the others that have preceded them.
Having said that, I won't go into a political rant for or against the current Electee. I'll leave that to the political pundits.
Indeed this has always befuddled me when it comes to the Hollywood and music types as they spout off about political issues. Why would a performer take a political position that by it's very nature is going to alienate, in most cases, at least half of their customers.
As harsh as this sounds my only concern is to help you make money, despite the Governments' best efforts to prevent it.
If you are upset about the current choice for president you have my condolences or if you are happy about it, you have my congratulations. But here's the thing; it needs to be compartmentalized in order for you to be a superior investor.
Obama may or may not save the country from real or imagined dangers and he may make things worse, who knows. But to go out and buy or sell investments because he has been elected or because George W is leaving office is a sure recipe for disaster. Keep your eyes on the big picture and see what IS happening, not what people say is going to happen.
Remember the admonition I shared with you a couple of posts ago. Don't be dogmatic, develop reasons. Politics are dripping with dogma and it's easy to translate passion into action, but passion very rarely yields logical investment action.

JT

Myopathy

2008-11-01T04:20:00.000-07:00

I tend to be rather myopic in my investment philosophy and that can be a blessing and a curse. Since this is often the case, I have to force myself to step back and consider the contrary point of view quite often, just to check myself.
As those who know me can attest, I have been a proponent of silver for several years. The question is, has this become an obsession for me?
I think not.

As the prices for commodities and commodity related stocks have been hammered lately, the urge to take your lumps and sell out is almost overwhelming and questioning your reasons for investing in this sector becomes constant.
This is the danger that is ever present in the investing world. It is insidious and expensive. It is what causes the average investor to buy high and sell low. It is that nervous pit in the bottom of your stomach that keeps reminding you of how much money you've lost and it doesn't care that the losses are not yet realised until you sell and that voice has been obeyed.

If I were one of the unfortunate people who had to ride the housing market and the financials down into oblivion, I wouldn't have much credibility but I have been warning against those investments for years. Long before the words "sub-prime" became part of our national lexicon.

Everything that has been happening has been predicted. But for every accurate prediction there are infinite inaccurate predictions. So much so that it is easy to be swept up and carried away by someones "story". And as their story fails to pan out, that someone, justifies, rationalises and flat out invents their way out of their theory. I see that happening now. Everyone is pointing at the latest pull back in commodities and saying commodities are dead and the dollar reigns supreme.
Well that remains to be seen. I would much rather look at the macro-picture and remember why I buy precious metals, energy and agri-business. And here is the macro as I see it and how I have seen it for years;

Let's start at the Internet bubble. As that mania deflated and 9-11 played itself out, interest rates were cut to stop a major recession. Rather than let the free markets self correct, the government stepped in to artificially prop up the markets. The creation of essentially free money, through artificially low interest rates, inflated the housing sector. At the same time our financial institutions discovered that they could use this housing boom to make a ton of money by manipulating their books and abandoning traditional reserve requirements (lending money they didn't have). This was allowed by changes in government policy. Seeing the trillions of dollars in the derivatives market and the runaway inflation that they were causing, Uncle Sam, got scared and tried to tap the brakes by successive interest rate increases. Just like a car flying down an icy road, tapping the breaks caused the inevitable spin out. Housing collapsed. All that money that the banks created out of thin air went POP! And disappeared.

Now our government, which caused the problem to start with, is going to fix it by replacing the phony money that the banks created and subsequently lost, with "real" money.
Casey Research reports that in just the last 2 months alone, monetary supply has increased 38%
And they are just getting started.
Now back to the macro-picture.
Bull markets are defined as too many dollars chasing too few goods.
Despite an imminent global economic slowdown, people still have to eat and last I checked world population is increasing faster than our food supply.
It takes energy to grow food and support those people. We are years behind in the development of new energy resources and sources.
Gold and silver are monetary metals and by the very nature of their scarcity, will rise in price as monetary supply is increased. Monetary supply is growing world wide at alarming rates.
Commodity bull markets last for years, typically 15 years. We are currently in year 8.
The only two things that end a bull cycle is when the supply increases to meet demand, or when demand is reduced to relieve the strain on supply. Neither of these has happened in commodities and in the case of the food supply, demand destruction is truly a frightening thought.
There are many arguments and scenarios that people will offer to debate the positive case for commodities, but it is just noise. A lame attempt to invent their way out of a bad theory.
With this pull back in prices, comes what I believe to be a rare opportunity to add high quality resource stocks to your portfolio at discount prices. This will give you and your families safety and security in what are, unarguably, tough times ahead.

It is not that I think I am smarter than anyone else, it's that I have "been there, done that" before. I know what those voices sound like and I know that once you hear them it is crucial to understand their nature, step back and logically re-evaluate, then either listen to them and act or tell them to shut up and stick to your guns.
You can do what you want, but I'm, not only sticking to my guns, I am reloading, taking aim and emptying the magazine.

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

New View

2008-10-27T05:01:00.000-07:00

Invest in Dow Chemical?

Johnson and Johnson?

Boring.

What, Dow chemical pays a 7% dividend?

It's P/E ratio is what? 8?

Are you kidding me?

That's amazing but it's still a boring stock, it never moves very much. Wait a minute. Right now that's not really a bad thing. Besides it has moved quite a bit. Moved down.

Hey I get it now!

It's on sale!

But it's still trending down.

That's right and if there is any hint that it is basing or even breaking that down trend line, I'm jumping in with both feet. In the mean time I am going to be developing a list of blue chips that are deeply discounted.

I have never seen myself as someone who would trade Blue Chips but somewhere in my brain is the thought that I would love to have a portfolio with Blue Chips as core holdings. So if I don't add these positions at a deeply discounted price, when will I have another opportunity like this? Maybe never.
But when should I buy them?

The trick is in knowing when the bottom is in. Since my crystal ball is currently at the shop being repaired from the last time I threw it at the wall, I'm going to be buying with insurance.

Protective puts;

Puts are option contracts that bet on a downward move in a stocks price. Why would you make a bet that a stock that you own is going to drop? The same reason that you buy auto insurance. You are not wishing for an auto accident, but IF it happens, you are covered.

The same applies with protective Puts. If the stock drops, your option contract gains value, thus off setting the loss in stock value.

At that point you can then decide to sell your stock and the option contract, just the option contract or just the stock. you can also sell the option at a profit and buy one dated further out for continued protection. If the stock rises or stays the same your contract will expire worthless and you may or may not decide to buy another(renew your policy).

This is one of the intended purposes of options, it is a strategy that most serious traders employ and it will serve you well when you can't see the bottom through your busted crystal ball.

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

Re-evaluate

2008-10-25T07:15:00.000-07:00

It looks like it is decision time again.

For the silver;
Silver is still taking it on the chin, on paper. Physical silver, however is traded at a premium that has never before been seen. The spot price is quoted around 9-10 bucks. If you wanted to buy physical bullion, you would be paying as much as 50% over that price for most forms, ie. Silver Eagles, 100 oz bars, 10oz bars and even 90% halves, quarters and dimes. That is, if you can find any.
Physical silver is near sold out levels everywhere throughout the world, with the exception of 1000 oz bars and jewelry items. There is some supply of Eagles and Maples, intermittently, but they don't stay on the shelves very long. Indeed one of the scenarios that I subscribe to is that once the shortage gets serious enough, people will resort to purchasing the 1000oz bars because that is all that is left. And it looks as if this is happening.
Once that comes to pass, there is the fear that the COMEX could default. It is a fact that there is a significant gap between the physical(1000oz COMEX deliverable bars) silver that is actually in the COMEX warehouses, and the amount of silver paper contracts that are traded on the futures markets.
What this means is that, when the industrial users buy silver, this is often the form and method they choose to obtain it. 1000oz bars are big, ugly and unwieldy and in order to sell them the average investor would have to have them assayed. In other words they are not as liquid as the easily recognized and universally accepted Silver Eagles. So, they are naturally the last choice for most investors. But when you can't get what you want, you'll get what you can. Once investors take the supply away from the industrial users, look out ABOVE, the price will soar because the quantities used by industry is so small per unit, that they will buy silver at any price.
At least that's the theory, but I believe it has merit
I still believe that silver will rally and break out to new highs. I think this will happen soon but there is no way I can know for sure. The price activity has shocked every expert that I have researched and everyone including myself is scratching their heads. With the whole financial world turned on it's head, The US printing money like never before, the physical demand sky rocketing, the cost of production exceeding the spot price and the worst supply shortage ever seen, the prices should be going through the roof. Go figure.
But my recommendation is to hang on and enjoy having the insurance against the worst case scenario. And if you have the stomach for it, Buy more.
SLV, because it follows the spot price, is by far the cheapest and easiest way to own silver. And since we are exploring theories lets look at one that I don't necessarily subscribe to. This one goes as follows.
There is the fear that unless you hold it in your hand, "you aint' got no silver"
Why is this view so widely accepted? Because it is pretty much the truth.
If the proverbial crap hits the oscillating wind generator, how will you get your money? if you can, will your money be worth anything?
I don't know the answer, but the real question is, do you think things will get "that bad"?
While I believe that the price of Silver will explode I don't think that the end of the world as we know it, will have to be part of that scenario. My speculation is purely fundamentally driven and I have faith that this country can and will deal with any problems that we are faced with.
Has our government done the right things up to this point?
Not even remotely, in fact I believe that the Government is what caused the mess that we are in. And I mean all the Government! Both parties, both houses and the administrations past and present. I also believe that things will have to get worse before they get better, but they will eventually get better.
Here is a major key to investing and it is crucial to your financial success; Don't be Dogmatic, don't listen to hype. Develop reasons behind your investment decisions and stick with them but stay flexible.
I learned that statement years ago and I regret that I can't remember who to credit it to, but I have lamented that I have forgotten it at certain times in my investing career.

Next time; new strategies.

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

It's STILL not too late!

2008-09-28T06:44:00.000-07:00

A tired old investment saying goes "The markets can stay irrational longer than you can remain solvent" Now I don't know who originally said this and to be frank, I'm a little tired of hearing it. But just like most old quotes this one proves itself correct time and again. A whole bunch of people have hit the solvency wall during this commodities correction. For those new to investing, I will explain;

Many if not most traders employ the use of margin, or credit when they trade. In other words, they borrow against their existing shares and use that money to purchase more shares. This is just one way they leverage their capital to get more exposure to a market. Margin is a legitimate tool when used correctly but it also carries with it increased risk. That risk is that the shares that you borrowed against or that your broker used as collateral for the money it loaned you, might decrease in value. If that happens the broker can issue a "Margin Call" this means that you must either;

1. Deposit more money into your brokerage account.
2. Pay back enough of the borrowed money by selling enough shares to bring your margin balance back into line.
Or
3. Do nothing and let your broker liquidate your holdings so they get their money back.
(obviously none of these are pleasant.)

This is what happened to many people in this last commodity correction. Because it was so deep and swift, it caught many by surprise and wiped out much of their previous gains.
If you are not borrowing against your shares, you are not forced to sell them when their value drops and you can just sit tight and weather the storm or if you believe that the stock itself is going down much farther you can sell on a bounce instead of the dip. Margin Calls force you to sell at the worst possible times.
And that is what validates the tired old saying.

But is the market acting irrationally? I believe that it is. Let me provide the following evidence;
The dollar has given up on it's attempted rally. Gold and the dollar have an inverse relationship and while gold is reflecting the dollars' decline, Silver is not.
The spot price of silver, as a percentage, has plummeted nearly twice that of gold.
This in the face of real physical silver supply shortages.
Some analysts say that the current spot price doesn't even pay for the cost of production(mining).
Bullion prices are 20 to 30% over the spot price. That is the premium you will pay to a dealer over the spot price, to purchase their silver, if they have any.
While above ground supply of silver is one fifth that of gold, it takes over sixty times the amount of silver to equal one of gold.
Gold's industrial uses are negligible while silver's industrial use is huge, irreplaceable in many cases and growing rapidly not withstanding reduction in photographic use.
For the last 60 years we have been using more silver than we mine, so much so, that most of the stock piles are gone forever.
The US Mint Silver Eagle sales have sky rocketed to the extent that they are rationing to their dealers. (supply doesn't meet demand for whatever reason).
So with all these factors in mind, if you are still solvent, one might conclude that Silver might not be a bad place to park your cash at a time when some of our largest banking institutions are folding like a bunch of soft tacos and the US government is increasing monetary supply(printing dollars electronically) at an exponential pace.

Or maybe it's just me.

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

What Is Going On?

2008-09-17T04:29:00.000-07:00

I knew this would be an interesting month, but this is epic.What is happening here is similar to the Cuban missile crisis, in that we don't know how close we are to financial Armageddon. And we won't know, at least until history tells the whole tale.
Fannie, Freddie, Lehman, AIG Wow!
I am not a doomsday kind of guy, however, this is serious. The amount of money involved in this meltdown is so large, that nobody can comprehend it. If you win a million in the lottery, well, that's a number we can grasp.
What about a thousand million? That's a billion. Now that is an interesting number. At 5% interest, that's what? 50 million a year in interest payments. What about a trillion? you guessed it 50 billion! This banking crisis will be counted in the trillions before all is said and done.
They (the Government) are already throwing around numbers like 200 billion, 85 billion, even a trillion. Now this would be fine if we were running surpluses in the Federal budget, but, , , we have a massive deficit and massive debt. In other words, the money just doesn't exist.
So what is the Government handing out in all these bailouts?
Freshly printed checks. Checks written on an account that has a massive negative balance.
Now all of this will probably work out just fine. This is still the greatest country in the world and offers the best environment for capitalism and opportunity. Is it perfect? Of course not. Can it collapse financially? Who knows. History tells us that no currency in 4000 years of monetary history has ever survived after it has been debased. We've been slowly doing that for a long time now.
So what does all this mean to me?
I'm going to apply straight common sense.
No body knows where the banking and financial markets are going, but it doesn't look good.
Commodities have been hammered recently in the markets. And are now, in my opinion, on sale.
I'm exchanging those Government checks for something solid.
Gold and Silver are solid and they are on sale!
But not for long.

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

Covered Calls

2008-09-07T07:17:00.000-07:00

What are covered calls?

Options contracts.

But first things first, what is a call option?

There are two basic categories of options, Calls and Puts. For now we are only concerned with Calls.

If you believe that a stock(or virtually any other traded asset) is going to rise in value in the future, you can enter into a contract with another person or entity, that will guarantee that you have the right, but not the obligation, to purchase that asset at a preset price any time on or before a preset date. But to secure that deal you have to pay a premium.

Lets see an actual example:

CHK is the ticker symbol for Chesapeake Energy Corp.

Today is September 7th 2008

Chk's price is $44.34

If you believe that CHK will increase in price to 60 dollars within the next 3 months.

you can buy an Call Option with a target price(strike) of 45 dollars that expires on the third Friday of January 2009.

This contract will cost you $580.

So what does all this mean?

If the price takes off and climbs up to, lets say $55 a share in two weeks, you can then opt to purchase shares of CHK for $45 dollars a share. How many shares? Each contract is for 100 shares. Or in this case $4500.

Wow! Buy 100 shares of a $55 stock for $45 a piece? A thousand dollar discount? whoo hoo! sign me up!

If you wanted to take an immediate profit you could then take those shares and sell them in the open market for the going rate of $55 per share or $5500 for a profit of $420 (Remember that the contract cost $580 in the first place). And don't forget commissions and exercise fees.
Or, you could just sell the contract itself.
That is generally what most traders do.
Well what's the contract worth now?
It isn't possible to know exactly to the penny but a pretty close estimate is around $1170, that works out to a profit of $590! That is before commissions and there are no exercise fees.

Much better huh?

So why not rush out and do just that?

Odds.
The odds are that over 90% of the time this contract will expire worthless because CHK will probably not rise that much in the specified time frame.
And that 90% applies to all option contracts! In other words most options buyers guess wrong.
So logically you would ask why not be on the other side of that trade?
Now that's a good question.

And the answer is that there is no good reason you can't.
IF, you do it carefully.

And there is a very safe way you can do it. And there is a way that practically guarantees profit.

Check this out;
First you buy 100 shares of CHK at the market price of $44.34, or $4434.00.
Then you sell (write) 1 call option contract.
This is called a covered call.

But what does it mean?

First you pick a price that you would be willing to sell your 100 shares. lets not get greedy how about 50 bucks a share? That's a nice $566 profit. and let's make the expiration time short, say 40 days, so we don't have to wait a long time to spend our money.

What money?

A 50 October call will cost the buyer $155. As the writer(seller) of the contract, you get that premium deposited in your account! and here's the best part, if the price of CHK doesn't hit $50 in the next 40 days you get to keep it and your 100 shares!

So what if it does hit $50?

You still keep the $155 dollars but you must sell your 100 shares at $50 per share, which is what you wanted to do in the first place. Only now your profit is not $566, it's $721 because of the premium you received for the contract. And that effectively lowers your initial purchase price to $42.79 per share which helps insure your initial investment if the price of CHK drops. You've got a built-in $1.55 cushion. And you can do it again every 40 days or sooner, or later. You pick the price and the time frame. But each time you do it you essentially lower your initial cost for the stock. Do it enough times and you can totally pay for the stock and get 100 shares of CHK for free!

So what are the drawbacks?

There really aren't any unless your tax situation is such that making a profit within the time frame puts you in a higher tax bracket or some other tax reason. But this is so rare that it hardly warrants mention. The only other risk here is the same as owning any stock. It can always fall in price. But as I pointed out, this trade only adds protection to the downside. You should only do this trade on a stock you want to own anyway.

OK, disclaimer and full disclosure time. Although I have, in the past, owned Chesapeake Energy Corp. I do not currently. I may in the future. Because I like the company. I am not recommending, for or against, any of the trade examples listed above. These examples are real world and current as of the time of this posting. The only thing I left out is the costs of commissions and fees, and that was strictly because it would have muddied up the water. Those costs must be accounted for in any trade you make. Furthermore, most of the online brokers offer training and learning centers that will go over Covered Call writing and you can always call your broker with questions, that is what you pay them for. If they don't or won't help you, find a new broker. I encourage you to research this strategy for yourself and understand it completely before you make this trade.

In closing this post I would encourage you to employ the power of covered call writing. It will bring in consistent income and add downside protection to your portfolio. If you change your mind and want to keep your 100 shares you can always buy back your own contract and by doing so, close out your contract. Depending on what the price of the underlying equity(the 100 shares of whatever) is doing, it may cost you more or less than the initial premium that you received. But I would recommend against doing this in most cases. Buying back your own contract is part of a good long term strategy but don't do it just because you think that you'll miss out on future higher returns. One in the hand vs. two in the bush and all that stuff. This strategy encourages you to take profits and keeps the gambling bug from stealing your profits. It is a great way to enforce self discipline. And if you've read my stuff in the past you'll remember that I believe that investor psychology is the biggest hurdle any investor faces. This Helps conquer that beast.

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

Okay, so what's up with options?

2008-09-01T18:11:00.000-07:00

Options? OK, here we go.
Everyone is afraid of options and futures. First things first. Options and futures are not the same thing, but unfortunately people lump them together quite often. And as such, they think that both are very risky. This is absolutely false. For me Options are a way to reduce or eliminate risk and maximise profit.
However for certain people options can be as dangerous as a Vegas casino. So , , , if you've got the gambling bug , , , please please, don't read any further because you are the people that options traders prey on. And I do mean to use the term "prey".

I have a love for trading and for capitalism and for freedom and especially for America. There will always be people that abuse their freedoms. But that is at the heart of freedom isn't it? That is part of the cost of freedom, among other more consequential things. But in this country we have a right to waste our money by making risky and stupid speculations. If you want to waste yours, then jump right into options and futures without taking the time to educate yourself. Conversely we also have the right to educate ourselves and take advantage of opportunity. That, is precisely what options provide, opportunity. With the caveat of self education firmly in place, I can honestly say that Options are much less risky than most other investments. So what are Options?

(As I am writing this I am listening to Martin Sexton; Black sheep, and understanding that if I keep on with my explanations this might be part I of II)( But I will attempt to shorten it).

The Purpose of options is insurance. Plain and simple, nuthin' more nuthin' less.
This insurance allows entrepreneurs to hedge their positions, take on and manage risk, invest capital with less downside risk, expand into new markets with relative impunity, protect themselves from unexpected market conditions, natural and man made, etc.

Without getting into too much detail, here is an actual legitimate, capitalistic use of options and futures. This actually happened recently and the trader that did this had his or her 5 minutes of fame.

Southwest Airlines had forecast higher energy prices (fuel prices) and entered into a trade that guaranteed that they could buy fuel at a set level. No matter what fuel prices rose to. They guessed right!

This was a smart trade, but to guarantee that price, they had to pay a premium.

In essence they said, "I'll pay you a fee, if you guarantee to deliver fuel to my airlines at today's prices, if, and only if the price rises on or before a set, future date. If the price doesn't rise in that time frame, you keep the fee and the contract expires.

That Is a contract, No?
Yes it is.
It is an option contract.

But what if prices fall?

Had prices gone the other way, they would have given up the premium and just paid the lower fuel prices in the market, and then explained to the boss that the insurance policy had expired and it was time to renew it with another further dated policy(option).

Would the boss be angry about the loss of the premium? Probably not. Are you angry when you don't get into a traffic accident and don't "get" to use your auto insurance? Of course not, this was a legitimate business expense and a correct and prudent use of Options

On the other side of that trade was a legitimate speculator willing to take the risk that oil had peaked and wouldn't go higher. Guess what? They lost! Big time! They were buying oil at $140 to provide Southwest oil at a ridiculously low price. OUCH! There are, of course, many more details that went along with this trade and it is far more intricate than this simple explanation. The point is in the legitimacy and necessity of Options, the people that use them and the speculators that provide them.

This happens every day with Corn, Cattle, Pork, Cotton, Wheat, etc. It is what makes your food, clothes, auto parts, lumber, etc. so cheap and readily available.

Not so evil, the speculators? Huh?

One other feature of options;
Lets say a wing crack develops in one airplane (purely hypothetical) and the FAA decides to come in and ground all of Southwests' airplanes, for inspection. They no longer need the fuel in question, right? So what happens to the contract? Remember the clock is ticking and the speculator is only responsible to payoff "on or Before" the set date. That contract premium is becoming less valuable, in time value, every day. The genius of options is that you can sell the contract, it's transferable to another party! They have the right to sell that contract to someone who does need that fuel. Now that the contract is"in the money" (meaning that oil prices have already increased within the specified time frame), that premium would rise accordingly due to it's "intrinsic" value(the dollar value of getting cheap fuel) even though the time value is dwindling daily

So this is essentially the purpose of Options, but how do you and I trade them? The safest, easiest and most important way to do this through the use of covered calls. And this is the topic for my very next blog, see you then.

JT

The Diversification Myth

2008-08-24T03:39:00.000-07:00

I am proud to say that my investments are not diversified.
A client said to me, the other day, after looking at my portfolio, "that's not diversified!" An indignant finger pointing at my computer screen. As if he had caught me with my hand in the cookie jar.
To which I replied, "So?" After a moments consideration I saw the lights go on in his head. Seeing that there was a mind in there willing to hear a new point of view, I continued with another question, "Should I have some of my money in Financials?, how about real estate? Home builders?"
"Well, I suppose not, at least not right now" Came his reply.
"Good thinkin'" I said.
Being diversified means several things to me that some financial advisers may not agree with.
A portfolio that is too broadly diversified lacks commitment and shows a deficit in research and maintenance. A portfolio is a living breathing thing and it requires care and feeding and constant attention.
I know of several cases where, during this credit meltdown, many money managers have let their clients ride the elevator right down into the basement. And they did it under the mantel of diversification. Why? because that is what they where told to do in "Investing 101"
Well that's not what we do here. We are engaged, tuned in and turned on. This is fun, it's not about following a formula. We look for whatever is working and employ tools to take the greatest advantage of opportunity.
To me being diversified is an inferior method of insurance and it practically guarantees a mediocre return on investment. You want insurnce? Buy some options, Put on a spread trade, use an inverse ETF, employ some leverage. There are so many great products and tools out there, that hiding behind portfolio diversification just means that you don't know about them or how to use them.
Time to enroll in "investing 102"
Get educated. I do this myself constantly. As a matter of fact, Just this week, I picked up an Options strategy book that I haven't looked at in years. It's old enough that it refers to options pricing in fractions, but it contains some really good techniques that I had forgotten about.
Market conditions are constantly changing and so should your portfolio and your strategies. Stay tuned in, turned on and energetic. If not, just put it all in a mutual fund and forget it. If you are lucky you might just manage to keep pace with inflation.

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

How bad will it get?

2008-07-27T05:22:00.000-07:00

How bad will it get?

I don't know.

Any one that tells you that they do know, is delusional.

So what is an investor to do in this, shall we say, "challenging environment"? First and foremost, remember that there is always money to be made in any environment.

You can;

1). Buy the dips and sell the rips:

In a consolidating or falling market, recognize that no financial instrument, goes straight up or straight down. Watch and wait for a pause in the down side, buy small amounts and wait for a mini rally. Sell on any positive movement and TAKE PROFITS! This is my least favorite strategy. It is very risky, requires great discipline, constant attention and yields minimal results. Some would argue this last point with me and my answer to them is, "I guess you're just better than me, oh well".

2). Use Put options and short selling to bet on obviously weak sectors.

This is probably the most profitable on a day to day basis but requires great discipline, constant attention, and plenty of research. For me short selling is very risky and should be approached with caution. I don't put on short positions through the borrowing of shares, I buy Put options. Contrary to popular myth, options are not risky investments. (More to come on options in another blog)

3). Identify the next trend, buy into an investment when it is on sale, build a large core position, then wait patiently.

This is obviously easier said than done and also requires great discipline and massive research, but is much less risky.

4). Identify other financial vehicles that are working and work with them.

This requires the most amount of research and tends to be a bit more boring and less profitable and will probably require more self education. It is however a must for any investor to know where to put their money when nothing else seems to be working. This could include money market accounts, bonds, REITs, etc.

5). Do nothing.

While this is rarely necessary in large measure, it is useful in small measure at most times. I know that sounds confusing but remember that "sometimes the best trade is no trade". I am not sure who to credit the latter phrase to, but it is true.

Which approach do I recommend?
All of them.
I even advocate the use of shorting through borrowing, IF and only if, you educate yourself, protect yourself and can demonstrate flawless discipline. I fall short on the discipline side. Which is why I don't short through borrowing. And as Clint says, " a man's gotta know his limitations".

Each of these approaches have their time and place. Most of them apply in all markets, up, down or sideways. This is because within each market there are sectors which move in opposite, complimentary and confusing directions. The common threads between all these points are discipline, research and paying attention. Remember investing is a job, a profitable, fun and intellectually rewarding job, but a job none the less. If you approach it with professionalism and passion, you will be compensated accordingly.

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

Why Do I Always Miss The Bubble?

2008-06-29T05:47:00.000-07:00

Why Do I Always Miss The Bubble?
Have you asked yourself this? Did you buy Tech stocks right before the crash? Buy a house at the top of the market? Well you are in good company. Lots of intelligent people did this. But as Lt. General Russel Honore famously said "don't get stuck on stupid".
You can turn this around to your advantage.
You can educate yourself to the point where you can catch the next bubble at the right time.
You can use your past experience to guide you on what NOT to do.
There are definable stages of a bubble and once you know about it you will never do it again.
The first stage is the stealth stage, this is where the insiders, analysts and big money move in. There is generally a lot of easy money to be made in this phase.
Once it is played out, usually a very brief amount of time, the wall of worry stage begins. This is the long drawn out phase where the majority of the professional investors move in and start "playing chess". Accumulating shares for their their position by buying the dips. The smart advisers, analysts and brokers lead their clients carefully into positions. And always in this phase, there is the endless debate as to whether or not a bubble is about to burst. This phase could also be called the "correction, consolidation, and rally phase", and can last for years. Building up energy.
The next stage is the mania stage, and it is the "Holy Grail" for the professional investors. This is the moment that investors spend years setting up for. There is a tipping point that occurs seemingly overnight where everybody starts buying anything and everything even remotely connected to the investment in question. Driving the price skyward. They will employee any investment tool they can, especially buying on margin(borrowing). Some mortgage their homes, others take from their retirement or children's college funds. It truly is a mania that grips people and they will do whatever it takes to jump on board the profit train.
How does it end? Some have used the shoeshine boy analogy as the harbinger of the coming crash. Once it has become so widespread that even the shoeshine boy starts advising people to invest, it's time to sell because the mania has come full circle.
In reality there are two crashes or bubble bursts in the correction phase. There is an initial "pop", Which is a sharp drop in price on extremely heavy volume, but inevitably, the dumb money tries to re inflate the bubble, stopping the first crash and driving the price back up slightly, but never to the previous high. Finally the "shorts" (Investors betting the market will crash) move in in a massive way and start to devour the dumb money. This is the second and final drop and is also referred to as the denial stage, and it is the most devastating point for the inexperienced investors. It is where, tragically, these people watch their life savings go down in flames. Instead of bailing out and cutting their losses, they feel that they can't afford to sell and believe the price will turn around, but it never does, in fact it overshoots to the downside and often stays there for years.
Sadly these events scar people forever and they may never recover financially or emotionally, and they will surely never invest in anything ever again.
This scenario has played itself out over and over again for hundreds if not thousands of years. And it will likely continue to play itself out in the coming years. In fact I believe we are still in stage two of one of the largest bubbles the world has ever seen. We have been in the correction, consolidation, rally mode in precious metals for two to three years now and it could be getting dangerously close to the mania stage. If you are not in position to take advantage of this, you may be missing the grand daddy of all bubbles. We are currently in a "dip" in metals pricing and it appears that, this is about to turn to the upside maybe as early as Monday the 30th of June.
More specifically I like silver, but gold will likely share in the mania stage and if you like gold better, fine, you will still be taking advantage of the best investment opportunities of our lifetime.
The important thing to realize here is not to try and time the mania stage, no one knows for sure when it will begin. It could begin tomorrow it could take another three years to build the necessary energy. Begin building your position right now! Even if it is just a few coins from your local coin shop.
I will continue to write about the merits of precious metals in further essays but for now start accumulating.
Have you ever wished someone had let you in on the Microsoft story before it's price went ballistic? Well I just did.

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

Why "RICH" ain't a four letter word.

2008-06-09T02:55:00.000-07:00

Think about the last couple of movies or TV programs that you've watched. I'm willing to bet that the bad guy was some corporate Fat Cat. What about the latest political rants? Have you heard about the evil, rich "speculators driving up the price of oil"? How about "the rich getting rich off the backs of the poor"? What about taxes? That the rich should be made to pay their fair share? "The rich get richer and the poor get poorer"?

I'll guess that you are familiar with these statements or maybe you've even repeated these things to other people. It's okay, this sentiment is everywhere, unfortunately they are not based in fact. Just a couple of facts that argue with these statements; on taxes, The top 5% of wage earners in this country pay 75% of all tax revenue that the government receives. The top 10% pay over 90%. At the other end of the spectrum the poorest aren't paying any taxes apart from sales and local taxes. In fact they are receiving money through "Earned income tax credits" which is a phrase designed to hide the fact that wealth is being taken from the rich and given to the poor. I'm not making a value judgement on welfare. My only point here is to dispel the myth that the rich aren't paying their fair share, or that they are getting rich off the backs of the poor.

So what is my agenda here? Why am I defending the rich? Well it sure as hell ain't because I'm one of them. I aspire to be. I think that this country should continue to be structured to allow as many people to become rich as possible. I think that demonizing the rich insures that a person will never become wealthy. Why would anyone want to become a greedy, money grubbing miser?

Here is why; when has a poor person ever built a hospital, created a scholarship fund, supported a church, saved the animals, protected the environment? Whatever your favorite cause it takes a wealthy society to do these things. That's why we have such a great country.
I'll say it again, I'm not making a value judgement against the poor. I'm just trying to point out that instead of believing that "it takes money to make money" (which is another way of saying that only the rich can make any money), the saying should read "it takes money to give money". When you are worried about putting food into your children's mouth, you're more than likely thinking, "screw the spotted owls, I gotta get a better job".
I'm sure I've just offended a lot of people who are not rich and yet have donated to different causes. For those of you who are offended, we are making this distinction between rich and poor, not between rich and middle class. And yes I understand that poor people tithe to their churches too. Okay I get it. The thing that I want people to get, is that part of the greatness of this country lies in the fact that anyone can get rich here. But only if you do certain things. And one of those things is to stop hating the rich. Change your perception.
As motivational speaker Jim Rhone is fond of pointing out, "Find out what the poor people do and DON'T DO IT! Find out what they read and DON'T READ IT! Find out how they speak and DON'T TALK THAT WAY!
The opposite if this is equally important. If you constantly blame your place in life on the greedy rich people, and despise them, how can you emulate them and copy their success? You can't. Find out the good positive things they do and make it part of your life, it worked for them.
Hiding behind old stereo-types about the rich only insures that you will never join their ranks.
And don't forget that when you are successful, you'll be able to be as generous as you want to be.

JT

Technical vs. fundamental analysis

2008-05-30T06:02:00.000-07:00

What's the big deal? On one side you've got the Tech guys claiming that fundamental guys are stodgy, outdated, boring and unreliable. On the other side the "fundies" are calling technical analysis, voodoo, myopic, self-fulllingly prophetic and, you guessed it, unreliable.
The only universal truth on either side, and I'm sure you guessed it again, is that any analysis is unreliable.
As soon as an investor becomes convinced that they have discovered an infallible method of stock picking, get as far away from them as possible because they are about to self destruct.

First of all what are technical and fundamental analysis?
The fundamentals of a company are simply the documented business statistics, structure, market and plan. It's a numbers game of value. Is the company worth what it's stock price says it's worth?
Technical analysis is centered on price action. The graphical evaluation of market psychology based on historical patterns. These patterns are revealed by the extensive use of charts. Indeed many technical analysts don't particularly care what a company does for a living, apart from what market sector they are in and how that sector is performing.
These definitions are an over simplification of what each camp actually does, with a combination of elements shared by both sides more often the case. As in other areas of life, most people usually reside somewhere in the middle.
I think the techies, share more methods with the fundamentalists than the other way around. but there are always extremists on both sides.
As you broaden your financial literacy, you would be well advised to become proficient in all areas of analysis. Indeed many an excellent company has wallowed in poor price performance for years. While other companies that have no revenues are selling at outrageous prices. Dismiss the reality that both techniques have their strengths and weaknesses and you are setting yourself up for financial pain. Embrace them both and you'll see the financial gain.
The use of fundamentals will make you money and the use of charts will maximise that money.
Furthermore the use of fundamentals will protect your money. Add in chart analysis and you've built a fortress around your portfolio.

JT

Investor psychology

2008-05-26T04:02:00.000-07:00

Just a quick thought or two on investor psychology.
This is the area that will make the difference in the success or failure of your portfolio.
Go to Las Vegas, Atlantic City or any one of the many Indian gaming casinos. As you walk in the door look around and do a quick evaluation of the investment that has gone into building and operating that casino. Think about it as a business and ask yourself what is it that they know about their customers. The answers are directly relevant to your own psychology and what you should NOT do as an investor.
The reason that Casinos work, is that humans, on the whole, are pretty predictable. We are all born with that same gambling bug in our heads. It is this bug that causes investors to buy into an investment at the top and sell at the bottom. It's what is behind the tendency of some to ride an investment down into the cellar, when the should have cut their losses and sold after the investment broke down and reversed it's trend. And this bug, is precisely, what causes people to invest in ridiculously risky stocks in the quest for that big pay off.
These are the reasons that most people new to trading fail. It is a built in liability that all successful investors have learned how to deal with. They each may have a different story on how they manage these damaging tendencies. I say manage, because you can never completely divorce yourself from this bug. Nor should you want to. It is also this bug that forces you to accept some risk. And as the Man says " Rate of return is directly proportional to the level of risk". It is in controlling risk, where you must concern yourself.
I recently went to Laughlin Nevada on a gambling excursion with some friends. And I set aside some money to lose and went in to enjoy myself. In retrospect I didn't really enjoy myself because the whole concept of it ran counter to the psychology I have trained myself to vanquish.
But I dutifully went on and plugged my money into the machines just to continually have them light up, sing me a tune and flash a sign to anyone watching that I am a loser. It wasn't until later that day, when checking in on some trades that I was working, that it hit me. I had a trade that was paying off nicely as I had know it would. The amount of money in the trade, was 10 times that which I had set aside to loose gambling and the amount it returned would have made all my friends jealous if I had won it gambling. This was definitely more fun and much more rewarding than the casinos.
I had been watching my cash slowly disappear down the casino hole and it bugged me the whole time. In contrast I had scarcely even considered the trades I had working in the markets. It was because I had controlled my exposure to the markets. I had an exit strategy, a defined price target and an acceptable risk/reward scenario. My exposure to the casino, on the other hand was out of my control, the risk/reward scenario was all in their favor and my only exit strategy was to not loose any more money than what I had set aside for gambling.
I just kept hoping, as I looked around, that all these people were enjoying this casino that I was financing.

JT

Silver. The single, most important investment decision

2008-05-25T06:15:00.000-07:00

What did I do that changed my mentality about money forever?

I purchased Silver.
Apart from educating myself about the need for financial literacy, the purchase of silver did more to motivate me to build my portfolio, my discipline, my passion and ultimately, develop my business, than any other thing I could have done.
Once I spent my money on a hard asset, something that I held in my hands, it made irrelevant everything I had previously wasted my money on.
Robert Kiyosaki gave me the first key in Rich Dad Poor Dad. He talked about the differences between buying assets versus liabilities. If you are just getting started in the quest for financial freedom, this book is as good a place to start as any.
But why silver?
Many people have talked about the fact that there is always a bull market in something. That is to say, that in the financial arena there are ups and downs in all investments. The key, as Dan Denning points out, is to be a bull hunter. Look for the investments that are increasing in value. Sometimes this is easier said than done.
For me, silver was a no-brainer and it still is.
Silver currently trades at about 1/50th the price of gold and by all accounts it is more rare than gold. Conservative estimates put the, above-ground silver at 1/5th that of gold. This is a historical record, and by saying historical, we are looking at thousands of years. In addition, the historical price ratio to gold has averaged around 16 to 1. That is, 16 ounces of silver would buy 1 ounce of gold, versus the 50 to 1 mentioned above. Silver also has a huge function to play in industrial use and an ever growing presence in medical application due to it's anti-bacterial characteristics. Some critics point out a declining demand in it's applications in photography, due to the rise in digital photography, but the industrial/medical demand increases seem to be replacing this decline.
These things alone are enough to justify an investment in the white metal.
Add in the reality of inflation and this investment is a slam dunk for me. The real inflation rate is much higher than the Governments' reported 2-3% . Remember this reported rate excludes food and energy. I don't know about you, but food and energy, (Gasoline, electricity, heating oil, natural gas, etc.) are a huge portion of my paycheck. Some estimates put real inflation around 20%.
Silver and gold tend to counter the rise in inflation by rising as our dollars lose value.
At the minimum I look at silver as an economic insurance policy. If silver and gold fall, that means that my dollar investments are most likely increasing in value.
These are just a few of the reasons that I believe silver is in a long term bull market.
I would encourage any reader to investigate for yourself.
But a word of caution; Keep an open mind. Silver is a volatile market. It is a market that is still a little out of the mainstream, but the insiders are extremely polarized. They are either wildly pro-silver or emphatically anti-silver and as such there are many conspiracy theories on one side while the other side shows impenetrable ignorance about the real advantages to silver.

There are so many other fundamental reasons to buy silver that it would take me many pages to reveal, but instead I'll let you discover them for yourself. There are libraries of information on silver out there, check it out

One of the most important rules in investments, is "Don't be dogmatic" This just means that you should never fall in love with an investment nor should you hate any investment. Don't believe the hype on either side. Learn for yourself and develop sound reasons to support an investment or reject it. Sometimes the best trade is, "Not To Trade". And beware of following the herd, they are usually wrong.

In closing I would answer a question many have asked me, "why don't you like gold?"
I do like gold as an investment. I also like it as an insurance policy. I do own some gold. And if there was no such thing as silver I would own a lot of gold. I just believe silver is better.

JT

Legal disclaimer
This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be.
John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.

What are you doing now?

2008-05-24T15:08:00.000-07:00

This is my girlfriends favorite question to ask me. And the perfect topic for my first Posting.
I am in the early stages of my journey, a journey on which, I intend to meet new friends, see new places, conquer new challenges and change the lives of everyone I can make a connection with.
It is a process that I began a few years ago. An awakening of sorts which was less like a bright flash of light and more like slow sunrise.
It was the casual beginning of a day which is still mysterious, not knowing whether the sun will shine, the wind will blow or if there is a storm brewing. What will it bring?
No one knows and the only thing any of us can do is live it out.
Move on with a certainty, that no matter what, it will be better than the day before.
The learning and discoveries never end, and never cease to amaze me. The biggest certainty is that the more I know, the more I find I need to know and the more discoveries I make, the deeper the desire to share them with other people.
This is the purpose of this blog. It will primarily focus on financial matters and personal growth. But don't be shocked if I share some new music or a great new recipe, maybe a new joke, if it is not too raw. Hopefully some entertaining stories will show up from time to time. After all aren't these things part of personal growth?
At the very least they are part of a fuller life.
Next time, , , some thoughts on precious metals.