It always pays to not dwell on what happened but what lies ahead...and in this case, position yourself in the best sectors for a rebound, says Mark Skousen of Turnaround Trader.
The markets are gearing up for a sharp recovery in the fall. The US economy and the stock market are weak right now, but with the national debt-ceiling crisis behind us, and the Fed’s super “easy money” policy kicking into high gear, I expect a good rally to start soon.
In fact, there’s a real possibility that more inflation is headed our way. The money supply (M2) now is growing at a 17.7% rate, more than double its growth rate just three months ago. It is the fastest M2 growth rate that I’ve seen in years.
Zero short-term interest rates, plus super easy money policies, offer a recipe for a sharply falling dollar and rising prices for everything, including stocks.
Silver already is starting to move back up, and now is trading around $40 an ounce. Hecla Mining (HL), the country’s largest silver producer, is a primary beneficiary. It’s up more than 5% so far this week through today, and is close to our original buy price.
We also have two call-option positions in Hecla, the December $9 and $11 calls. The December $9 call option is already profitable, and I expect the December $11 call options to be profitable eventually if Hecla has a good earnings quarter.
Hecla will report its second quarter earnings today, and we will see how well the company benefited from boosting production. Hecla expects to produce around ten million ounces of silver this year. Its first-quarter net income more than doubled from the previous year to $43.2 million, or 15 cents a share.
The Silver Institute forecasts that total industrial use of the metal will rise 36% during the next five years to more than 665 million troy ounces annually, due to new demand from solar energy, water purification, and medical instruments, as well as monetary use.
Last year, the US Mint produced 34 million American eagle silver dollars, and iShares Silver Trust (SLV) increased its holdings to more than $12 billion.
Despite all of the uncertainty in the financial markets due to the debt crisis both here and in Europe, Financial Institutions (FISI) is holding up well and is within pennies of our buy price. It owns Five Star Bank, based in New York, and some observers think the company’s strength makes it a good buyout candidate in the next year.
We are also close to breakeven on Hugoton Royalty Trust (HGT), the Dallas-based natural gas trust, when you consider the 49 cents in dividends we’ve earned per share since late March. Gas prices are gradually moving up this year. Keep buying.