Corrections take longer than people expect, says Jeb Handwerger but, the longer and the deeper the base, the more powerful the eventual upswing.
You should read first this paragraph with extreme attention,because it is the main point of this article:
"If you believe the dollar is strong and healthy, then you should avoid these precious metals and mining stocks. If you think that the U.S. and all the European nations can deal with these astronomical debts and will pay it down, then sell your precious metals and miners. If you believe that there is no significant chance of inflation, then get out of these sectors. But if you think the opposite and decide to stay in the sector, rotating to the higher-quality outperformers, you'll see potentially phenomenal gains. Eventually, there will be a return of the masses and retail investors. Combine renewed accumulation with short covering and you get a parabolic potential spike".
"If you believe the dollar is strong and healthy, then you should avoid these precious metals and mining stocks. If you think that the U.S. and all the European nations can deal with these astronomical debts and will pay it down, then sell your precious metals and miners. If you believe that there is no significant chance of inflation, then get out of these sectors. But if you think the opposite and decide to stay in the sector, rotating to the higher-quality outperformers, you'll see potentially phenomenal gains. Eventually, there will be a return of the masses and retail investors. Combine renewed accumulation with short covering and you get a parabolic potential spike".
The Mining Report: Jeb, you've been in the resource market since 1996. Based on what you've seen, what are the current trends?
Jeb Handwerger: I first came into this sector when everyone was chasing the dot-com stocks. This was after the Bre-X scandal, where they were falsifying the assays. No one wanted to touch the gold miners, especially exploration stocks. They ran into the dot com sector and energy. Many people quit their jobs to become day traders. Gold had been in a correction since 1981 for 20 years. What we're seeing right now is very similar to what we saw back at that 30-year low earlier this decade—miners hedging production, miners cutting off production because of low prices, miners laying off workers, write-downs, initial public offerings of tech stocks with ridiculous valuations and zero earnings.
The resource market is basing. There are benefits to this process. You can see which companies are outperforming and you can see which companies have a strong balance sheet to weather the storm. You can see which companies are getting attention from investors and institutions and which companies are still advancing.
Some people I talk to are thinking about leaving the sector. That's not the right approach. Gains could be exponential. The right approach is to rotate into situations that will outperform, even if gold and silver stay flat. Stick to advisors who are finding the most compelling situations. Corrections take longer than people expect—the longer and the deeper the base, the more powerful the eventual upswing. It could be huge with the record amount of cash on the sidelines and the large number of shorts who may need to cover their position.
TMR: How can investors know which companies are going to outperform?
JH: It doesn't take a rocket scientist. Pull up a simple chart of which companies are beginning to outperform the index over different time frames, the Market Vectors Gold Miners ETF or PHLX Gold/Silver Sector. The charts are a reflection of the fundamentals.
TMR: You also follow uranium. The sector is still way down since Fukushima. Is it too early to get in?
JH: Smart investors look for the biggest bang for the buck. Uranium recently hit eight-year lows, but the fundamentals show there are more reactors under construction today than there were before Fukushima. China, Saudi Arabia, and the U.S., for the first time in 30 years, are building reactors. All around the world there are new reactors being built to provide a diverse energy mix that's safe, clean and economic.
For Asian nations, natural gas is expensive. They're building huge liquefied natural gas (LNG) terminals in British Columbia to help bring down those costs. There is a huge energy boom in Canada, not only in the oil sands, but also in uranium.
The Athabasca Basin and Western Canada is an area that's going to be of great interest because the Chinese need energy. Talk about a boom—just look at some of the news coming out of Western Canada with the massive building of liquefied natural gas plants.
In addition, the last shipment from the Russian Megatons to Megawatts program has happened. That's 24 million pounds coming out of the uranium market that the U.S. had for more than 20 years. Utilities are going to have to look for new sources.
But it takes many years to build a mine in the Athabasca Basin. Cigar Lake, for example, has taken more than 30 years to build. We think the Athabasca Basin is a great area, but a lot of the activity is very early-stage stuff.
TMR: What are you doing to prepare your portfolio and readers for 2014?
JH: There are still stocks that are outperforming even during this bear market, as I highlighted above. You need to stick to the fundamentals and the companies with the potential to outperform the index. Focus on companies in stable jurisdictions with the ability to fund and build value in this tough financial environment.
TMR: Are there some questions that investors should ask themselves to determine how they should move forward?
JH: If you believe the dollar is strong and healthy, then you should avoid these precious metals and mining stocks. If you think that the U.S. and all the European nations can deal with these astronomical debts and will pay it down, then sell your precious metals and miners. If you believe that there is no significant chance of inflation, then get out of these sectors. But if you think the opposite and decide to stay in the sector, rotating to the higher-quality outperformers, you'll see potentially phenomenal gains. Eventually, there will be a return of the masses and retail investors. Combine renewed accumulation with short covering and you get a parabolic potential spike.
Euphoria will end in social media and bitcoins. The equity and real estate market are extremely overbought. Yet the commodity market and the precious metals market are still providing real value to investors. You have to go against the tide. Follow the value funds and the experienced investors. Master your emotions. The time to buy is when things couldn’t look worse. The worse things appear the better they will get.
TMR: I enjoyed chatting with you.
JH: My pleasure.
Source: Miniweb, original interview published in The Mining Report
Source: Miniweb, original interview published in The Mining Report
