Two weeks ago, I mentioned that I am getting ready to pull the trigger on some new investments and that you will have the opportunity to see what I buy and where I buy it. (see Should You Sell in May?) 

Next week I am pulling the trigger and a full report will be released on a junior gold company that I'll be buying.

More on this story later.

Risk is everywhere. Much of the stock market has been held up as a result of money printing, leaving them extremely vulnerable - especially when the money stops. Currencies around the world are devaluing as a result of government policies. Even leaving your cash in bonds and treasuries will lose you money over time.  

The recent jobs report from last week was not only disappointing, but it showed that the US economy is not healing fast enough to sustain a real economic recovery. Stocks fell as a result and in Europe, the EuroSTOXX 50 just turned negative for the year.

Can the market sustain its growth without QE? Can stocks keep moving forward considering minimal growth from the US economy?  

While I think the stock market has more room to climb, it will eventually tumble if QE doesn't come before the November elections. Combine that with the Euro debt contagion and the high price of oil, the downside to stocks is becoming apparent. It may not happen tomorrow, but it will happen.

The stock market is cyclical in nature and motivated by sentiment. When certain sectors move up, others move down as people fuel their money into one sector. People are hardwired to conform. When everyone sees a stock moving up, they jump on the bandwagon. It doesn't matter if a stock is extremely overvalued, people will buy it if everyone else is. And they'll buy it as long as it is going up.

But the same is true when stocks begin to fall.

It's Time to Rationalize 

Despite having record growth and strong growth prospects, many of the gold and silver mining shares are now trading at or near 52- week lows.

We're in a period where the market has become extremely irrational and shares of strong quality gold miners and explorers are falling every day, despite record gold prices and strong outlook. But if you look at history - especially the 1973/1974 bear market - you will know that fundamentals will eventually win.

What's happening now is eerily reminiscence of what happened nearly 40 years ago: Devaluation of the Dollar, extreme rise in oil prices, UK in a recession, real GDP growth decline, rise in inflation, and money printing (as a result of converting the dollar into a full fiat currency backed by nothing more than a promise by the government.) In the year prior to the 1973 crash, stocks were doing incredibly well with the DJIA gaining 15% in twelve months. How much did the markets climb in the last 12 months?

The S&P has climbed more than 21% in the last 8 months and more than 12% in the last six. The DJIA more than 19% and at 8% respectively. The overall average of the two market combined in the last seven months is 15% 

As stock markets peaked in 1972, the bears kicked in and stocks fell dramatically during that time. While stock markets rebounded eventually, the recovery was a slow process. The United States didn't see the same level in real terms until August 1993: over twenty years after the 1973-74 crash began.

While stocks lost nearly half their value during that time, many gold mining shares quadrupled in value. The surge in the gold and silver sector was dramatic and it changed the lives of the investors who took the risk to participate when no one else would.  

Many of today's investors - the ones whose sentiment change with every news release - don't understand that fundamentals still dictate true price discovery. The greatest time to be an investor is during these times when novice investors are throwing away mining stocks because they get scared and pile their money into other stocks returning a measly few percent.

They see the stock market moving up, and they see their mining shares going down. So they conform.  

Investors will always be more comfortable buying stocks that are trending up - even if the value of the stocks don't make any sense. With mining shares trending down over the last few years and the lackluster price action in mining shares, investors have sought other places for their money.

But that's why this opportunity is so amazing. The best time to buy stocks is when sentiment is negative and fundamentals are astoundingly positive.

That's why I am going to be loading up on shares in the gold and silver space this year.  

Next week, I'll be buying into a company that not only has an incredible management team and money in the bank, but also one of the largest land positions in the Abitibi - the second largest accumulation of gold in the world. This company continues to hit high grades everywhere and they are right next to what will become Canada's largest gold mine. I have no doubt that they will be a prime takeover target - especially considering that one of Canada's most significant mining events is about to take place right beside them.  

I'll be loading up on shares on this company shortly after the release of my report next week.

Stay tuned and be sure to check your email next Sunday for this report.

End Note 

The similarities between today and 1973 are apparent. The differences? We now have more debt, more leverage, and more financial instruments to manipulate prices. That means bigger swings to both the upside and downside. 

When fundamentals take over - as I am sure they will - look out.  

Ivan Lo

Equedia Weekly  

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Is Oil Going Up? or Down?   

At the latest Casey Research conference, respected investment analyst Porter Stansberry stood at the podium and predicted that the price of oil will fall below US$40 per barrel within the next 12 months. Part of his reasoning revolves around the impact that the shale gas revolution has had in the United States - he believes a similar thing will happen with oil.

Porter is a friend of mine and a very smart, successful individual... but I think not.

From my perspective, the pressures at play in the oil market are all pushing prices in the opposite direction: up. Global supplies are tightening, costs are rising, and demand is not falling. Prices are going to remain high, and then go higher. And there will not be a shale oil revolution anytime soon.

I'm the kind of guy who puts his money where his mouth is, so I challenge Porter to a bet. I bet Mr. Stansberry that the price of oil will stay above $40 a barrel over the next 12 months. The wager? 100 ounces of silver.

Porter has made a lot of good calls in his career. I highly recommend watching his video The End of America, an interesting and entertaining look at his prediction that the US will soon drown in its debts and cease to be a global economic powerhouse, a transition that will lead to riots across the country.

Porter and I agree on a lot of things, but on this one he's wrong. Below are my top ten reasons that high oil prices are here to stay.

Reason 1: "The Big Pinch"

Oil production levels, as well as exports, have been falling in most of the world's top ten supplier nations.

The "Seven Sisters of Declining Exports" - Saudi Arabia, Iran, Nigeria, the UAE, Norway, Venezuela, and Kuwait - share one common characteristic: their oil fields are old. Oil fields don't produce the same amount year after year. They decline significantly from one year to the next because each barrel of oil taken from a reservoir reduces the pressure within the field, leaving less force available to push the next barrel of oil up the well. But don't take our word for it. The following chart shows production from Alaska's North Slope oil field in the past 30 years: 

Another example? The Cantarell field in Mexico, which produced 2.1 million barrels per day in 2003, produced just 400,000 barrels last month, a staggering decline of more than 80% in just nine years.

To maintain output levels, producers need to consistently invest huge amounts of money and time in exploration, development of new areas, and engineering and utilizing new technologies to extend oil field lifespans. All of this costs money, and lots of it. Of the Seven Sisters of Declining Exports, six are countries where the oil machine is run by a national oil firm. That means that revenues from oil exports belong to the government... and those governments are stuck between a rock and a hard place.

They know they need to direct the oil revenues back into their fields very soon, before they decline beyond the point of repair. In the meantime, production levels continue to fall. Compounding the problem of declining production is the fact that most of these countries have long relied on cheap domestic fuel prices to keep their citizens happy. This has spurred rising consumption in many oil-producing countries, including Saudi Arabia, Iran, Nigeria, United Arab Emirates, Venezuela, and Kuwait.

With domestic consumption climbing and production falling, these countries have less oil available for export every year. But here's the hard place: oil export... 

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