Gold Stock Bull

I can’t help but to think that I am setting myself up here. There are so many variables that could throw a wrench into my predictions and tarnish my flawless reputation (cough). Nevertheless, I can’t help but to jump into the 2008 forecasting game and give my readers some ideas for what I believe is in store for 2008. Without further adieu, here are my 10 predictions for 2008:

1) Economic conditions in the U.S. will deteriorate further and we will finally get consensus that the dreaded “R” word is a reality. The fed will intervene and do everything possible to avert it, but it has been delayed for so long that the any fed plans to prop up the economy will ultimately fail.

2) The sub-prime crisis will intensify with additional write-downs and massive quarterly losses for the financial giants. Bailouts will never seem to be enough and any relief will be short-term with announcements of additional cash infusions being necessary. At least one major bank or financial institution will go under and cease to exist by the end of Q2.

3) Real estate prices will continue to fall in 2008. A new round of rate resets will usher in a second and larger wave of foreclosures. The worst of the financial and real estates crisis is definitely ahead of us, not behind us.

4) The fed will continue to lower rates (below 3%) and flood the market with dollars in an attempt to prop up the economy, but it will be too little too late. There will be rallies, but the muted and fading effect of fed intervention will create a panic in the markets that will cause a massive selloff, albeit prolonged.

5) The dollar will suffer tremendous losses as the printing presses kick into high gear and foreign central banks and commercial institutions rush to the door even faster than they did in 2007. China will continue to diversify their reserves out of dollars, creating additional downside pressure and pushing the Euro closer towards becoming the world’s new reserve currency. The unwinding of the yen carry trade will be another factor pushing the dollar to new lows in 2008. There will be several mini-rallies along the way that will convince people that the dollar is going to rebound, but it will end the year losing another 10-15% in value.

6) Oil will dip towards $80 per barrel due to the slowing economy and release of additional supplies. However, continued inflation and war in the Middle East will push oil back above $100 and could see the price spike towards $150 in the event of war with Iran.

7) Gold will post its highest gain yet during 2008, outpacing the 31% gain of 2007. Investors will start to take more interest in gold as it becomes hard to ignore the massive advances from lower rates, the lower dollar and higher oil. Gold equities will catch up to the metal and return to offering impressive leverage. Junior miners will outpace the majors and silver will outpace gold by a small margin. Prices will become much more volatile with $50 days in either direction and a trading range between $770 - $1,120 during 2008. Gold will suffer a major correction at some point, but it will be shorter than previous corrections and any dips will prove to be excellent buying opportunities.

8) Political unrest will increase with major events taking place in Iran, Pakistan and beyond. The U.S. will enter another country and start another war, despite being spread thin already. Tensions will increase with Russia and China, who see U.S. moves as a power grab and threat to their interests in the region.

9) I won’t offer a prediction as to who wins the U.S. presidential election, but I will forecast high voter turnout, plenty of controversy and a focus on voter fraud from the use of electronic voting machines. Recounts, lawsuits, protests and a very divided America, especially as the economic slowdown hits consumers in the pocketbook.

10) Alternative energy stocks will continue to do well in 2008, led by the solar sector. Global warming will continue to be a hot topic (pun intended). Government subsidies will increase, especially if the Dems win the white house. New technologies will continue to make alternative energy more efficient and viable.

2008 will be a difficult year for many investors, but I don’t intend to be one of them. There are opportunities in the markets at all times. I will continue to be long gold and silver, picking up quality juniors along the way. I am also long on clean energy stocks, including solar, wind and uranium. On the short side of things, I am positioned to gain from further declines in real estate and financials by owning the Ultrashort ETFs (SRS) and (SKF). Peace and prosperity to all in 2008!

It is so refreshing to hear someone speaking the plain truth about the trouble with inflationary policies, artificially low interest rates, federal reserve bailouts and the confiscation of wealth via devaluing the dollar. If you aren’t aware of Ron Paul, he is the only Presidential candidate calling for a return to the gold standard, not to mention abolishing the Fed, the IRS and U.S. policing of the world. He recently set a record by raising $4.2 million dollars in one day. His message is extremely popular and his support has been growing exponentially. Ron Paul to Bernanke: “How in the world can we expect to solve the problems of inflation (increase in the supply of money) with more inflation?”

The only thing the Fed has ever done to solve these problems is to ease. And we fully expect the Fed to keep trying to fight inflation with more inflation. The “stuck between and rock and hard place” analogy is incredibly apt, but all signs point to increased inflation, further weakness in the dollar and much higher prices for gold, silver and energy.

But that being said, I took some profits off the table on Friday and expect to see a mini-rally in the dollar and some weakness in gold over the next few weeks. This will most likely be a much-needed breather and consolidation in order to form a base for the next big move, but we could see a small correction taking gold back to $800 next week. As many readers know, my strategy is to maintain a core position in precious metals and energy stocks and rarely touch that position. It represents over half of my portfolio and will take the punches and keep riding up over time. The remainder of my money is allocated to more speculative trading strategy, investing is smaller companies and attempting to time the market and add to positions on dips. I think we will see one of those dips in the next week or two, so it might be worthwhile to have some powder dry. Consequently, new traders looking to establish positions will likely find a better entry point in the next few weeks. But I don’t expect the consolidation/correction to last long and would not be surprised to see gold above $900 and perhaps pushing towards $1,000 by the end of the year.

Outside of gold and energy, we recently reduced our exposure to emerging market ETFs and shorted the U.S. market in Housing and Financials. And while we might be a little premature in discussing the ProShares UltraShort FTSE/Xinhua China 25 ETF (FXP), we fully plan to take advantage of both sides of the China boom and expect the U.S. market decline to trigger a significant sell-off in China in the near future.

The gig is up. The Fed’s repeated intervention is having a diminishing effect and the media’s consistent denial is becoming less and less believable. The economy is in very bad shape and by any honest assessment already in recession. Understating inflation to produce the facade of economic growth only delays and exacerbates the inevitable. The dollar is toast and is showing no sign of stabilizing as Chinese officials continue talk of diversifying their reserves away from dollars. Investing in tangible assets such and gold and silver will protect your wealth, but even mining companies will likely be hit by a downturn in the economy, at least temporarily. So it is worthwhile to diversify your contrarian investment strategy and consider shorting the overall market.

I am not an expert on the housing and financial sectors. My focus and expertise is within precious metals and alternative energy. But it doesn’t take a genius to see the writing on the wall and so I decided to short both the housing and financial sectors via a relatively new and attractive investment option known as the ProShares UltraShorts. The two ETFs are SRS (UltraShort Real Estate) and SKF (UltraShort Financials). The “ultra” part of the ETF refers to funds attempt to track twice the inverse of the daily performance of various indices. If the Dow Jones Financials Index goes down 5% (like today), the UltraShort ETF goes up 10% and likewise with the Dow Jones Real Estate Index.

These new ETFs provide a better way to short the market because they don’t carry the unlimited risk or dividend costs inherent in shorting stocks or ETFs. They also don’t carry the added risk or time restraints of put options. Another advantage of the UltraShort ETFs is that they are not subject to IRA trading restrictions, which often forbid shorting.

These two funds were up 8% and 10% today alone, as I was able to capitalize on what I see at the beginning of turbulent times for the markets. “Turbulent” is putting is lightly, as one of America’s prized corporations and the largest car-maker in the world reported a third-quarter loss of $39 billion. Let’s write that out longhand to underscore the point: GM lost $39,000,000,000 in the last three months alone!

But why stop there? The country’s biggest mortgage finance companies and Washington Mutual Inc warned the housing downturn would extend well into next year. New York Attorney General Andrew Cuomo said his office was sending subpoenas to government sponsored mortgage finance companies Fannie Mae and Freddie Mac as part of a probe of the home loan industry. Their stocks tumbled 10% and 8.6%, respectively. Hello SKF. This seems like a no-brainer to me. Declining stocks outnumbered advancing ones by a ratio of about 10 to 1 on the NYSE and by about 4 to 1 on Nasdaq. Oil prices are flirting with $100 as war propagandists are employing scare tactics once again and urging the Bush administration to attack Iran. Has Iraq really taught us nothing?

Gold, silver and energy are rocketing to all-time highs, but you may want to consider diversifying your contrarian plays by taking positions in one or more UltraShorts. We expect the Real Estate and Financial sectors to be the hardest hit in the coming meltdown. It is our opinion that the troubles are just starting for these sectors and there will be at least another 6-12 months of significant downside.

For a full list of ProShares Short and UltraShort ETFs, click here.

Disclosure: Author owns shares of both SKF and SRS