Short Equities – Build Cash – Get Ready to Buy Gold Stocks

I was on the Market Morning show on BNN on October 30 and I laid out my basic views of the general stock market. I also talked about a couple of companies on my list, including Oceana Gold. I told viewers what I tell you on a regular basis—that I think the gold shares will go down with the general market but that this decline will pave the way for better-than-ever gold mining economics. I also spoke about Agnico-Eagle, Barrick Gold, and Newmont Mining. With the possible exception of Barrick Gold, which still has a 1.9-million-oz. gold short position, I will be looking to add these stocks back into our letter as soon as I think they have bottomed with the general market.

What I was also prepared to talk about on the show but didn’t have time were some junior companies on our list that could become prime takeover targets. In my way of thinking, they are SanGold, Romarco Gold, and Allied Nevada.

These are three takeover candidates. We would expect these shares to become much less expensive in the near future if we get the kind of equity decline we are anticipating. Of course, if the gold price starts to skyrocket even as the equity markets decline, it is possible our view of a declining gold price won’t pan out. Ian Gordon has pointed out that in the C wave down during the Great Depression, gold mining companies did not decline with the rest. He could be right, which is why we suggested raising only about 35% cash, some of which is also to be used to hedge against a general equity market decline.

When the market turns down, I recommend a position in the S&P double short ETF, symbol SDS. That is a very volatile instrument and unless you can keep a close eye on it, you might want to buy the single down short of the S&P 500, symbol SH. We also have been carrying the Prudent Bear mutual fund (BEARX) in our portfolio for some time. It should start to increase significantly now if the equity markets are in fact ready to decline, as we think they likely are.

I think we all need to brace ourselves for some very, very difficult markets and a very difficult economy and life ahead. If Prechter, McHugh, Gordon, and others are right in their predictions, we are about to face hard times like few living Americans have faced. Hence, the warning to build cash and conserve it wisely.

To hear more about how to survive and thrive in very difficult market conditions, listen to my radio show “Turning Hard Times Into Good Times” every week at 3PM Eastern time. You can also listen to all the archived episodes and sign up to automatically receive weekly podcasts.