Monthly Archives: February 2014

ETF Watch: REMX – Market Vectors Rare Earth/Strategic Metals

Just a quick bulletin to note that I’m starting to look into the “Rare Earth” and “Strategic Metals” ETF, REMX.

From the REMX ETF prospectus:

The Rare Earth/Strategic Metals Index is comprised of companies primarily engaged in a variety of activities that are related to the producing, refining and recycling of rare earth and strategic metals and minerals. Such companies may include micro-, small- and medium-capitalization companies and foreign and emerging market issuers. The fund is non-diversified.

REMX-performance

REMX is a thinly traded ETF having daily volume only in the thousands (as opposed to bigger ETFs like GDX, GDXJ or SIL which have daily volumes in the millions).  In my experience, due to the lack of liquidity, thinly traded stocks tend to be a bit out of whack from the market in the short term, either leading or lagging.  REMX appears to be lagging the commodities sector, so this may be a good time to start getting involved with the ETF, especially if you’ve missed the recent uptick in gold and silver miners.

As you can see in the chart above, REMX is only up about 5% over the last 2 months, whereas the junior gold miners and silver miners are up 46% and 37% respectively.

Even if you look at the minimum ($34.20) to maximum ($36.08) percentage change of REMX in the chart above during the time period, it is only up 6.5%, so it hasn’t yet participated in the commodity uptrend.

Looking at the longer term chart below, you can see that this ETF does tend to have the same outcome as the other commodity miners in the long run:

REMX-longer-term-performance

Sticking with your investment plan

As the gold miners are once again posting a larger uptrend gain than previous rebounds, I’ll soon be doing an update to my previous post on the increasing size of major rebounds in the mining sector, specifically the small cap gold miners exchange traded fund GDXJ.

UPDATE: I did write an update on the most recent update on the GDXJ rebound trend.

For now, I’d like to discuss the emotional impact of these rebounds and how I have to force myself not to get emotional and stick with the plan.

I have been investing into the miners as they have fallen with my own proprietorially developed technique that has served me very well.  With the recent rise, my losses have been nearly evaporated and I will soon be posting a gain.

While sticking to my technique through the recent bottom, I was able to make a “major” purchase just before the most recent bottom, which is one of the biggest goals of my technique (With my proprietary technique, I make “major” and “minor” purchases at various predetermined levels – to be discussed in my future membership section – join the newsletter to be notified when its available).

As I purchase down in a pyramid of-sorts fashion, I can get discouraged as the un-realized losses add up.  However, I know that I’m investing in a sector which is out of favor and tends to have multiple combined reinforcing forces acting against it, and I have faith in my technique as it continually proves to be profitable for me.  So I have to keep a level head and stick to the plan.  I never put money in the market that I will need in the next 10 years, so I never sell for a loss.

Then, when a reversal finally comes and I get back to where my total investment in that sector/ETF is basically even, I tend to get a surge of energy to exit the plan and sell.  There’s this instinctual emotional relief that causes thoughts to sell and walk away with a “No harm, No foul” attitude.

Where I’ve made my biggest mistakes in the past is when my account starts to show un-realized gains and I decide to exit the plan and realize my profits.  My biggest missed gains have been in this area.  When this happens, I tend to lose sight of the bigger picture.

This has actually happened to me in the recent past.  I will write a more in-depth article on the subject in the future, but I was investing in the solar alternative energy sector and sold for an early profit.  I really missed the recent exponential upside and cost myself some major profits.  Going from the an entrenched downside to a minor gain, I allowed my emotions to get the best of me and I sold for only a modest gain.

So now as a similar thing is happening to me again with the mining sector, I have to make sure to keep my emotions away from clouding my ability to follow my own well proven investing technique and force myself to stick to the plan.  I know from experience that, while it can be difficult at times, sticking with the plan and staying on track with the technique will allow me to achieve incredible gains.

Investing In Gold Isn’t Only About ‘Dooms Day’ Scenario

Most gold investors will tell you that you need to own gold because they believe US dollar is becoming a fiat currency due to all the money “printing” by the Federal Reserve in the Quantitative Easing (QE) programs.  They believe all the money “printing” is going to cause the economy to crash after the world realizes that all the “printing” is not really helping and gold will be the only currency to survive the devastating world economic crash.

I somewhat agree but mostly disagree with this esoteric point of view.

First, the Quantitative Easing programs don’t directly cause inflation.  The programs are intended to help banks square up their balance sheets so that they’ll feel more inclined to loan money. It isn’t until the banks actually loan the money that the subsequent inflation kicks in.

In simple terms, you can think of it like your credit card.  Your credit card company gives you credit to go an buy things, which is your individual money “printing”.  But that credit doesn’t change your life (or effect the economy) if you leave the card in your pocket and do nothing with it.  Once you actually go out and buy stuff with your credit card, that’s when the money “printing” gets put into play and subsequently affects you and the economy.

Since the banks are mostly hoarding the money the Federal Reserve is loaning them (keeping their credit cards in their pockets), Quantitative Easing is not yet causing massive inflation.

So the gold investors are missing a major step in how things would likely play out.

The economy has to really take off to the point where banks are back in the business of heavily loaning money for massive inflation to set in and gold to subsequently follow along with inflated pricing.

So from this point of view, if you are investing in gold, you are investing for the economy to continually pick up to the point where this massive inflation kicks in, and that means that the economy is running in high gear (or more accurately in overdrive since the QE is masking the faults in the engine).

Now gold investors do have it partly correct that if the economy crashes, gold will increase in value.  But it will be a short lived increase if we really head into a depression, as depressions cause deflation and even gold goes down in value in a depression.

I say there will be a “short lived” increase for gold as the fear of a coming depression will cause money to scramble from the highly inflated stock market into gold as overall market investors look for temporary safe-havens. If the government then steps in and prints even more money, the fear of inflation will kick in with even greater ferocity, causing gold to rise with equivalent vigor.

So investing in gold at this point has a double upside potential.  If the economy continues to pick up, inflation will ultimately set in, and gold will follow along by going up in value.  If the fear that Quantitative Easing is not helping the economy instead sets in, gold will rise from the demand, as money moves into gold as a protection.

The way I see the economy right now, we are headed for an overly-stimulated economy with heavy inflation, but we aren’t there yet.  It’s still years away.

In the mean time, QE is supporting the economy making us all feel safe, which is why gold has seen a dip for the last 2 years.

At some point (possibly as long as 5-10 years from now) the economy will pick up (likely due to some new invention on the scale of the internet revolution) and once it gets going, all that extra QE “credit card” money will get put into play and things will take off in a parabolic fashion.  That’s when gold will most likely go through the roof as massive inflation sets in.  The Fed will have to drastically raise interest rates to slow the economy.  If the takeoff in the economy is simply due to excessive exuberance (as opposed to new invention), that would be the time to move your money from gold related holdings into high interest vehicles as a crash will be likely to follow.

With all the above said, I don’t necessarily put much of my investment money into gold.  I don’t like paper gold (gold funds traded on the stock market) and it’s too much of a pain to keep an investment amount of physical gold safe.

I invest in gold mining companies, which see exponential effects, partly directed by gold’s change in value.  Currently, in the long term point of view (there has been a recent run-up), the miners have been beaten up badly and are highly undervalued (see my article on investing in Gold Miners over Gold).

I am currently heavily invested in the mining sector (gold, silver, etc.) with a proprietary technique that I have developed over my many years of investing.  I plan to open a membership section where I share my technique to help you invest your money wisely.  Join my newsletter to be notified when I open up the membership section.