My divorce ensured that the speculative portfolio I had built up over the last few years was decimated through legal proceedings and the fact that when you have a couple of small children involved you can kiss 70%+ goodbye. I wouldn't have it any other way though, I still see my kids on a regular basis, and am now engaged (baby on the way) to a stockbroker who specialises in blue chip investments. I now regard myself as a guitar collector and am a keen follower of the Gibson Robot Guitar market on E-bay, which I try to assess on a daily basis. I am hoping that I can apply what I have learnt in the stock market into gaining some enjoyment and some profits along the way.

My clients have kept me extremely busy and throughout this market malaise the gold company we purchased 25% of has multi-bagged, and our foray into an Indonesian focussed zinc-lead company (Herald Resources) has resulted in a takeover offer and a stock where you can withdraw your money when required. It is currently $2.63 and without the takeover and forestry approval it would be 80c tops. You need some luck in a weak market, as it provides you with the opportunity to diversify.

Luckily for me writing is not my day job. Even though I have written a book and countless articles, the last two years I have been struggled to put anything together. I have been threatening to write another stock market book and 2009 could be the year I rejoin the author ranks. (If I start soon it will be published in 2009)

I like to write about my observations and perceptions and here they are, (apologies if it is too long and you disagree totally with me because that's what makes a market)

WHAT IS HAPPENING IN AUSTRALIA?

• Our Reserve Bank (RBA) is concerned with our inflationary outlook and has hinted at 4 further interest rate increases. Our current affairs programs are now drowning in "Mortgage Stress". This is where 30%+ of your gross income is spent on repayments. This looks like and smells like a future "Royal Commission" as dodgy lending practices and easy credit are to blame for a massive increase in foreclosures.
• Sub-prime has hit us hard, and was the catalyst for many of our market declines. Most of us are scared of something we don't understand.
• I could say that working families are struggling but that would be stealing a line from our new PM Kevin Rudd. We are seeing huge growth in the "working poor" class. There has been little wage inflation and teachers, police and nurses are still treated as second-class citizens. Prior to becoming a broker/author I was a Police Officer in Sydney and we would launch numerous work to rule campaigns in the hope of inking out a tiny percentage increase in pay. Needless to say I had Nicky, Nathan and Jeff Buckley of ever affording my own home.
• With a booming economy the wealth gap is widening. It is like watching a tennis match between Hewitt and Federer and we are all expected to support Lleyton because he is Australian. The fact is that if he beats Roger, he is not going to shout my family dinner and put my daughter through university with his million-dollar pay cheque. Roger seems like a nice guy and is just as likely to give my family bugger all so I am going to go for him. Same deal with our cricket team that has won everything for the last few years. Why should I be depressed if the Indians beat them? If anything what will help my family is to have the lower class in India adopt westernisation and consume like a welfare junkie in a $2 shop and I think it is their cricket culture that will do it. Go India!
• Real Estate market is mixed. The top end when you have a resource boom is going to do well and still is. When money is no object and you like a location, you buy a house then bulldoze it. We now have talk of $70m houses in Perth for a family of four. I guess if you don't have an expensive drug habit there is always funds left for real estate. The old saying is," if it floats, flies or (put your own F word here) rent it"
• LCD's and plasma sales are very strong and we can now buy name brands for ridiculous prices. Those TV's where the name on the front has been misspelt (clever marketing) you can now buy with your groceries. DVD's and CD prices are capitulating and this allows me to survive my JB Hi-Fi habit, which was threatening to get out of control.
• The number of garage sale advertisements is increasing and could go vertical. Families are selling their children's Wiggles tapes and Little Golden Books to pay the mortgage or credit card. New tips are required to house all the crap we are trying to sell to a bigger idiot or when totally in despair place it in or near a clothing collection bin.
• The next boom when it gets worse here will be DIY home burglaries and this will be exacerbated by the fact that you can download your entire CD collection and leave the door open for the local druggie to come in and make off with it. Insurance fraud is going to skyrocket, and decent hardworking people are going to end up with criminal records in order to survive.
• Extreme weather. The East has been flooded (and getting worse), whilst in Perth we have had one day of rain all year. Farmers have seen the drought broken in some areas by rampant torrents of water wiping out crops and stocks. No wonder they are leaving the industry in droves.
• All the old rock bands from the 60's, 70's and 80's are coming here for their "Retirement tours". I guess many didn't expect to live as long and now have to fund their twilight years.
• The market is the most unforgiving I have ever seen. Announce anything slightly below expectations and the market will hammer you. Even companies releasing great results are being sold off as many will struggle to maintain the earnings growth.

GOLD AND SPEC STOCKS

• The speculative market in Australia has undergone two mini-crashes in six months. The first was during August 15-16 2007, and the second occurred in January 2008. Our market fell 7% on the 22nd of January. Brokers in my office met the close with applause reflecting just how resilient our market really is. (Similar to a plane landing in Turkey)
• The financial press here deserve applause and some presenters an Oscar. The words, "Crash, collapse, panic, global," were overused every morning. Even on one occasion they were calling for a collapse when the Dow had turned around and rallied. (The finance reporter forgot to tell the news Director the market had recovered).
• Usually there is one sector of the speculative market running. In the past it has been childcare centres, retractable syringes, uranium, iron ore, and to a lesser extent rare earths and exotic commodities. The market is looking for one sector to stand out and I would expect the money would flow rapidly. With this is in mind I have positioned my clients in a number of geothermal juniors whilst maintaining the focus on finding value regardless of the commodity or industry. I am surprised that more companies have not embraced the Platinum Group Elements (PGE).
• Margin lending problems with one provider in particular have seen a considerable increase in margin calls that has assisted in destroying the market caps of a number of juniors.
• The majority of speculators in the Australian market must still think that the POG is $380 US (instead of over $900). Our gold stocks have performed dismally, and until we another massive intersection (16m @ 482 g/t worked earlier last year) or M&A activity our gold stocks are sitting ducks for the US and Canadian majors. I am starting to get tired of clients phoning me and saying, "Our gold stocks are doing bugger all". With this weakness comes opportunity and I have again built a large position in an emerging producer now priced for absolute failure.
• My gold company selection criteria looks at management, quality of the deposit then the Enterprise Value (EV) in comparison to their peers. EV is ounces in the ground/market capitalisation. Companies may have a low EV but be in an area of political and environmental risk, so all factors need to be addressed.
• Apart from the atrocious share prices, the Australian Gold Industry is in turmoil. We have recently seen a number of small-mid caps go into voluntary administration and some are now struggling to raise capital to survive. With rising labour costs, a lack of virgin discoveries there is now an opportunity for a brave company to lead our gold industry out of the quicksand. One MD has recently commented to me that he is being offered RC drilling rigs that were previously fully booked out, because companies are now conserving cash rather than drilling holes.
• There are cases where base metal producers and those in Feasibility are priced lower than some explorers with a fancy logo and a West Perth address. My clients know who they are but are afraid to buy because there is always the chance they will be cheaper tomorrow. Managing Directors must now fear hostile takeover bids as the majors have the infrastructure to snap them up cheaply.
• A junior oil explorer that reported a dry hole and only had a 20% interest was sold down to ½ the value of its cash in the bank and at the time of writing had still failed to recover. Herd mentality is alive and well, hey people why fear lower share prices when you can go ahead and create your own!
• I have watched people panic on the screen for a number of years and it still cracks me up how they all sell in similar fashion to watching swimmers from an old movie dive into the pool in sync. Discount brokers now have electronic stop losses and now you can have a full on share price collapse because someone sold $2,000 worth of stock.
• I took my kids to the Perth mint a few weeks go and they loved it. Seeing gold being poured and viewing nuggets brings back the romance and makes you appreciate your shareholdings just that little more. Perhaps an outbreak of "gold fever" is not that far away.

THE BOTTOM LINE

The Australian speculative market is the cheapest I have ever seen. The last time I saw value that could compare to the current climate was back in March 2005. There are companies that I know have the potential to increase 3 to even 5X in value on their existing asset bases, yet the market is not interested. This market reminds me of Perth real estate where you could buy a house on a double block, 4km from the CBD for $165,000 only 6-7 years ago. The same land would now fetch $1m and would still rates as a developers dream.

I am not talking about the bandwagon companies that have no prospects and rely on the greater fool theory either. You can buy management teams, fantastic deposits that will be developed by someone for ridiculous prices. Throughout my broking career (nine years + three of teaching myself the market) there are always success stories that emerge into mining companies of substance.

If the world is not going to end, then we must be getting close to some form of bottom or at least the final capitulation stage where stocks drop 20-30% on a $5,000 sell and buy orders are triggered. This reverse rally is getting beyond a joke and someone needs to step up and show some leadership. (If it wasn't for my divorce I could have helped out here a little).

If indeed the world is coming to an abrupt end, the Australian speculative market has further to fall on its way to zero and it would be a good time to sell the farm and invest in sex, alcohol, tobacco and a shottie.

Tony Locantro

Personal Disclosure: I have personal holdings in speculative shares in gold, silver, base metals and industrial sectors and may at times liquidate or increase these holdings as I see fit. My clients have considerable investments in a number of companies and may rotate these holdings when required.

Disclaimer: The opinions contained in this article are my own and any prior to any investment decision you should contact a licensed financial adviser. Speculative shares are volatile, should be considered high risk and can result in significant financial losses. I earn fees from trading and raising funds for junior resource companies.

About the Author: I am an advisor to hundreds of small to medium investors in the speculative sector of the market and have been since November 1998. In 2001 I wrote "The Green Room" A Guide to Speculating on the Australian Stock Market and have run a number of presentations. I am planning on writing further books as time permits. I am now happily divorced, have two children and another on the way. I love rock music, collecting guitars and one day would like to meet Dave Grohl from the Foo Fighters but am not prepared to spend a couple of weeks trapped in an underground gold mine. My business strategy is focussed on identifying companies in their early stages and assisting in the growth process that rewards all concerned.

If you would like further information or are interested in becoming a client I can be contacted at tldk2@bigpond.com. Please note that due to an increasing workload I am unable to provide advice on individual stocks or answer emails in depth. I do not publish a newsletter but provide regular insights for clients. I am planning another book on market speculation and if you would like to be informed of developments please let me know.