Buying Control of America

December 20, 2000

It has long been observed that the stock market is the only trading avenue in which low prices repel potential buyers and high prices attract them. This maxim has especially been proven in recent years in the natural resource and raw materials sectors. Share prices of mining and refining concerns have been driven to record low levels, and the investing public has given the collective cold shoulder to them in response.

Yet one group of investors—the "smart money" traders—begin to pay close attention to stocks of companies in critical industries once their share prices have been driven to levels deemed "undervalued." It is because they recognize a bargain when they see it; furthermore, they realize that without the essential services provided by such areas as ore and precious metal mining, smelting and refining, the physical economy would be unable to operate. In this high-tech computerized world in which we live, it is all too easy to forget that that "old economy" staple—steel (to use one example)—is the absolute bedrock of the physical economy. Without it the economy itself would degenerate into a primitive barter economy and would be completely unrecognizable from how we know it today.

To the insiders and smart money investors, the extraordinarily low prices of gold, silver, iron and copper mining stocks and steel refiners represent a once-in-a-lifetime opportunity to buy up ownership and control of America's most critical infrastructural concerns. There is no better way to control America than to have influence over its physical economy and there is no better way to do this than to have a stake in the ownership of the companies that produce the goods that are most essential for the smooth operation of the economy. In contrast, when the ordinary investor looks at, say, Placer Dome Gold trading at around $9 per share and Bethlehem Steel trading at under $2 per share, he is immediately repelled and considers these stocks to be "dogs" and "losers." He does not see the profit potential that such low-priced buying opportunities present; his investment outlook is too narrow and shallow to think along such lines.

Every panic, crash, and bear market carries with it opportunity to those with the foresight to see through the darkness they bring. The steeply discounted prices that are the product of these events is a great boon to those with the money and acumen to buy at the lows just in time for the turnaround. But buying shares in these companies is an art in itself. One does not simply plunge right in and snap up all the available shares at once. That would undoubtedly bring too much attention and would fuel a rapid rise in share prices, thereby defeating the very purpose of buying low. Rather, accumulation is carried on very gradually over a great length of time so that the buying doesn't show up conspicuously on the tape. In fact, the engineers of these campaigns sometimes create false scares and temporary setbacks in share price for the purpose of scaring off "outsiders" and hangers-on. The shares are repurchased later at considerably lower prices. On the charts, this frequently produces the pattern that resembles a bowl, known as a "rounding bottom." Sometimes it is nothing more than a prolonged sideways movement, and sometimes it might even have a downward slope to it (this is known as accumulating on the way down). After many years of falling stock prices in the natural resources and basic materials sectors, there is evidence that the insiders have already begun to look closely and have even commenced accumulation campaigns aimed at getting ownership of America's most economically critical companies.

Contrary to what the pronouncements of the financial press, stocks of tech companies are not "where it's at." Quite the opposite: shares of tech concerns have been sold with abandon for several months now, with the leading indicator of the overall tech market—the Nasdaq Composite—down 65 percent from its all-time high in less than a year. This represents a fundamental shift in the long-term importance of technology relative to "old economy" inputs such as iron, steel, copper and gold. Based on the performance of stock prices alone (which are leading indicators of the sectors they represent), we are at the crossroads of the U.S. economy, with the tech sector on the way down after an extraordinary 20-year rise, while the old line industrial economy (represented by mining and refining concerns) is on the way up after a debilitating 20-year decline.

Let us take one stock as an example of this dramatic shift in the making: Bethlehem Steel (BS:NYSE). "Bessie," at it used to be called, has been through some of the leanest years of its nearly 100 years of existence. At one time this stock was equivalent to one of today's high-flying Internet stocks and was a favorite of such legendary traders as Jesse Livermore and W.D. Gann. But the onset of K-Wave deflation and the emergence of the tech economy changed all that. Besides being one of Americas oldest and most venerable raw materials companies, Bethlehem Steel is the absolute leader in the iron and steel industry and is the most actively traded of the steel stocks. Its share prices has plummeted in recent years and now is now valued at $1.87 per share. Investors have been shunning stocks like Bethlehem Steel for over 10 years, but recent evidence strongly argues that insiders and other "smart money" investors have begun showing interest in stocks like Bethlehem Steel.

In true contrarian fashion, leading financial publications such as the Wall Street Journal have been publishing stories that highlight the sad shape of the natural resource sector in recent weeks and months. These stories tend to mark major bottoms of bear markets, so it shouldn't be surprising to suggest that we are on the threshold of such a change. For examples, the Journal published an article last month publicizing the fact that steel companies have seen their worst stock performances all time in just the past 5 or 10 years. Bethlehem Steel was among the stocks mentioned in the article. Two weeks ago Bethlehem Steel saw the biggest one-day trading volume in its history as nearly 12 million shares traded hands in a single session. This also occurred on the day of its lowest historical price, a day which may well have been the absolute bottom for Bethlehem's bear market.

Similar trading patterns have surfaced across the natural resources and refining sectors of the stock market. Investors Business Daily published a piece last month which brought attention to the 20-year low in gold and mining stock prices. Shortly thereafter, shares of gold mining stocks—which are trading at multi-year lows—have shown increased trading activity and signs of being under accumulation recently. In fact, the gold stocks as a group performed quite well during the latest selling pressure across the broad market with stocks like Placer Dome and Barrick Gold leading the way. Barrick is a case in point: the names of some of America's most illustrious political and financial leaders are among the owners and corporate board members of this mining concern. This shows that those in the highest places of authority know where the power lies.

If one had the capital—and the patience—to undertake a campaign aimed at gaining control of America's most powerful companies, he would most certainly focus his attention in the natural resource sector since this is where the physical economy begins. Furthermore, he would wait for prices to drop to levels he deemed low enough to represent a "bargain;" that is, share prices must be low enough so that he can purchase the greatest number of shares for the least expenditure of his investment capital. At no other time in American history—including during the depths of the Great Depression—have natural resource stock prices been lower than they are now. If you and I were the ones undertaking such a campaign the time to begin would be now, and indeed the tape is showing undeniable signs that the campaign is already underway. The insiders are in the process of making their move to take control of America's economic base by buying control over the leading raw material companies. For those investors with patience and foresight, now is the time to follow in their footsteps.

Clif Droke is the editor of the three times weekly Momentum Strategies Report newsletter, published since 1997, which covers U.S. equity markets and various stock sectors, natural resources, money supply and bank credit trends, the dollar and the U.S. economy.  The forecasts are made using a unique proprietary blend of analytical methods involving cycles, internal momentum and moving average systems, as well as investor sentiment.  He is also the author of numerous books, including “2014: America’s Date With Destiny.” You can view all of Clif's books here. For more information visit www.clifdroke.com.

According to the Talmud you should keep one-third of your assets each in land, business interests, and gold.

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