Newcrest tumbles and the mining boom quickly becomes a distant memory…

Well… that didn’t start well.

Yesterday I told you how my SMSF bought shares.

I said the stock was just plain cheap, including trading on a fully franked dividend yield of 4.7%.

By the end of the trading day yesterday, I was already a few hundred bucks down. Even though the ASX moved up in the hours after my purchase, my brand new shiny stock declined… ending the day down around 4% from my purchase price.

Am I worried? Not in the least.

I have a diversified portfolio. My SMSF has plenty of cash — it’s my own personal hedge. And I’m confident I bought a good quality company trading at an attractive price.

Paying dividends…

In the goodness of time, and I’m talking more than a few hours here, I fully expect my investment to pay dividends… in more ways than one.

While I was at it yesterday, I also entered a couple other limit orders, hoping to pick up a couple more bargains. In these volatile times, you never know what silly price some (lower-case ‘f’) fool might panic and sell out of what are perfectly good and growing companies.

How good an investor are you?

Legendary American investor Peter Lynch has said “In this business, if you’re good, you’re right six times out of 10. You’re never going to be right nine times out of 10.”

I’ll let others decide whether I’m good.

But I’m confident the odds are in my favour. And in a world where too many mug punters are happy to throw their money at some tiny, dodgy, mining stock penny share in the hope of hitting the jackpot, I’m confident simply “putting the odds in my favour” puts me in a better starting position than most retail investors.

Overnight, U.S. markets roared back to life.

US markets June 6 2013


It was however a bit of a wild ride, with the Dow swinging nearly 200 points from its session low to high.

Tonight the latest U.S. job numbers are released. Although jobs are being created, unemployment is expected to remain at 7.5%.

Expect volatility. Expect the word “taper” to be bandied about, referring to how soon the Federal Reserve will begin winding down their bond purchasing program.

The end is near…

In the long-term we’ll all be dead. In the meantime, the U.S. economy will keep on improving, slowly but surely, and the rest of the world will follow suit, including Europe, eventually, and Australia too.

Yes… even Australia.

This week, the word recession hit the front page of The Australian Financial Review

“Australia’s economy may be teetering on the brink of a domestic recession as the resources boom falters, consumers restrain spending and businesses cut investment plans.”

Interest rates still headed to 2%?

No wonder then that the odds of the RBA cutting interest rates in August have jumped to 63%, and a number of prominent commentators and economists including Bell Potter’s Charlie Aitken and Westpac’s Bill Evans think the cash rate should be slashed to just 2%.

If you thought term deposit rates were low now, look out below if they are even close to being right.

With each passing day, the mining boom fades further into the distance. Just today, beleaguered gold miner Newcrest Mining (ASX: NCM) announced cut jobs, the closure of its Brisbane office, a write-down of its assets by up to $6 billion, and an axing of its dividend. It hasn’t been a good week for Queenslanders.

Gold bust

We did warn you about gold, didn’t we? According to Bloomberg, the gold price has fallen 17% this year, its worst start to a year since 1982.

Newcrest shares slumped 10% in morning trade, and are down an astonishing 45% in 2013 alone. When boom goes to bust, it’s not a pretty sight.

Newcrest NCM 2013

Source: Google Finance

Bloomberg also reports that “commodities are trailing equities for the longest stretch in almost 15 years as Goldman Sachs and Citigroup predict the end of the decade-long bull market.”

John Stephenson at First Asset Investment Management in Toronto was quoted in the same Bloomberg article as saying…

“There are times when you probably should be avoiding commodities, and I think this is one of them. Anytime you have a whole lot of inventory and visible supply, prices are going to be under pressure. The real issue for commodities is the source of demand, China, is weak.”

Waiting patiently for BHP and $30

Regular Take Stock readers will know I’ve been patiently waiting for BHP Billiton (ASX: BHP) shares to pull back to around $30 before adding more to the family’s existing holding.

Shares in the Big Australian are off a little today, likely in sympathy with Newcrest, and also with the general mood of the market.

The S&P/ASX 200 index (Index: ^AXJO) (ASX: XJO) has fallen back below 4,750 as investors have collectively run for the hills.

What they seem to have forgotten is, when compared to term deposits, the dividend yield on many of the ASX’s largest stocks, including Telstra (ASX: TLS), BWP Trust (ASX: BWP) and even David Jones (ASX: DJS) is very attractive. And that’s before the RBA slashes interest rates again…

The bulls will return to the stock market, perhaps sooner than you think.

If there’s one thing to learn from the sorry sight that is Newcrest shares it’s that the time to buy is before the boom.

Warren Buffett would be a buyer

Or, as Warren Bufffett put it at the height of the GFC and the accompanying stock market carnage…

“What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.”

This may not be the bottom of the market, and it’s certainly nothing like the fear and panic of the GFC… but spring is coming, along with lower interest rates, a change of government and improving sentiment and economy.

Wait if you like, but expect to pay a higher price, perhaps substantially so.

Bring on spring.

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Of the companies mentioned above, Bruce Jackson has an interest in BHP and Telstra.

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