Dear subscribers,


This is special intraday update #2018a for Thursday evening, July 17, 2014.


I bought KOL at 18.39 using 0.10% of my net worth, which I would rate as a 7.5 on a scale of 0 through 10. I think I had intended to enter this order as 18.49, but it was entered as 18.39 instead and was filled at 3:32:25 p.m. KOL is a fund of coal mining shares which, even if you adjust for its dividend, is up less than 10% from its July 5, 2013 bottom. While other shares of energy producers have mostly rallied strongly during the past year, except for uranium mining companies which had lagged badly until the past week, coal mining shares remain mired in persistent media gloom with most investors not wanting to buy until others have done likewise. One subscriber sent me the following comment, spelling and syntax left intact and only his name removed from the very end:


steve we are sitting with the KOL position for over 2 years. it has steadily gone down. for a long time now it is dragging along going nowhere. the coal industry is getting killed by our government. what is your thinking here.


Of course it is significant that the above comment says nothing about the global supply vs. demand situation for coal mining companies, or whether or not KOL is a compelling investment based upon any fundamental situation, or even whether several higher lows for more than one year could have any implications on the future price. If the media remain negative toward any given asset for an extended period of time, most people become brainwashed and convinced of its permanent inferiority. Investors become impatient with assets which are losing money, regardless of the reasons for such price behavior, and a two- or three-year time period in particular is when many decide to finally give up and unload. Coal mining shares had actually peaked along with many shares of commodity producers in April 2011 (they had completed even higher highs in May 2008); the last time I sold KOL was in early February 2012 when I cleared out of all equity funds after having bought them relatively close to their lows during the final months of 2011. As you can see from a weekly chart, KOL dropped below 25 in May 2012 and has been trading between 17 and 25 ever since, although it hasn't moved above 20 since May 2013 and has therefore experienced among the weakest sustained rebounds of all commodity-related subsectors and the most feeble recoveries among all energy groups. Today's 18.31 intraday low for KOL was its most depressed level since a matching low on June 4 and it hasn't traded lower than that since March 28, 2014.


Most investors don't want to own coal mining shares because other investors don't want to own them. Whenever a particular subsector within a given sector, with a record since the 1800s of correlating closely with other energy producers, is this far out of line with its peers, it is almost always a compelling reason to buy. Given a choice, power producers will be gradually shifting from other sources to coal for their energy, and to a lesser extent to nuclear power, until both of these return closer to their normal historic interrelationships with commodities including natural gas and crude oil. If you look at a chart of SU or CNQ (major tar sands producers), FCG (a fund of natural gas producers), or XOI (an index of crude oil producers), then interestingly these have nearly opposite charts of huge gains in recent years followed by recent modest weakness. These contrast sharply with URA (a fund of uranium producers) and KOL, both of which remain close to their lowest levels since the early months of 2009 (using CCJ as a proxy for URA, since URA didn't exist in 2009).


Some technical analyst out there is going to say that they'll buy KOL as soon as it "proves" that it can recover and moves above its 2013 resistance level of 20. If you buy KOL at 20 instead of 15, and you end up selling it at 30 in 2015, then you may think you're giving up one third of the gain but you're actually giving up one half because of the geometric nature of the financial markets. Buying at 15 and selling at 30 will give you a 100% profit, whereas buying at 20 and selling at 30 yields 50%. Also, if you buy at 20, probably the very next move will be a sharp correction to punish those who have identified an alleged upside breakout. Finally, coal mining shares have been rebounding from similarly depressed levels at least a couple of dozen times since the 1800s, so I doubt that this will be the one special exception to the rule. However, boys will be boys, so if you still believe in the tooth fairy, the Great Pumpkin, or technical analysis, then I would hate to dispel your cherished illusions.


I am continuing to gradually shift assets from non-Roth retirement accounts into Roth retirement accounts, in order to lock in their periodically depressed prices near five-year bottoms for tax purposes and to ensure that all future gains on those holdings will be free of taxes for several more decades of my life and part of the lifetime of my heirs.


Here are my buy ladders of good-until-canceled orders:



HDGE, starting at 11.89 (increased from 11.49), separated by 10 cents, each for 0.10% of my net worth.



COPX, starting at 9.79, separated by 10 cents, each for 0.10% of my net worth.



KOL, starting at 18.24, separated by 25 cents, each for 0.10% of my net worth.



REMX, starting at 34.49, separated by 50 cents, each for 0.10% of my net worth.



URA, starting at 13.99, separated by 25 cents, each for 0.10% of my net worth. The order at 13.99 missed by 7 cents on June 25, 2014.



ASHR, starting at 21.99, separated by 50 cents, each for 0.10% of my net worth. Chinese A-share equities are trading close to their lowest levels since the beginning of 2009, making them the worst-rebounding emerging market worldwide due primarily to repeated media speculation about a "potential slowdown" in China's rate of economic growth. Even if China's GDP were to contract sharply, I would still expect its equity market to recover significantly from its currently depressed levels, partly because there is little historic correlation between a country's GDP growth and its equity performance. It is irrational that U.S. equities more than doubled during the past five years while Chinese A-share equities have actually suffered net losses over the same time period when measured in U.S. dollar terms.



I have removed all of my previous orders to purchase emerging-market funds and the shares of precious-metals producers because of their strong rebounds. I would consider making additional purchases if they were to retreat to important higher lows. Many shares of commodity producers and emerging markets tend to follow gold and silver mining shares with a delay of two or three months in both directions, so the slump for precious metals and their shares from March 14, 2014 through May 28, 2014 will likely be followed by a similar retracement for those subsectors which are most likely to rally strongly through the second quarter of 2015. RSX slid over 7% on July 17, 2014, so it might be a reasonable candidate for purchase in the near future; I would be especially interested in buying it near 23 and below.



--Steve