The Shopping Season

In the junior mining sector, summer is referred to as the "Quiet Season," when the flow of news dries up and brokers take off to go on vacation. However, Doug Casey shows us that this summer slump holds more opportunity to profit than most think…

The Quiet Season is an enduring paradox in the junior mining sector. It’s a paradox because it’s actually the busiest time of the year for most Canadian exploration companies. For the simple reason that, in most of the Northern Hemisphere, exploration is easier and cheaper in the summer than the winter.

Once the snow melts and the mud dries up, geos and company executives alike head out into the field, kicking rocks and keeping the drills turning pretty much around the clock. Naturally, with everyone off in some remote corner of Labrador or Outer Mongolia, the flow of news, so important to generating trading volume, dries up. And it pretty much stays dried up until, typically, late summer or early fall when results begin to come in from the summer drill programs.

Mining and the Quiet Season: Making the Summer Slump Worse

Exacerbating the summer slump is a well-known tendency of brokers to cut back on their hours and take holidays during this time. And why not? With the explorers in the field generating samples for the assay labs, there are few new stories to tell. And with most of their clients – especially the Europeans – on vacation as well, there are fewer people to tell the stories to.

Exploration companies make the situation worse still by holding back on releasing good news, in fear that nobody will notice it.

As a consequence, unlike the rest of the year when stocks move up or down based on any number of relevant factors, during the Quiet Season, the controlling factor is the lack of volume that causes share prices to retreat.

All very logical. All very predictable. It’s why the old adage "Sell in May, and go away" is at least as true with mining stocks as it is with the broader market. But this year things have deviated from the expected in ways that are at once problematic and opportunity-creating for attentive resource speculators.

Starting as early as February this year, many brokers began telling their clients to hold off on buying, or even to sell, in anticipation of the coming Quiet Season, helping to produce a self-fulfilling prophecy and accelerating the slump this year.

Therein rests the opportunity. Because the Quiet Season started earlier, and for reasons I’ll explain shortly, I think it will end sooner than most expect. The important thing is that you need to start thinking of the Quiet Season as the "Shopping Season," then you’ll be thinking about it in the right way.

If you are convinced that a particular company has the goods, you want to be long now, and not hold out for the exact bottom. If a stock you like goes down more, great; buy more.

Mining and the Quiet Season: Don’t Wait Too Long

What you don’t want to do is sit back until you are absolutely convinced it is safe to go back in the water. By that point, you will have missed the boat on the biggest upside. By the time something seems "safe", its price usually reflects that perception.

My first reason for expecting the markets to get back to business sooner than most people expect is simply that, due to this year’s heightened anticipation of the Quiet Season, many stocks sold off harder and certainly earlier than "should" have been the case. Speaking as a lifelong contrarian, the acceleration in the sell-off has set the stage for an earlier bounce.

Second, there was a huge amount of money raised by the junior explorers in 2003 and 2004, money that has provided fuel for exploration programs on a global scale. Time and again I have heard mining executives complaining about the shortage in drills and drill crews. All that activity will lead, and soon, to results that the market will be forced to pay attention to.

Along the same lines, we are increasingly seeing reserve-needy major producers joint-venturing with the competent junior explorers to effectively serve as their de facto exploration divisions. That gives these juniors access to both exploration funds and intellectual capital, both of which are needed to pull a big find.

We are late in the typical two-year exploration cycle (the period between mounting an exploration program on a specific project, and learning whether or not something of interest is actually in the ground) for this resource bull market. That greatly increases the odds that this Shopping Season will be periodically punctured by important news, or entirely shattered by one or more major discoveries that bring a herd of investors rushing back into the markets.

Before the herd returns, be sure that you have loaded up on the quality plays. After all, it is just common sense that you should take your position while these stocks are still temporarily depressed, and before the assays from the active summer drilling season come back from the labs.

Of course, it remains something of a paradox: you want to buy when others are selling… but you don’t want to buck the trend. An astute student of Zen, which specializes in paradox, should be a natural at stock trading…yet another paradox.


Doug Casey
for The Daily Reckoning

July 12, 2005

Doug Casey is the author of Crisis Investing, which spent 26 weeks as #1 on the New York Times Best-Seller list. He is also editor and publisher of the International Speculator, one of the nation’s most established and highly respected publications on gold, silver and other natural resource investments.

The average American has no time to think – thank God.

It is the good ol’ summertime. Any other time of the year, we’d be too busy, too. But that is the nice thing about the long, slow days that follow the summer solstice in Europe; you can take time to think about things. Especially once you begin to think like a European and begin to appreciate long vacations, as well as long days.

So far, Americans have fought the war of the worlds by aiming their guns at their own heads. That is, they’ve met the challenge of competition from the East in two suicidal ways: they have worked more hours per household (they now work more than any group on earth), and they have gone into debt (they now owe more money than any other people too). This has allowed them to keep spending at a furious rate, which looks to a blind economist like "growth."

There are two kinds of growth, says Stephen Roach. There is good growth and bad growth. The bad growth is what you get when people spend money they don’t have, and aren’t likely to ever get. It is a growth in consumption without a matching growth in production; it is a dead end.

Working long hours is seen as a virtue in America. We think it is a vestige of an earlier era…a virtue that used to pay. We’re not sure it does anymore, because the United States is no longer a high-savings, high-investment economy.

Savings and capital investment add value; without them, people just race along, either spending their own money or helping other people spend.

In Europe, by contrast, rigid labor rules and high wages make it expensive to hire new employees. Businesses invest money to try to develop new equipment so they won’t have to hire people. The result is high real wages, high leisure time, and high unemployment, too. For good or for bad, people have free time to think about things.

Although he is beginning to like European-style vacations, your editor is a typical American. Even after 35 years of employment he still works 12-hour days. Europeans do not look at him with admiration, but with contempt. They think there must be something wrong with him; he can’t seem to get his work done in a normal workday. They suspect that he is stupid and wonder if he is unable to appreciate the value of leisure. Even in the labor market, price and value are different. People know the price of each hour they work; what they don’t know is the value of the hour they don’t.

What we’re thinking about this morning is the difference between value and price. Those who are too busy to think about it, forget that there is a difference. The price is something you can know in an instant. Prices are urgent; value is important. If you don’t have time to think, you can take the price as though it were an indication of value. That is what people-in-a-hurry do. They rush into a store to buy something. They are likely to choose something because it is cheap, which represents the best value-for-money…or because it is expensive, which they take as an indication of greater value. The person who always wants the best, generally buys the most expensive; he hasn’t the time to figure out what real quality is.

Last week, we went into the big department store in Paris, Galeries Lafayette, to buy a pearl necklace for Sophia’s birthday. We saw some necklaces that looked perfectly acceptable. The pearls were white and round; we saw no flaw. But when we looked at the price tag, we realized that these were not real pearls. The necklace was too cheap, only 49 euros. We put the question to the clerk and were directed to a different section of the store where the real jewelry was sold. There, we found another pearl necklace for ten times as much money. For all we could tell, it was no more "real" than the first one. But we were content with it because it cost more money.

But price is an unreliable indicator of quality. Today’s half a million dollar California house is not nearly the grand palace the price tag indicates. In fact, it is the same dump that you could have bought five years ago for half the money. Then, it provided barely-decent shelter at a barely-reasonable price. Now, it costs the average household the equivalent of ten times its annual earnings. And what do you get for so much money? Granite countertops and an eat-in kitchen! The typical California house is a blank, charmless box stuck in a semi-habitable desert along with thousands of others just like it. There are no gardens to speak of. There are no architectural refinements. There is nothing beautiful about the place…in the whole shebang, there is no graceful place for dinner. Nor is the barrack even particularly useful; every time you want a drink you’ve got to get in your car and drive 20 minutes.

Is it worth it? Who has time to think about it?

It takes a bit of quiet thought and reflection to determine the real value of something. But Americans are too busy borrowing and spending to ask questions. They’ve got mortgages to pay. Things to buy. Places to go. Their vacations are so short that even then they have no time to wonder about things. And the brevity of their vacations raises no question marks in their minds. Is it really worth it to work so much? How come, after all this work, we still owe so much money? What do we have to show for it? How is it possible that we live in the world’s most dynamic economy…yet we make so little financial progress? What is wrong with our economy? Why is General Motors laying people off, while foreign carmakers show record profits? If we have such a healthy economy, why are so many leading companies having such a hard time? When we insist that China make its money more valuable, aren’t we really trying to make our own money less valuable? Is it really worth it to borrow more money to buy gadgets and gizmos; don’t we have enough stuff already? What’s the point of being a citizen of the world’s only empire if it means we have to work harder than anyone…and go further into debt, too?

Even in the summer vacation season, Americans never get around to asking the questions. Thank God. When they do, the jig will be up.

More news, from our team at The Rude Awakening:


Eric Fry, reporting from Manhattan…

"Anyone need more evidence that the housing bubble is approaching the terminal stage? Property prices along the New Jersey shore are soaring."


Bill Bonner, with more views:

*** Life imitates art…or at least a made-for-TV movie…

BP reported late Monday that one of its deepwater oilrigs is listing badly after Hurricane Dennis, a category 4 hurricane, blew through their oil and gas field, located almost 200 miles southeast of New Orleans.

Does this situation sound familiar? In The Daily Reckoning’s most recent weekend edition (, we looked at "Oil Storm," an FX made-for-TV movie. This "mock-umentary" looks at a series of worst-case scenarios, one being a category four hurricane destroys a vital pipeline in the Gulf of Mexico, driving oil prices up to, at one point, $153 a barrel.

What’s happening with Hurricane Dennis is not quite at the level of the disasters that ensued in "Oil Storm," but the storm did force the evacuation of 445 rigs and platforms, according to a report from the U.S. Minerals Management Service.

The report went on to say, "The evacuations prompted the shut-in of 96.2% of daily oil production in the Gulf of Mexico, as well as 62.4% of daily natural-gas production."

Kevin Kerr told MarketWatch: " [Although] workers should be returning to their rigs and platforms and production should resume pretty quickly, we are only at the start of hurricane season, so the worst may be yet to come for the Gulf Coast. The potential for a catastrophic hurricane is very high."

"Imagine if this were a category 5 hurricane. This was only a minor hit… the Daily Reckoning article and FX TV movie are more realistic than some want to say."

*** The euro seems to be making its move – finally. It is back at $1.21, after falling to $1.19. Yesterday, the European Central Bank said it would not cut its prime rate, currently at a very low 2%.

*** People come to have the ideas and beliefs they need when they need them. We keep saying so…hoping that we will eventually figure out what we mean by it. Senator Charles Schumer is now one of the backers of a bill to impose tariffs against China. He used to be a free trade man. Now "free" has given way to "fair." He wants to force China to "play fair." In his mind, that means forcing the Chinese to revalue their currency so that America’s goods will be cheaper and China’s good will be more expensive.

*** Gold is still at $426 – a dollar over our buying target. Buy anyway.

*** "I don’t know if this is the best situation for your mother," began a conversation yesterday. It must be a common discussion.

"It’s just too bad we’re so…well…it’s too bad we move around so much. It’s too bad we’re so busy. Your mother is reaching the stage of her life where she needs more attention. I’m afraid we just can’t give it to her. She needs someone to make sure she’s eating enough…and going to the doctor. You know how she is. She never complains. And then when she does finally go to the doctor she doesn’t want to admit that anything’s wrong. So, you have to pay more attention to her. "

Your editor’s mother has been a part of the family for the last 10 years. She enjoyed living in Europe with us. And she liked being around the children. But now, things seem to be changing. She can’t get around as well as she used to. She used to take advantage of the art museums and cafes; but now she feels too weak to go out. And she’s afraid she won’t be able, physically, to make annual trips back to the United States to see the rest of the family.

"She told me she thought she should go back to the States now…because she’s afraid that if she waits much longer she won’t be able to go back at all."


The Daily Reckoning