It Apple 22 years to sell 55 million Macs
It took them 5 Years to sell 55 million iPods
It took them 3 Years to sell 55 million iPhones
It took less than 1 3/4 Years to sell 55 million iPads!

Isn’t it amazing that 10 years ago Apple was struggling to survive?  I remember buying Apple stock at $22 (which would be $11 split adjusted) because I really liked the first iPod.  Later that year I got stopped out of it when it dove below $20 during the tech meltdown.  At that time people were convinced that Apple was dead money (similar to Microsoft in recent years).  Sure people thought the iPod was a nice gadget but no one saw the incredible opportunity that was about to unfold before our eyes.

Looking at the overnight success of the iPad it’s easy to see in hindsight why this type of success is now possible.  Today consumer sentiment is exactly opposite of what it was 10 years ago and Apple is widely regarded as the most successful tech company in the world.  Consumers assume that each new product released will be more amazing than the last.

iTunes has created a steady stream of small, recurring sales for Apple and now with multiple devices (iPod, iPhone & iPad) all buying music and apps it seems that Apple is untouchable.  The only question I have going forward is how others will be able to compete?  The only two companies right now that are in a position to compete with Apple are Google and Amazon.  Each of those companies are also positioning themselves to have a steady stream of consumer payments (via Android and Kindle) and both are going full steam into cloud services.

All I can say is I sure wish I still had 200 shares of Apple stock, today it would be worth $102,000!  Not bad considering it only cost $2200 to buy a decade ago……  hmmm.

See the latest iPads:

Silver went parabolic in March blasting to it’s all time high at nearly $50. At the time I heard of several people putting up to 50% of their retirement accounts into the silver etf (SLV). I felt sorry for them when the market turned and plunged to $30 giving back almost all of the gain in a matter of days. The entire “giveback” was completed recently in the massive “Risk Off” liquidation sending silver futures back to their January low of $26.

Next it was gold’s turn to go parabolic (in July) blasting to new all time highs, making a double top and giving then retracing most of it in a few days. Gold is still up significantly on the year but I’m not so sure we are completely out of the woods yet.

The biggest loser so far in 2011 has been copper & especially copper stocks. In fact, if you look at the following chart of copper futures you can see that it’s down nearly 25% since the beginning of the year. Copper prices are the most economically sensitive of the 3 so it makes sense that it’s had a tough year. If we actually slide into another recession there is probably another 25% downside in copper.

If you look at the daily chart of the most popular copper etf (COPX) which is made up of copper stocks you can see the carnage is even more severe. COPX was down nearly 50% for the year before the reversal on Monday.

We are in an environment where the short term pressures are deflation and recession but everyone expects monetary lead inflation in the long term. This leads to a very volatile environment. This is why it’s best to limit metals to about 10% of your overall investment portfolio, otherwise volatility can keep you up at night!

The only one option for tracking the actual price of copper is the iPath Dow Jones-UBS Copper ETN (JJC)

Even though it’s an ETN instead of a Copper ETF it is the most direct way to track the price of copper. This ETN basically tracks copper prices using the High Grade Copper Futures contract which trades on the COMEX. Since it uses futures, it does carry the risk of contango causing roll-over losses but this has generally been a much smaller problem in the metals than in oil and natural gas. Since this fund is an ETN it is basically a senior debt issued by Barclay’s so it does contain counter party risk. This became an issue during the credit meltdown in 2008 but doesn’t pose much of a threat in normal times.

Its expense ratio is 0.75% (75 basis points) and the symbol is JJC.

First Trust ISE Global Copper Index ETF (CU)

This ETF was the first of 3 based on copper related mining stocks. It tracks the ISE Global Copper Index so it consists of copper mining companies as well as extractors of other metals so it is not a pure play.

They attempt to compensate for this by weighting each company according to the level of copper exposure they have and the percentage of revenues derived from copper. Geographically, it includes companies in the developed countries with 1/2 the exposure in Canada and the UK.

Its expense ratio is 0.70% (70 basis points) this copper ETF symbol is CU.

Global X Copper Miners ETF (COPX)

The COPX copper etf tracks the Solactive Global Copper Miners Index, which consists of stocks for companies that focus purely on copper mining. There are several companies that overlap with CU but COPX has more smaller mining companies. Geographical this ETF is more concentrated in Canada and the UK making up 2/3 of the exposure.

Its expense ratio is 0.65% (65 basis points) and the copper ETF symbol is COPX.

Emerging Global Shares Emerging Markets Metals & Mining ETF (EMT)

Once again, this is a stock-based ETF that invests in mining and extraction companies but includes companies that mine nickel, gold and platinum in addition to copper. Copper makes up about 50% of the metal produced by these companies. Another major difference is that this ETF focuses on miners that are in emerging markets.

A majority of the miners making up the Dow Jones Emerging Markets Metals & Mining Titans Index tracked by this ETF are located in China and Brazil, with a significant presence in South Africa as well.

Its expense ratio is 0.85% (85 basis points) and this copper ETF trading symbol is EMT.

This is a good place to start when looking to invest in copper, there will most likely be additional “physical” copper ETFs coming to market sometime, but it seems to be taking some time.

#1 – Silver Futures (Comex & Mini)

This was my first introduction to silver back in 1988 when silver had a nice rally following the 1988 drought. At the time I bought an option on Comex Silver Futures and went on a wild ride. Back then however a $3 or 4 move was pretty substantial and didn’t happen on a weekly basis like it does today. The two different futures contracts that are available are the 5000 ounce Comex Silver contract that trades on the CME and the 1000 ounce E-Mini contract that trades on NYSE/Liffe. Both are viable trading vehicles with plenty of liquidity.

#2 – Silver Coins

This was the second way I purchased silver in 1989, unfortunately I bought too high in the quality structure (MS 65-66) and paid way too much. If you are buying simply for the value of the actual silver I would buy junk silver (pre-1965 coins) that contain roughly 90% silver. The other way to go is to purchase silver bars that come in a variety of sizes. Check prices at reputable online dealers before you venture out to local dealers, that way you will know the spreads ahead of time. There are lots of great dealers but plenty of crooks as well.

#3 – Silver ETFs

The explosion in popularity of SLV – the largest silver etf as well as the Physical Silver ETF (SIVR) and the Sprott Physical Closed End Fund had a lot to do with the sharp run up in silver. In the weeks leading up to the top I had heard from several different sources of people who were putting large chunks of their retirement accounts into the SLV. These ETFs generally move penny for penny with the price of silver so they are very volatile compared to the stock market. If you crave even more volatility, ProShares offers the Double Silver ETF (AGQ) as well as a Double Short Silver ETF (ZSL). Be careful with these as they are designed to be trading tools and not held as long term investments.

#4 – Silver Mining Stocks

My favorite silver mining stock is Silver Wheaton – SLW because they are not actually a mining company. They buy silver from other mining companies that produce it as a by product of copper mining etc. They typically pay low prices ($4-5) on a long term contract, so they have tremendous leverage as the price of silver rises. Since they have no mining risks or production cost risk it tends to eliminate some of the company specific problems that can plague mining stocks. The other way I like to play silver mining stocks is by using SIL which is a silver mining etf that is made up of all the major global silver mining companies. Mining companies tend to be leveraged to the price of silver so they can outperform when prices are rising but tend to under perform when prices are falling.

As you can see there are many different ways to purchase silver and it basically comes down to why you want to own it. If you are planning for the end of the monetary system, then it’s best to own the actual physical silver. If you are buying it to profit from a price rise, I prefer the mini futures contract as you can hold 1000 ounces for just a few thousand dollars. Just don’t over extend yourself, that’s the quickest way to get in trouble in the silver market. It’s definitely not a place for the faint of heart!

#1 – Buy Physical Gold in the form of coins or bars.

The Krugerrand and the American Gold Eagle are the two most popular 1oz coins and both trade for about a 10% premium over the price of gold. They both have very liquid markets making them easy to buy and sell which is important.

There are also gold bars available which range from 1 gram to 400 Troy ounces. Just for reference the U.S. gold price is typically quoted in Troy Ounces and there are approximately 31.1 grams in a troy ounce. This makes it easier to compare prices for different sized gold bars.

The benefit of physical gold is that you have actual physical possession of your gold in case there is ever a complete collapse of the international monetary system. The down side is that you have to have a secure place to keep your gold so it isn’t stolen, commercial storage is an option but then you incur additional costs.

#2 – Buy Gold Futures

Gold Futures were the first way I ever bought gold back in 1987 and continue to be my preferred way to make large purchases of gold. The fact that I can hold 100 oz of gold for a few thousand dollars (currently $185,000 worth of gold for $5500) is very appealing and allows me to really capitalize on the trend without tying up all my capital. The down side is that same leverage, with gold moving $20-60 per day you have to be able to handle swings in your account of $2-6000 per day. There is also a mini-gold contract which I frequently trade that is 1/3 the size of the Comex Gold Contract. This contract has become very active in the past few years so is a very good way to go.

#3 – Gold ETFs or ETNs

The Gold ETF has become very popular over the past several years since GLD began trading in 2004. In fact, GLD has become the second largest ETF based on Assets Under Management behind only SPY which is the S&P 500 ETF which basically started the whole industry. The Gold ETFs are backed by physical gold which is stored on behalf of the trust holders. There has been some concern as to whether there is enough gold in storage to completely back up all of the outstanding ETF shares. Those who have an issue with these types of allegations should stick with physical gold (coins or bars). Since GLD is currently trading at roughly $186 per share (1/10th ounce of gold) some individual investors might be more interested in IAU from iShares which trades at $18.60 for (1/100th ounce of gold) as it makes round lot share purchases much more affordable.

There are also Leveraged Gold ETF and ETN options available for not only playing the upside but also capturing the downside of the gold market. UGL (2X long ETF) and DGP (2X Long ETN) both seek to replicate 200% of the daily price move in cash gold prices. The leveraged short gold etf – GLL (2x Inverse ETF) and DZZ (2x Inverse ETN) seek to provide 200% inverse correlation to the daily price movement of cash gold. In other words if gold fell 1% on a given day the goal of these funds is to rise 2%.

#4 – Purchasing Gold Stocks or Gold Stock ETFs

Gold stocks have long been a favorite way for investors to participate in bull moves in the gold and silver markets. Gold miners tend to be leveraged to the price of gold so in theory they can go up and down much more on a percentage basis than the actual price of the metal.

I tend to use the Gold Mining ETF (GDX) instead of choosing an individual company as past history has shown it’s difficult to pick the right one. Also, mining companies tend to be volatile along with mine results so company specific risk is a definite hazard.

If you crave even more volatility you can go with the junior miners which tend to be in the development stages and offer additional volatility. In this case I would definitely stick with the Junior Mining ETF (GDXJ) instead of trying to choose individual winners. Junior mining companies are capable of dropping 50% or more with very little warning so they tend to be horrible investments for the average investor.

For those who want to trade a Leveraged version of the gold stocks Direxion now offers a Triple Leveraged (3X Long) Gold Stock ETF trading under the ticker symbol NUGT and a 3X Short version – DUST for those who want extreme volatility. These are designed to be trading vehicles and are definitely not designed for buy and hold investors.

There you have it. These are the 4 basic ways that individual investors can go about investing in gold. Each way has it’s pros and cons so you simply have to decide which is right for your situation!

At this point I’m keeping lots of cash on hand until we see how this plays out. Looking at the German DAX it’s very possible that Europe is going to continue to drag us lower. Our financials are once again taking a beating and it seems there is no catalyst in sight that could turn them around.

When everyone comes back after Labor Day it’s going to be interesting to see if they are ready to buy or if they will continue to take off risk. If they take a look at the charts on Tuesday morning, they won’t like what they see.

For now it’s just to wait for more market direction. Many people are talking about a retest of the August lows as being the ultimate downside risk but unless we can stop penetrating the 1200 level on the downside, this market is on life support.

In order to avoid that, we will want to see the S&P 500 ETF close above $119.62 and the S&P 500 cash index above 1202. As I write this the S&P 500 cash index is trading at 1208 after climbing back above the moving average during yesterday’s huge rally. It is possible for this indicator to give a false signal but that doesn’t happen very often. As you can see in the chart above the severe Asian crisis related sell off in October 1998 closed right on the average and it continued to jab it in the weeks ahead before going back to new highs. This is what I’m hoping will happen in this case. You can see that last year the market was testing the 20 month average at the time Bernanke announced QE2. The successful test was the best buying opportunity of the year.

However when you look back at 2000 you can see that after breaking below the line in October 2000 it managed to close well above it. Then in November it took out the October lows before rallying back up to the line and failing. Again in January the highs were just below the line and that was the final tipping point.

If we close out the month of August above the line, I would like to see a retest of the line in September and have it hold. If it drops back below it next month that would be a sign of ongoing weakness. The market got fairly washed out in the first half of August so there really shouldn’t need to be more weakness unless there really is an underlying problem such as a double dip recession. That is what is ultimately going to play out if we do go into a second bear market move. The market normally leads the economy by 6 months, so if the market breaks down from here so will the economy.

I am currently long stocks and especially bullish on the Nadaq and the oil etf (XLE) as the energy stocks were literally pounded during this market decline. However, if we go back below 1200 I will be out of stocks. I would rather miss out on a rally than sit through a beating like the one we saw in 2008-2009. In fact, I’ll probably check out the short etf list and see if there are a few candidates to catch the downside.

However until the market fails you can see by the chart below that the Bullish Percentage for oil stocks recently reached 2 and is just coming off the bottom. This is why I’m bullish on energy stocks unless the bottom falls out of the S&P 500.

Warren Buffet is the most well known value investor of our time. His philosophy is to buy great companies when they are out of favor and hold them for very long periods of time. Buying companies like Coca Cola and Wells Fargo at times of uncertainty has proven to be a very good strategy for Warren and his company Berkshire Hathaway. This type of investing takes lots of patience which very few investors have. It also requires quite a bit of research that most casual investors aren’t willing to do. That’s why there are advisory services that focus on value investing as well as stock screeners.

One free service that I’ve used over the years to look for ideas is the Magic Formula approach by Joel Greenblat @ magicformulainvesting.com. This service tends to find out of favor companies that are trading cheap relative to cash flow. Right now it’s showing a combination of Large Cap Tech like Microsoft, Dell, HP, Applied Materials, KLA Tencor, Cisco and Analog Devices to name a few. Many of these large tech stocks are trading well below their highs over a decade ago despite growing their earnings over the years. Other candidates are companies who have erosion taking place in their markets like Unisys and Deluxe. There are also several Online Colleges in the bunch as they are extremely out of favor right now. One that I find interesting is Dolby another is Forrest Labs as Carl Ihcan has been rattling the cages at this company for awhile now. Gamestop also makes the list as well as defense contractors Northrup Grumman and Raytheon which are out of favor due to pressure on government spending. There are also some chronic entries on the list such as ViroPharma which has been on this list for years!

There are ways to play value using ETFs as well, if you look at the Technology ETF space you will see that all of the large cap oriented funds contain several of these undervalued companies. Large cap tech as a whole is probably the most undervalued sector of the market.

In 2000, it was small cap value that was severely undervalued as all the focus was on Large Cap Tech and the Nasdaq 100 so its funny how times change. The Small Cap ETF – IWN focuses on value stocks and has been a superior performer the past decade as you can see by the chart below comparing it to the S&P 500 ETF.

The hard part about value investing is that you have to learn to be a contrarian and buy when others are throwing away the stock. It takes lots of discipline but can be extremely rewarding.

Why Invest In Oil?

The Top 2 reasons are to Make Money and also to to protect yourself from rising prices (Hedge). The downside of a large flow of investment capital into oil is that there are far reaching consequences when oil gets driven beyond it’s reasonable price. It makes the cost of transportation more expensive driving up the cost of almost all goods, especially food. In order to protect yourself from rising prices you may want to invest in oil or even a Gas ETF – UGA. UGA rises and falls with the price of gasoline which is the one that affects us the most on a daily basis.

What Is The Best Way To Invest In Oil?

For the average investor who wants to hold their investments for a prolonged period of time I have found it best to go with an Oil Stock ETF instead of the futures based Oil ETFs. Over longer periods of time these ETFs almost always outperform the oil futures ETFs like USO or OIL. Here is a chart showing the performance of USO (black bars) compared to XLE (brown line) since April 2006 when USO started trading. It’s easy to see that you would’ve done much better in the oil stocks than in the USO oil futures based etf.

For short term traders there are Leveraged ETF versions that also concentrate on the oil stocks. The first one is a Double Oil ETF (2x Leverage) that basically will go up or down twice as much as XLE on a given day. You don’t want to get in these unless you know what you are doing, they are designed for short term trading and not for holding long periods. This one is offered by ProShares and has been trading since January 2007 under the ticker symbol DIG. There is also a double short version that has the ticker symbol DUG.

Direxion offers a 3X Leveraged Oil ETF (Symbol ERX) for those of you who really want some leverage. This one is based on the Russell 1000 Energy Index and it really is volatile. Again, these ETFs are only for short term investing or trading and are designed for experienced investors. They also offer a 3X Short ETF that trades under the ticker symbol ERY.

If this is your first foray into Oil Investing I would definitely recommend starting with either XLE or XOP. Once you gain some knowledge you may decide you want to venture out into the other more volatile areas of the market. Another area that’s worth looking at is the Bakken Oil Stocks which are a collection of companies that are producing oil in the Bakken Oil Field located in Western ND and Eastern Montana. There is also a Bakken oriented mutual fund that specialized in this area (symbol ICPAX). This area is one of the fastest growing production areas in the world right now, so it’s worth a look!

Since we are going into the 4th year of a presidential cycle I’m still bullish on stocks, but as long as we are trading below the 20 month simple moving average I can’t be long stocks. The number for the S&P 500 ETF (SPY) is 119.33, so basically if we close the month of August below that number it’s a major warning sign for the market. Look what has happened in the past when we couldn’t get back above it ( Jan 2001 and July 2008) both failures preceded devastating 50% declines.

If we get back above 1200 on a closing basis it could lead to a huge short covering rally, so it’s the only number you need to watch.

Nibbling On Volatility

This morning I couldn’t help buying a couple things however. Gold is up another $50+ to new all time highs and the gold mining shares are mostly down, so I bought the gold mining ETF thinking it’s probably about the safest stocks around. Additionally I purchased the Inverse Volatility ETF (XIV) as the VIX spiked to 40 in early trading. Unless we are going into an all out 1987 or 2008 style crash volatility could easily peak in this area. XIV is designed to rally when volatility decreases and in my opinion is one of the surest bets when things get crazy. I never liked shorting volatility using futures because you can get hurt extremely bad in the short run (VIX spiked over 90 in 2008) but using an ETF you have a predefined risk. Even if the stock market loses 90% of it’s value volatility will eventually come back down to below 20 once it’s done trashing around. Additionally, volatility normally comes down long before stocks begin rising.

You can see it better looking at a 12 month chart from 8/4/2008 through 8/4/2009. Notice that the VIX peaked (near 90) in October 2008 but the S&P 500 didn’t bottom out until the beginning of March 2009. By the time the S&P 500 actually bottomed out the VIX had already fallen by nearly 50%.

This means that you can actually make money twice on a huge stock market decline. You can short volatility when panic is at it’s peak and then you can take some profits and use them to buy cheap stock when the averages finally grind out a bottom.