Buy Yamana Gold (AUY)

I’d use today’s drop in gold and gold mining stocks on strength in the dollar to buy Yamana Gold (AUY). As of 1:30 New York time shares of Yamana Gold were down 4.01%.

I think the strength in the dollar is temporary due, first, to this morning’s announcement by the European Central Bank that European banks had borrowed 530 billion euros under the central bank’s new three-year loan facility. That means the central bank has added 1 trillion euros to its balance sheet since December. The central bank’s balance sheet now stands at a record 2.74 trillion. The currency markets, rightly, feel that this expansion is inflationary down the road.

The dollar’s strength is due, second, to disappointment in this morning’s testimony by Federal Reserve chief Ben Bernanke that the U.S. central bank wasn’t thinking about another round of quantitative easing that would pump more dollars into the U.S. money supply.

On a day when the European Central Bank adds 530 billion euros to its money supply, the Fed seems like a paragon of strong money.

Of course, that’s not really true. The Fed remains committed to 0% interest rates through 2014 and the U.S. government’s fiscal deficit continues to build up debt—and add to the money supply.

Before today’s drop, the U.S. Dollar Index was sinking toward a test of resistance at its 200-day moving average and gold mining stock (represented by the Market Vectors Gold Miners ETF (GDX)) had moved above its 200-day moving average.

In other words, with the dollar falling, gold and gold mining stocks were moving to new highs. I think that pattern will resume after a brief interruption. Read more

More evidence that Brazil’s domestic economy and its export sector are headed in different directions at the moment.

Yesterday the Banco Central do Brasil reported that economic activity in Brazil climbed by 0.57% in December from November. That’s the second monthly increase in a row after growth stalled in the third quarter with the period essentially flat with the second quarter. (Year-to-year growth in the third quarter fell to 2.1%).

The news wasn’t nearly as positive from Vale (VALE), the world’s second largest mining company. (Vale is a member of my long-term Jubak Picks 50 portfolio http://jubakpicks.com/jubak-picks-50/ .The iron-ore exporter reported that fourth quarter net profit fell 20% from the fourth quarter of 2010. Sales during the quarter were down 1.2% on lower iron ore prices. After staying stable from April through September, iron ore prices have taken a dive with the Tianjin spot price in China falling to $116 a metric ton in September from a peak of $181 in July.

This is Vale’s third straight quarterly earnings miss. For the fourth quarter, the company reported earnings of 90 cents a share versus the Wall Street consensus of 95 cents a share.

Besides the 19% drop in the average selling price for iron ore from the level in the fourth quarter of 2010, Vale got hit with falling copper (down 16%) and nickel (down 20%) prices.

If you’re looking for a reason behind the price drops, you don’t need to look any further than the decline in growth in Europe from the effects of the euro debt crisis. Read more

Now that oil is a long way from the $145 per barrel peak it hit in July 2008 and nobody on Wall Street is predicting, as Goldman Sachs did in 2008, that oil is headed to $250 a barrel, we’re not hearing much about peak oil anymore.

The peak oil model, initially developed by oil geologist King Hubbert and which accurately predicted a peak in U.S. oil production between 1965 and 1970, says that the production from an oil field grows exponentially over time, then peaks, and finally declines. The model has been applied to individual oil fields, national oil industries, and global oil production. Back in 2008, the fiercest proponents of peak oil as a global model were predicting that the world would start running out of oil sometime around 2020.

Now that the world is awash in oil, the only people talking about peak oil are its opponents, who are dancing on what they depict as the grave of what they call a “theory” that was never worth the graph paper it was plotted on.

Well, I still think that the peak oil model is the most useful description of what we see happening in the oil industry today—even if West Texas Intermediate, the U.S. benchmark, closed at a twitch under $100 a barrel on Friday, February 3. (Brent crude, the European benchmark closed at $114.58.)

And, I’d go on to say that the peak oil model is the best way to understand what’s happening to the prices of other commodities, especially copper.  (Full disclosure: I predicted that oil would go to $180 a barrel shortly before it began its collapse from the $145 a barrel high in 2008. And full, full disclosure: The only one predicting $250 a barrel oil right now is Iran, which is threatening that prices will reach that level if developed economies impose tougher sanctions on the Iranian economy in an attempt to slow or stop that country’s development of a nuclear bomb.)

And I think it’s even useful for thinking about how to invest in commodities such zs iron ore that, currently, don’t fit the peak oil model at all.

Let me explain why I still find so much value in this “discredited” theory. Read more

On Wednesday, January 25, the U.S. Federal Reserve said it would keep interest rates at their current exceptionally low level until the end of 2014. Forget about the middle of 2013, which seemed extremely far away when the Fed made that “guarantee” in August. And forget about the beginning or middle of 2014. Now the Fed is talking about the end of 2014.

Almost three years from now. Three years with short-term interest rates near 0%.

Let’s cut straight to the chase for investors: Who wins and who loses from this extraordinary statement of policy by the U.S. central bank? Read more

Sell Titan International (TWI)

On December 9 Titan International (TWI) told Wall Street to expect sales for 2011 to be around $1.4 billion (that’s slightly below the Wall Street consensus of $1.48 billion) and 2012 sales of $1.7 billion to $1.9 billion (the Wall Street consensus for 2012 stood at $1.82 billion)

Nothing wrong with those numbers—or with Wall Street’s estimates of a whopping 194% increase in earnings for 2011 from 2010 or with the 59% earnings growth rate projected for 2012.

But as anyone who bought this stock when I recommended it in my Jubak’s Picks portfolio http://jubakpicks.com/the-jubak-picks/ on July 1, 2011 knows, Titan International is an extremely volatile stock that rises and falls with fear and hope about growth and earnings in the commodities sector. Since that purchase date the stock has traded as low as $13.83 on October 3 and as high as $24.81 on January 24. That’s not unexpected of a company that sells tires to the makers and users of giant earth moving equipment used in mining (as well as tires for farm equipment and construction), but it does give me pause. Read more