PSB Portfolio Update September 2012

Central Bank Stimulus “Stimulates” The Markets

Well my friends, for the first time in recent memory, both the ECB and Fed delivered on their big talk.  And boy did it send the markets flying higher.

In fact, both the Dow Jones Industrial Average and S&P 500 indexes rallied to new 4½ year highs on the news!  And the run is all due to the European Central Bank and the Fed providing big stimulus.

Let’s quickly recap…

In last month’s update, I talked about a breakout being eminent.  I said if the ECB and Fed could deliver on their “big talk”, we’d see markets at new highs.  And right on cue, they delivered.

First, it was the ECB with their sovereign debt bond-buying program.  This new plan was able to instantly lower the outrageous interest rates a number of countries were paying on their debt.  Basically, the ECB took a huge amount of risk out of the market- place by doing what they did.

But the truly big news came last week.

The Fed rolled out QE3 “unlimited” as it’s being nicknamed in the media.  The reason for the nickname is that Chairman Bernanke said the Fed would continue buying $40 billion in MBS each month for “as long as necessary”.

What the Fed is looking for out of this round of QE is an improvement in US employment. That’s why we have the open-ended language.  This gives the US central bank the ability to remain flexible in their approach.

It also helps to prevent the market opportunists from timing the end of the program.  Short sellers basically won’t be able to sabotage the Fed’s efforts to buoy the markets until the recovery takes hold.

It’s a win for bullish investors, and a win for the US economy!

If employment improves notably, you can bet we’re going to see the Fed start to change their language regarding the “open ended” nature of the stimulus program.

But in the near future, we can expect the markets to continue higher until substantial improvements are visible.  The Fed is predicting that could happen sometime in 2014 or 2015.

The next big economic step forward is for the US to resolve its fiscal woes.  That starts with Congress actually fixing the “fiscal cliff”.  Let’s leave that discussion for when we have more time.

Now on to the position updates…

Position Updates

Please Note:  We don’t necessarily update every open position each month.  We focus on the positions experiencing significant news, notable price movement, or a change in recommendation.  Please refer to the Performance page on our website for our current buy, sell, or hold recommendation for any positions not mentioned in the Update.

. . . . Golden Star Resources (NYSE: GSS) – HOLD

Gold mining stocks have been on an impressive run as prices for the precious metal have swelled.  And it’s all due to the recent economic stimulus from central banks across the globe.

Better still, Thompson Reuters GFM is advising central banks will have increased their gold holdings by 7.9% this year… buying up 493 metric tons.  For investors in gold mining stocks, this is very bullish news.

As a result, our trade is already up by nearly 29% in just two weeks!

Since this is just the beginning of gold’s big move higher, continue holding shares of GSS for bigger gains.

. . . . Great Panther Silver (NYSE: GPL) – HOLD

In addition to strong fundamentals, Great Panther Silver is a must own company in a pro-stimulus environment.  In fact, our trade is up by more than 21% in just two weeks. Congrats!

Recently GPL purchased the El Horcon Silver-Gold mining project for $1.6 million in cash. Yes, in cash… and they still have no debt.  That’s going to boost revenue and no doubt increase profits in the process.

Silver can run hard and fast in a pro-stimulus environment.  So let’s continue to hold shares of Great Panther for bigger gains to come.

. . . . Aceto (NASDAQ: ACET) – HOLD

Here’s a company that’s really benefiting from the recent stimulus announcements.  Basic materials companies, like Aceto, are poised to see revenue rise as growth picks up.  And that’s what monetary stimulus is meant to do… stimulate growth.

In addition, the company has just announced a new CEO to keep the company running at 100%.  Better still, they’ve paid out a tasty little dividend to shareholders.

Let’s keep holding shares of ACET for more dividend income and share appreciation as growth picks up steam.

. . . . Metalico (AMEX: MEA) – HOLD

Metalico shares have continued to rebound from their sub $2 level.  And after QE3, shares of this metals recycler saw gains accelerate.  We’re now back in the black on this trade and beyond our buy up to price.

Between global stimulus encouraging growth and the housing market itself rebounding, we should see gains continue for some time in Metalico.

Continue holding shares of MEA for even greater gains.

. . . . Carriage Services (NYSE: CSV) – HOLD

Carriage Services just can’t stop making new highs lately.  In fact, the stock traded as high as $10.40 recently.

Now, we’ve reached our $9.40 price target.  Under normal market conditions, we would sell this stock for a fat 90% profit.  But as the saying goes… let your winners run.  And that’s exactly what we’re going to do.

If fundamental or market conditions change, I’ll be sure to update you when to sell.  For now, keep holding Carriage Services as this rally continues.

Action To Take

• Move Golden Star Resources (NYSE: GSS) from a Buy to a Hold.
• Move Great Panther Silver (NYSE: GPL) from a Buy to a Hold.
• Move KSW (NASDAQ: KSW) from a Buy to a Hold.
• Move Metalico (NYSE: MEA) from a Buy to a Hold.