Putin backs off for now...

It's incredible that this huge company is still able to grow at a double-digit rate, and expects to be able to do so for some time. That's extremely rare. It's only possible here because it can participate in any business it wants. Most companies simply run out of ways to spend money when they get too big. If they still have a wonderful business (like the World Dominators), they just pay out bigger dividends. That's why you've seen Wal-Mart, Microsoft, ExxonMobil, and others doing huge dividend increases – sometimes 20% or more – in the past few years.

 

Berkshire is a better bet for investors than all those dividend-payers. It has an advantage those companies will never have. It can get into any business it wants. It can go around the world, buying businesses like holding company Marmon and manufacturer Iscar. It can buy big utility companies, like NV Energy, which supplies electricity for about 88% of Nevada's population. I remember a few years ago at the annual meeting, Buffett said he'd be able to invest $100 billion into the company's utility operation over the next 10 years. That's just one part of this huge company.

 

In other words, Berkshire can justify retaining and reinvesting 100% of its earnings. Very few companies can say that, but it's the absolute best way to compound shareholders' money. Berkshire is a huge company, with a market cap of almost $290 billion. Most companies that size can't be expected to grow much – let alone log the 18% increase in book value Berkshire turned in last year. Amazing.

Seth Klarman noted that those "born bullish," those who "never met a stock market they didn't like" and those with "a consistently short memory," might look to the positives and ignore the negatives. "Price-earnings ratios, while elevated, are not in the stratosphere," he wrote, stating the bull case.

 

"Deficits are shrinking at the federal and state levels. The consumer balance sheet is on the mend. U.S. housing is recovering, and in some markets, prices have surpassed the prior peak. The nation is on the road to energy independence. With bonds yielding so little, equities appear to be the only game in town. The Fed will continue to hold interest rates extremely low, leaving investors no choice but to buy stocks. It doesn't matter that the S&P has almost tripled from its spring 2009 lows, or that the Fed has begun to taper purchases and interest rates have spiked.

 

Indeed, the stock rally on December's taper announcement is, for this contingent, confirmation of the strength of this bull market. The picture is unmistakably favorable. [Quantitative easing] has worked. If the economy or markets should backslide, the Fed undoubtedly stands ready to once again ride to the rescue. The Bernanke/Yellen put is intact. For now, there are no bubbles, either in sight or over the horizon."

As we've explained, the best way to amplify our returns is to focus on those companies that are still in the pre-production life cycle. So the best call option on gold prices looks to be buying into the Donlin mine, via Barrick's partner NovaGold (NG).

 

We believe buying the Donlin mine is a fantastic way to amplify your returns as gold prices surge.

 

Donlin will be an open-pit mine. The project will look like a giant hole in the ground. This is part of the reason that Donlin has forecast an all-in production cost of only $735 an ounce. By comparison, the average all-in production cost for the industry is $1,235 an ounce.

 

Donlin's permitting process commenced in 2012 and is expected to take between three and four years. The project is situated on private land in southwest Alaska. Native Alaskans own the land. So far, they welcome the economic benefits that will come with Donlin's development. At this stage in the development process, Donlin requires between $30 million and $40 million of ongoing spending. This will continue until the permitting process concludes in 2016. Donlin's two owners – Barrick Gold and NovaGold – will split these annual costs.

 

NovaGold's market cap is around $700 million. At the end of the third quarter, NovaGold had $225 million in current assets and only around $20 million in debt. It also has a promissory note with Barrick for approximately $75 million. So the company has more than enough cash on hand to complete the permitting process.

Uranium is the fuel used in nuclear power stations. And like most commodities, it goes through huge cycles of boom... and bust.

 

From 2003 to 2007, uranium saw a huge boom. It ran from $10 per pound to $130 per pound. But a sagging global economy helped pop the bubble. Prices fell all the way back down to around $40 a pound in three years.

 

In 2010, uranium rallied... But then the tsunami hit Japan's Fukushima power plant in early 2011. Japan was one of the world's biggest consumers of nuclear power, but the country shut down more than half of its reactors. Several other countries also scaled back their nuclear programs.

 

Uranium prices collapsed to new lows...

 

When it comes to commodities, the saying is "the cure for low prices is low prices." Uranium spot prices are now so low that most uranium miners can't make money. Eventually, that will force producers to shut down. And lower supply will lead to higher prices. Most uranium producers aren't going to start making money until prices double.

 

Another catalyst for higher prices will be improving sentiment toward the sector. On Tuesday, Japan released a draft of its energy policy. It includes nuclear power in the mix... The country could soon restart some of its 48 idle nuclear reactors.

 

The news sent uranium to a new high...

I've argued for the past couple weeks that the technical setup in the gold sector is unfavorable for new purchases. Miners are up 15%-50% in two months. The big money wants to buy on pullbacks, not into an overbought sector.

 

But every time the Market Vectors Gold Miners Fund (GDX) drops even a few pennies, buyers step up almost immediately. That's preventing a more significant pullback from occurring.

 

Here's an updated chart of GDX...

 

 

The rally in the gold sector really kicked into gear in January when the nine-day exponential moving average (EMA) crossed over the 50-day moving average (DMA). For the past couple weeks, though, GDX has been consolidating at resistance around $26.50. That matches up with last October's highs.

 

Rather than declining toward the support of the 50-DMA, GDX is marking time and giving the 50-DMA time to rally toward the current price.

 

That's bullish action. It tells us that GDX may be ready to make a run up toward the $30-per-share target price – its August high – sooner rather than later.