Weekend Edition
The Best of The S&A Digest
December 12, 2009
 From a reader: Let's guess that gold gets to $4,000 per ounce. Do you sell your gold or gold stocks? $5,000 per ounce? $6,000 per ounce? $15,000?... I think your readers would like to hear what the exit strategy is!
In truth, I will never sell my gold coins. They are how I measure my own wealth. Asking when I will sell them is like asking me when I would decide to become poor. That's never going to happen.
In regard to the speculative positions I hold that are designed to hedge my exposure to the U.S. dollar, I would close out my hedges when the U.S. central bank decides to run a sound currency.
How could you fix the dollar? Simple, really. You have to do two things. First, you'd return the dollar to a de facto gold standard by using monetary policy to target money supply. You'd limit the supply of new dollars to real increases in productivity.
Second, you'd begin to pay a market rate of interest on U.S. Treasury securities. Without the power to print more money, the U.S. would be, at best, a junk credit. Therefore, you'd expect to see 12% coupons or better on long-dated U.S. Treasury securities. Ha ha ha... Right? It'll "never happen," right? Oh yes it will. Sooner than anyone expects, too.
From a reader: Talked to a friend working at BlackRock... She told me she was bearish on the dollar, just as all the other economists. Hummm, now, I think that in the next 12 months, I'm with Tom on this one... USD up!
Good luck with that trade... Before you lever up, you might ask yourself what the Fed is going to do when another $1 trillion worth of home mortgages blow up this year... when $1 trillion worth of commercial mortgages come due in 2011... when China decides to stop buying Treasuries. The U.S. dollar is a one-way bet, my friends.
In my latest issue of PSIA, I tell readers the absolute best way to prepare for the collapse of the U.S. dollar. My latest prediction will be even bigger than my calls on GM, Fannie, and Freddie. I think this is the best newsletter I've written in my entire career. To access my latest issue, click here.
In his December letter to investors, PIMCO's Bill Gross laments his cash's 0.01% yield. Gross says at that rate of return, it would take 6,932 years to double his money.
Even if you don't think the dollar is doomed, you must face the fact that you're still losing money after inflation by holding it. And it doesn't look like the situation will change any time soon, either...
This week, Fed Chairman Ben Bernanke said he will keep interest rates near zero for "an extended period." Bernanke said the U.S. economy faces "formidable headwinds" despite recent signs of strength (unemployment down, commodity prices up). He's reluctant to prematurely hike rates.
You see, the Fed can't raise interest rates. If it did, the government couldn't afford its debt. Instead it will keep rates low and inflate its problems away.
Surprisingly, gold dropped this week. Once all the new converts are shaken out of the precious metal, it will be time to start buying again.
Royalty companies, like International Royalty, are the best way to gain leverage to gold or other precious metals. If you've never seriously looked at owning these kinds of stocks, I'd urge you to take the time to sit down and figure out how they work.
For example, take a look at one of S&A Resource Report editor Matt Badiali's favorite recommendations. It holds royalties on 17 different mines. And it's buying production at a 38% discount to market value. This company's performance is highly leveraged to the price of gold – so when gold prices increase, these shares will soar.
"It's taken all of recorded history, but this year China finally looks set to overtake India as the world's number one gold consumer." That's according to a December 8, 2009, Reuters article. This is the first time since the Roman age that India wasn't the world's largest gold consumer.
Following a rough monsoon season, Indians reduced their gold consumption this year. At the same time, the Chinese government encouraged its people to buy gold. China's gold consumption is up 8% year to date, enough to take the number one position.
China is worried about the value of its massive U.S. dollar reserves. That's why the Chinese government and its citizens are plowing their cash into gold. Badiali has been following the China gold craze for months. He has recommended a handful of stocks that will benefit the most from China's buying. To read more about the China's gold rush, click here.
Regards,
S&A Research
Stansberry & Associates produces the daily S&A Digest, which comes free with a subscription to one of our premium products. To learn more about a risk-free trial subscription click here. |
|
|
S&P 500 |
|
|
Gannett |
GCI |
+25.15% |
Interpublic Group |
IPG |
+12.89% |
CIGNA |
CI |
+10.63% |
Countries |
|
|
Chile |
CH |
+0.46% |
Israel |
ISL |
+0.26% |
Taiwan |
EWT |
+0.24% |
Sectors |
|
|
Media |
PBS |
+3.45% |
Utilities |
XLU |
+2.09% |
Telecom |
IYZ |
+1.34% |
Commodities |
|
|
Natural Gas |
- |
+17.55% |
Aluminum |
- |
+3.11% |
Nickel |
- |
+1.66% |
|
S&P 500 |
|
|
Kroger |
KR |
-10.84% |
Kimco Realty |
KIM |
-9.79% |
Supervalu |
SVU |
-8.69% |
Countries |
|
|
Ireland |
IRL |
-4.76% |
Spain |
EWP |
-4.21% |
Austria |
EWO |
-4.03% |
Sectors |
|
|
Gold Mining |
GDX |
-3.85% |
Gambling |
BJK |
-3.34% |
Real Estate |
IYR |
-2.75% |
Commodities |
|
|
Silver |
- |
-10.14% |
Gasoline |
- |
-7.88% |
Gold |
- |
-7.56% |
Source: Bloomberg, Yahoo, StockCharts, XLQ 12/3–12/10.
|
|
