Investment Summit - Ajijic, Mexico

Dudley Baker
PreciousMetalsWarrants
December 13, 2005

Seven (7) Americans and Canadians recently gathered in Ajijic, Mexico for our 3rd Annual Investment Summit, to discuss the world economic situation, present individual views and, more importantly, to express opinions on how the various asset classes will be impacted in the next year and how to invest accordingly.

It is interesting to note that the 7 participants (4 from the USA, 2 Canadians, 1 from England originally) all live abroad - 6 now live in Mexico (Ajijic and elsewhere along the shore of beautiful Lake Chapala, south of Guadalajara) and one in Mendoza, Argentina next to Chile in the shadow of the Andes mountains. They are all retired (ranging in age from 50 - 70) and living comfortably on pensions and/or investments. Our investment philosophies differed greatly and some were much more conservative than others but all had one thing in common: they were extremely well read in "matters of money" and the various asset classes and on the global economy in general. In addition to traditional financial publications such as the Wall Street Journal, the Globe & Mail's Report on Business, and the Financial Times, we all subscribe to one or more of the following financial newsletters:

The Dines Letter - Jim Dines
Casey Research - International Speculator - Doug Casey
The Aden Forecast - Pam & Mary Anne Aden
Zeal Intelligence - Adam Hamilton
Silver-Investor -David Morgan
Precious Metals Warrants - Dudley Baker
Freemarket Gold & Money Report - James Turk
Resource Opportunities - Lawrence Roulston
Change Wave - Tobin Smith
J. Taylor Gold & Technology Stocks - Jay Taylor
The Shepherd Investment Strategist - Jim Shepherd

[Editor's note: No one reads Russell or Harry Schultz? Shame on you! Heck they are The Best of The Best. You guys can get a 2-issue Russell trial for $1. And if you spend a coupla mins. watching Harry's super giraffe video you can get a sample of the Harry Schultz Letter for FREE! click. Pardon me but I couldn't help adding this, Dudley. You and the other 6 need to rectify this. And PRONTO!]

Almost immediately, the group began speaking of the importance of Energy in our portfolios. Of course, I am thinking, what the heck is going on here, we have come to discuss the precious metals, right?

Energy

The importance of having an Energy exposure to our portfolios was much more evident this year. Several of the participants had significant positions in numerous Canadian Energy Trusts which have done extremely well and we all saw nothing to change this view for the future. Most agreed we should have exposure to the Uranium stocks as an alternative source of energy given the importance being placed on them by Jim Dines and Doug Casey, among other analysts. Interestingly, one participant even owned a small position in warrants on one of the uranium companies.

Talks went to the Canadian tar sands and oil & gas stocks and most agreed these represented a very attractive venue for some of our investment dollars. Coal used in the fabrication of steel and generation of electrical power, as well as, the more exotic liquids and gases, were also viewed quite favorably.

Our consensus view was that the price of crude will probably continue to increase to upwards of $100 per barrel with what we see as a very explosive geo-political situation in the Middle East. With so many potential problems, currently on the horizon it seems improbable that crude will decline back to even $40 per barrel for many years.

In summary, the participants had a 10%-50% exposure to the energy sector.

Bonds

There was little excitement for this asset class but nevertheless 2 of the more diversified participants had sizeable holdings - one at 60%, the other 15% - even though they and all the others agreed that inflation was ramping up and that it could well climax into a short-term hyperinflationary spiral before collapsing into a period of deflation. As such it was felt that there were places in more conservative portfolios for a variety of short term, long term (30 year) government (U.S. or Canadian) bonds and inflation protected bonds be they TIPS (U.S.) or Real Interest Bonds (Canada).

Real Estate

Our consensus view was that yes, real estate is in a bubble at least in many of the large cities and on both coasts in the United States, Canada, Europe and even here in Ajijic, Mexico. Only 2 of the 7 currently own residential real estate and the properties are here in Ajijic. These properties were rationalized because they were bought at an exceptionally low price several years ago and/or acquired on very favorable terms, which is very rare here in our community. Home mortgages are extremely rare in Mexico, and of course, none of those exotic mortgages, north of the border here, just your check book.

Most of us agreed this is a time to be a seller of real estate rather than a buyer and that we will have much better buying opportunities in a few years, wherever we reside at that time. One participant spends most of his time in Argentina and no doubt will eventually purchase property there. You may recall that Doug Casey often speaks very favorably toward Argentina, among other locations in the world.

Financial Markets

As a group we were rather negative on the financial markets, i.e., the DJIA (Dow) and S&P, etc. Most of us shared the view that the markets are on borrowed time before a major collapse. Some of us held the view of the 1:1 relationship, being the DJIA and Gold will in the future once again be at the same price. For example, the Dow and Gold both at 3,000. This 1:1 ratio happened before in January 1980 with the DJIA at 800 and Gold at $800. Remember? As such, we believe it may occur again in the not too distant future. Surprisingly, there was very little conversation on the financial markets as the general consensus was this was not the place to be investing at the current time.

Precious Metals

Five of the seven participants were strong believers in having a significant position in the precious metals. So, what does that mean? Well, it depends.

One participant was 80% invested in the small mining companies and warrants while one of the more conservative participants was only 10% currently invested in the precious metals but was considering a spread of numerous warrants on the larger mining companies which would increase his exposure to the precious metals arena and add significant leverage potential. Of the other 3 "believers", two were 50% invested and one 40% invested in the precious metals.

Several participants had positions in the Central Fund of Canada ( a gold and silver bullion fund) most agreed that the World Precious Minerals Fund (part of the U.S. Global Investors, family of no load mutual funds) and Sprott Gold & Precious Mineral Fund, part of the Sprott Asset Management, (in Canada) are two of the best managed funds and should be considered by any investor in lieu of making their own individual decisions on precious metals and energy stocks.

The other 2 participants did not feel compelled to purchase the precious metals and one felt that gold would probably not exceed $550 per ounce for several years. Both of these individuals also shared the view that "all is well" in the United States and were not troubled by the disturbing deficits and geo-political risks that greatly concerned the other 5 participants. Nevertheless, these individuals are heavily positioned into the energy trusts and have done extremely well in the past and may be opening their eyes to the idea of a small position in the precious metals.

We asked the group for their projections for gold for the coming year, 2006.

Our range was from a low of $550 per oz to $800 per oz. Interestingly, James Turk (GoldMoney.com and Freemarket Gold & Money Report), is looking for a high of $900 in 2006.

A poll was taken on the projections for the ultimate high gold price and the year in which it would occur. (Don't we all wish we could be smart enough to see the future)? Well, here goes. Opinions varied from $1,000 - $1,200 in 2009/2010, $2,000 per oz in 2010 and as high as $3,650 by early February 2014, (Damn, what does this guy know? I'll have what he's been drinking!)

Cash

Sometimes we often overlook the importance of maintaining some cash in our portfolio to use for future investments or as a means of a currency hedge. The question then becomes one of "which currency"? Our Canadian participants have fared very well and continue to do so as the Canadian currency has been one of the strongest in the world. We believed this to be so because of the stronger Canadian economy (absence of budget and trade deficits) and Canada being recognized as a Natural Resource economy with major energy reserves.

The U.S. participants are looking for investments outside of the U.S. Dollar. We believed that for U.S. citizens investing in the Canadian mining shares and/or warrants will result in both capital appreciation as well as the possibility of continued currency gains.

Other thoughts are to diversify out of the U.S. Dollar by using EverBank to switch into different currencies and even CDs in other currencies.

As we were wrapping up our discussions and possible venue for next years "Summit," we couldn't help but wonder what it would have been like to have Pamela and Mary Anne Aden, Jim Dines or Doug Casey involved in our discussions. What a treat that would have been and something to think about for next year.

Dec 13, 2005
Dudley Baker
Guadalajara/Ajijic, Mexico
email: info@preciousmetalswarrants.com
website: www.preciousmetalswarrants.com

Disclaimer/Disclosure
PreciousMetalsWarrants.com is not an investment advisor and any reference to specific securities does not constitute a recommendation thereof. The opinions expressed in this report are the express personal opinions of Dudley Baker. Neither the information, nor the opinions expressed should be construed as a solicitation to buy any securities mentioned in this Service. Examples given are only intended to make investors aware of the potential rewards of investing in Warrants. Investors are recommended to obtain the advice of a qualified investment advisor before entering into any transactions involving stocks or Warrants.

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