Casey Files:
Crisis Investing: Tactics
for Today
by Louis James
Senior Editor Metals Division, Casey Research
Mar 27, 2009
The storm we have so long tried
to help readers prepare for is upon us. We've been calling for
crisis for years now, detailing our case for its imminence with
increasing urgency over the last two years, urging people to
"rig for stormy weather." And now, as people around
the world are so painfully aware, it's here.
We've been sounding the alarm
at least as far back as August of 2005, with our "Profit
from the Collapse of Western Civilization" issue of the
International Speculator.
We wish more people had taken us seriously back then, and during
subsequent warnings and financial calls to action.
As we watch the debacle unfold
and people who should know better take huge losses, we are often
beside ourselves with exasperation. Did people think we were
kidding? Exaggerating? Well, maybe they did, or maybe they thought
we might be on to something, but the magnitude of the problems
we were predicting just seemed too great to take seriously. In
all fairness, who would have believed back in 2005 that in 2008
the U.S. would see cascading bank failures and de facto
nationalization of major financial institutions?
Well, we did. And those who
listened then have profited. But even newcomers should remember
that a genuine crisis won't be easy for anyone, not even us.
The bailout plans, for example, are worse than robbing Peter
to pay Paul, they're robbing Peter to pay Peter - with a hefty
transaction fee for the service. Faced with such lose-lose propositions,
you have to batten down the hatches, plug all the leaks, and
hold on tight.
And holding on to - or backing
up the truck on - gold and gold stocks is definitely the right
thing to do at this time.
Homestake Mining Company (now
part of mining giant Barrick Gold, NYSE.ABX) demonstrated this
during the Great Depression. For more than 100 years, the company
operated the Homestake mine in South Dakota (ever watch the "Deadwood"
TV series?). In 1935, right in the middle of the Great Depression,
Homestake recovered enough gold to make $11.39 million in net
income, a record that stood for nearly 40 years - and that was
at a time when the U.S. Government had set the price of gold
at $35 per ounce.
Homestake shares showed some
volatility, but weathered the great stock market crash of 1929,
ending the year slightly up. From 1926 to the end of 1935, they
went ten-to-one, soaring from $50 to $500. With fluctuations
as you'd expect, they held on to those gains until taking off
again during the 1970s bull market for gold. We have companies
in our portfolio now that could do the same thing.
And remember, gold is the ultimate
financial safe haven.
The dollar is being debased
at a mind-boggling pace. The economic fallout is affecting the
EU and could cause the euro to bust apart at the seams as well.
At a time when serious market malaise has people fleeing to cash,
cash has become a minefield. Even money market funds are "breaking
the buck," delivering losses on the one refuge seen by many
investors as a "sure thing." Anyone who thinks about
it can see what that must mean for gold and gold stocks.
What to Do
The gold price has recovered
considerably in the last few months, lighting a fire under our
whole sector. We would not want to be caught short of any great
stocks that are positioned to maximize returns during the Mania
phase of this market - or interim bull rallies that can charge
upward at any time.
Our essential stock recommendation:
- If your cash for speculative
investments is fully committed, make sure you are in the best
of the best companies, and then sit tight.
.
- If your cash for speculative
investments is not fully committed, back up the truck for the
spectacular deals still available right now.
We'd liquidate any mainstream
investments that leave you exposed to the current financial crunch
or that can be expected to do poorly in a weakening economy.
It also wouldn't hurt, and just might save you a great deal of
discomfort, to keep enough cash at home (or some other safe place
that's not a bank) for you to cover your living expenses for
a month or two.
And buy gold.
We're recommending that you
rebalance your portfolio to 33.3% physical gold (or very solid
proxy for larger amounts, like Perth Mint Certificates), 33.3%
cash, and 33.3% gold-related stocks - from major gold producers,
as featured in our BIG
GOLD newsletter, to junior gold explorers, as recommended
in International
Speculator -- undervalued energy stocks, select agricultural
investments, inverse financials, and similar things that can
reasonably be expected to do well through the crisis.
Neither we nor anyone else
can tell you exactly when the dollar will go up in smoke, but
anyone can see that it's smoldering. The current crisis could
take it a long way towards its intrinsic value (zero) in very
short order. If you bought gold at $800 the last time we said
this, you should be a happy camper, but don't let that stop you
from beefing up your gold position.
At over $900, gold is still
relatively cheap - it's only $338.50 in 1980 dollars (using the
U.S. Government's much understated CPI stats). It has a long
way up to go, but that's not the only reason to own it.
Gold is the one asset you can
own that - no matter what else happens - won't go to zero. The
same is true to varying degrees for other metals and commodities,
but especially true of gold. Anything else is paper, whether
it's dollars, futures, or even gold stocks - it's still paper,
and all paper can go to zero.
In times like these, the speculative
upside of owning physical gold is spectacular - but the ability
to sleep sounder at night knowing you own a significant chunk
of something with intrinsic value is priceless.
What happens if other asset
classes do drop close to zero? Why, we cash in and buy with both
hands, of course. Blue chips for pennies on the dollar would
get our attention, as would prime commercial real estate and
many other investments that should be near bottom even as gold
nears its top.
We've warned repeatedly for
investors to hold on to their hats. We now think we've underestimated
how very rough this ride is going to be. Never mind the hats;
hold on for your financial life.
***
This may be the financial roller
coaster ride of your life, but if you make the right choices
and go with the flow, you can still come out ahead. The International
Speculator shows you how, with handpicked, top-quality junior
exploration stocks... stocks that have already started to move
up, following the rising gold price. If you are ready to assume
higher risk for exceptional returns, click
here to learn more.
Or, if you're a more conservative
investor whose primary goal is to keep your assets safe and achieve
moderate returns, check out BIG GOLD -- click
here for more.
###
Casey Archives
321gold Ltd
|
