It's a little scary when, suddenly, the conclusions you've reached about economics and politics stop sounding completely outlandish. We've been writing about the dangers of paper money for more than a decade. We've said gold was going to $1,000 or more for just as long. And we warned about the outrageous growth of our government and its debts, too. We'd become used to being ignored and even ridiculed.
But now... suddenly it seems... gold is more than $1,000 an ounce, GM is bankrupt, half a million people marched in Washington to protest the government, and Congress is threatening to audit the Fed... It's awfully hard to be a contrarian when everyone agrees with you. Mnnnnn...
It sure seems like gold is about to go on a tear. Even Cramer is recommending it on CNBC. That is surely a sign of a top, not a bottom, in the market for gold. Here's another thing to consider. It's a chart of the S&P 500 plotted in terms of gold. It shows how cheap or expensive gold is to stocks and vice versa.
Let me ask you a question... Wouldn't you rather be a buyer of stocks when they're cheap relative to gold, like they are now? And wouldn't you rather be a buyer of gold when it is cheap relative to stocks?
When it comes to gold, let me offer you this warning: The gold ETFs – and now there are several – have become the largest buyers of the metal. This suggests small investors are piling into gold. Here's something to ask yourself: When these ETFs move to sell their gold stockpiles, who will buy from them?
I believe we're about to cross over into the mania phase of the gold bull market. The price of gold will probably double or even triple from here. It's too soon to sell, I agree. But you had better not try to wait for the very top. Because when it arrives, there will be zero liquidity. The ETFs will have to dump gold by the ton. And it won't be pretty.
We wrote it, and Buffett agrees...
The last time we saw homebuilders this scared about their business was in late 1990. After that, shares of homebuilders rose fivefold in two and a half years. It turns out, homebuilders have gotten even more scared... and they've stayed scared... for a long time now. Homebuilder pessimism like what we're seeing now – in both duration and depth – is unprecedented. I still believe, at some point, we'll make many hundreds of percent gains here. – Steve Sjuggerud, True Wealth, August 2009
Despite his reticence toward the overall economy, Buffett, like Sjuggerud, is bullish on residential real estate... "We're through the worst of it in residential real estate in all probability," he told CNBC. "And the reason is we're building a lot fewer houses and we're forming households, so that solves itself over time." Buffett has positioned his portfolio to gain from the housing rebound by buying shares of Wells Fargo – the nation's largest mortgage lender. He also holds Clayton Homes, a carpet company, and several other businesses that will profit from a rebound in housing.
In his latest issue of True Wealth, Sjuggerud made two recommendations to take advantage of the rebound in real estate. One is the holding company for a billionaire investor with large interests in international real estate. Readers have already made 38% on that recommendation.
Steve's other recommendation is his favorite way to play the rebound in the U.S. housing market. He expects readers to double or triple their money over the next two years. Readers are already up nearly 8%, but these shares have much higher to soar. To gain access to Steve's recommendations and learn the best way to quickly make two to three times your money, click here...
And you can add Buffett to the commercial real estate (CRE) bear camp, as he expects "unusual losses" for both CRE and credit cards – a major problem for Buffett considering his massive position in American Express. We've been covering the meltdown in commercial real estate for months, with Dan Ferris as our head foreteller. He's done more research on the topic than anyone we know. When the downturn hits, his short recommendations will be hugely profitable. For Dan Ferris' favorite way to profit from the coming collapse of CRE, click here...
In yesterday's Digest, we told you to check out the Daily Crux's interview with Casey Research's Jeff Clark. As the editor of Casey's Gold & Resource Report, Jeff is one of the most knowledgeable gold investors in the world. He gave us the insider's take on the market's best bullion dealers, how and where to hide your gold, and two easy ways to store your gold abroad.
Unfortunately, we gave you the wrong link. If you'd like to read the Daily Crux interview, click here.
If you don't think gold is entering a mania phase... just look at the new high prices...
New highs: Morgan Stanley Emerging Markets (EDD), Seabridge (SA), Hatteras (HTS), Annaly (NLY), Market Vectors Gold Miners ETF (GDX), iShares High Yield Bond Fund (HYG), Visa (V), Kinder Morgan Energy Partners (KMP), Markel Corp 7.5% Senior Debentures (MKV), QLT (QLTI), Silver Wheaton (SLW), International Royalty (ROY), Goldcorp (GG), Steak 'n Shake (SNS), Silvercorp Metals (SVM), Kinross Gold (KGC), Sino Gold (SGX.AX).
In the mailbag... A compliment on our latest issue of Porter Stansberry's Investment Advisory. As the author, I'm surely biased. But I am also pretty well informed. And I have no doubt in my mind my last newsletter was the best I've ever written and among the best ever published, by anyone. Yes, I know that's not very humble. But that's what a lot of folks told me this week, including guys like Doug Casey and Brian Hunt, who've read a lot of newsletters over the years. If you've never tried my newsletter before, please, at least read this one issue. It's the seven real secrets I've learned from the world's best investors. To learn more about my letter, click here. Also, you can send me some feedback here: feedback@stansberryresearch.com.
"The most recent PSIA is excellent. I found myself nodding in agreement, realizing I have intuitively been following your seven secrets to a large degree – at the same time slapping my forehead that I hadn't plotted the S&P against gold before. I'll take this one simple newsletter over some plodding post secondary business/investment course any day. Thank you." – Paid-up subscriber Steve Chapple
"What ocean front buildings or areas in Miami Beach would you suggest to look at and what is the max $/ft2 that would represent the best value?" – Paid-up subscriber Bill McKeen
Porter comment: The stretch of beach between Lincoln Road on the south side and about 40th street (the Fountainblue) on the north side is the most intriguing to me. (Let me disclose an interest: I'm renting, with an option to buy, a large home on the canal across from this section of the beach.) Half a dozen empty buildings sit on large, beachfront parcels. Lots of new money has been invested in this stretch over the last couple years. And there's still room for a lot more investment.
As far as the square foot pricing, it's all over the map, depending on the age of the building, whether it is in foreclosure, etc. But I wouldn't pay more than $500 per square foot. And... in the right deals, I'd bet you could get prices around $250 per square foot.
"The September 14th natural gas debate was quite interesting. I lived in Texas in the '50s and have worked in the machinery industry for 50 years so I am acquainted with many people in the gas & oil drilling industry. As I read the comments it brought to mind a thought I first had when in my 20s. I am now 79 so I have been 'over the road' so to speak. My opinion of people in the gas & oil industry is they have to have balls the size of basketballs to be in the business!!!!" – Paid-up subscriber Wuss Ralph Whaley
"As always, I greatly appreciate your perspective and guts to tell it like it is. I'm intrigued, though, by your latest bombshell:
What caused the banking system to collapse was not what the bankers did with the money they borrowed, but the fact that they were allowed to borrow an unlimited amount of money in the first place – money that had no intrinsic value and could be created at will by the 20-something Harvard MBAs working at the investment banks that invented mortgage securities.
Just who, pray tell, allowed such a heinous thing to occur? (Not the worthless dinero – we all know that – but the unchecked borrowing.) And why is more regulation such a bad idea? Inquiring minds want to know..." – Paid-up subscriber Terry Moore
Porter comment: Your question is a complicated one, and it gets into the nature of fractional reserve banking. You might talk to a banking regulator for a more complete answer. But in short, the big problem with what the mortgage bankers were doing was turning low-quality mortgages into triple-A-rated securities. This enabled the banks to greatly expand the size of their reserves, which could then be lent against. It was the pyramid structure of the lending process that created the credit that led to the housing bubble. This wouldn't be possible under a gold standard, because no one – not even a Harvard MBA – can turn a subprime mortgage into an ounce of gold.
Regards,
Porter Stansberry and Sean Goldsmith
Baltimore, Maryland
September 16, 2009