Editor's note: Don't miss our second essay from Porter's friend and mentor, Mark Ford, at the bottom of today's Digest. In this essay, Mark discusses his strategy for picking winning investments. It's simple. But unfortunately, most analysts don't take the time to figure this out...
Despite the apparent lack of inflation in our economy, the price of gold and silver continue to soar... Gold is up around 0.6% today to more than $1,500 an ounce. And silver is up 2.7% today, topping $45 an ounce. A sad day for the dollar, indeed. But it's only getting worse...
Yesterday, we noted the yuan's increased use to settle China's foreign trade... Today, Zhou Xiaochuan, governor of the People's Bank of China, said China's $3 trillion in foreign reserves is excessive... "Foreign exchange reserves have exceeded our country's rational demand, and too much accumulation has caused excessive liquidity in our markets, adding to the pressure of the central bank's sterilization." This is a clear warning to the U.S. to manage its freefalling currency. China wants out of its dollar holdings. It's already buying all the commodities it can. Expect this to continue.
In February, we discussed resource expert Eric Sprott's opinion that the world was out of silver. And we reviewed the silver-to-gold ratio…
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The U.S. Congress established its monetary system in 1792 and agreed to mint coins using both gold and silver. At the time, you needed 15 ounces of silver to buy one ounce of gold. (In other words, what we call the "silver-to-gold ratio" was 15:1.) But in the early 20th century, world governments stopped backing their currency with gold. The ratio went haywire, cracking 71:1 during the Great Depression. Today, the silver-to-gold ratio is 43:1. |
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But for the first time in decades, people are viewing silver as a monetary asset again. And when silver's viewed as money, the ratio contracts. Will we return to the 18th century ratio of 15 to 1? Probably not. Even if silver doubled, the ratio would still only be 22:1. – Sean Goldsmith, February 24, S&A Digest |
Today, the silver-to-gold ratio is just over 33 (a huge advance since February). And if you look at the one-year chart of silver and gold returns below, the reason for the ratio's contraction is clear, silver is soaring…
Despite silver's huge gains, Sprott wrote in his latest Markets at a Glance letter that he expects still higher silver prices. His reason... the market knows fiat money has failed.
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What the so-called silver 'experts' neglect to account for in their models and projections is that the fiat money experiment has failed. And in this context, we believe the Market has assigned world reserve currency status to gold – not USD, not EUR, and not JPY. In our opinion, gold's continued appreciation vis-à-vis every currency is assured because the great flight from fiat has only just begun. Like gold, silver also has a long monetary history, and as such, investors are now also buying silver as protection from the ravages of fiat currency debasement... We truly believe that this is the investment opportunity of a lifetime. |
The following chart shows a five-year history of the gold-to-silver ratio. You'll notice a clear pattern. And even though the ratio is collapsing, Sprott says it has only one direction to go... "lower." In fact, Sprott says he "would not be surprised to see it hit single digits before settling into a more sustainable equilibrium."
Jim Rogers is also bullish on silver. On the Financial Survival Radio program, he recently reiterated his call for "triple-digit silver," though he worries silver's gains could go parabolic... "If silver continues to go up like it has been over the past two or three weeks, yes, then it would get to triple digits this year. And then we'll have to worry. It's not parabolic yet. I hope something stops it going up in the foreseeable future and we have a correction."
Despite his reservations, Rogers said all bets are off if the dollar dies. "Maybe the U.S. dollar is going to become confetti in 2011, and if that's the case and silver goes to $150, then obviously I wouldn't sell my silver. It would be the U.S. dollar, which is collapsing. But if silver goes up the way you're talking about without currency collapse, I would be very worried."
The euro marches higher despite the obvious problems in the area. The USD/EUR stands near $1.45. At the same time, the yield on the two-year Greek bond hit an all-time high of 22%.
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New 52-week highs (as of 4/19/11): Royal Gold (RGLD), iShares Silver (SLV).
Write to us at feedback@stansberryresearch.com.
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"I was born in Hungary more than 77 years ago, lived there when the Soviet Red Army 'liberated' our country and put the Muscovite Hungarian commies in charge. I still remember the record breaking hyper-inflation engineered by them when I was a multibillionaire (make it any "___aire" you wish) at the ripe old age of 12! Just GOOGLE Hungarian hyper inflation 1945-6 to learn the details. I had my middle school, high school and university education in Hungary, had to study Marxist-Leninist theory at college level for four years, therefore I can smell the unpleasant odour of communists and socialists from miles. Our government stinks from the head down ...
"In 1956 my wife and I voted with our feet and have been working hard in England and the USA for a much better and freer life than the one we had left behind. It breaks my heart to witness what is going on in the USA now and to project what awaits to my three middle aged children and my five grand children ranging in age from 10 to 25. Good bless you and THANK YOU!" – Paid-up subscriber Tom
"Watched the video presentation of the Palm Beach Letter and found it interesting. As a paid up PWA subscriber it would be something I would like to try. When clicking the subscribe section all it had was how one can pay for it through a credit card, no company address or phone contact information. With all due respect and call me old fashioned if you want but on something new or unfamiliar [I] would much rather deal with a live person instead of just sending someone my credit information blindly over the unsafe internet. Do they have an office or a contact number like you do? If so would appreciate you passing it on for me to get started. Thank you in advance for any assistance on this matter." – Paid-up subscriber Phillip Francis
Goldsmith comment: Phillip, if you'd like to learn more about Common Sense Investing, the company that publishes The Palm Beach Letter, simply visit its home page here. And you can find its contact info here.
"I wrote to you about 90 days ago to thank you for your recommendation to purchase physical silver. We established a 10,000 ounce position during the two years that silver traded from $9 to $18. When silver shot to $28 I wrote to say that the value of our investment had increased by $100,000. Only 90 days later, at $43 per ounce, the value has now increased by a total of $250,000.
"We are so happy we started reading your publications. You have recommended other positions, like Royal Gold, that are also hitting new highs, and providing good returns for us. Thank you so much for the fantastic research and the opportunities you find in the marketplace. That certainly deserves a standing ovation from me as well!" – Paid-up subscriber N Thompson
Regards,
Sean Goldsmith
Baltimore, Maryland
April 20, 2011
The Unusual Origin of The Palm Beach Letter
By Mark Ford
As I explained in yesterday's Digest essay, my interest has always been in starting new businesses from scratch and turning them into multimillion-dollar operations.
Over the last 30 years, I've learned a good deal about product development... marketing... mergers... acquisitions and advertising. And I've made a fortune buying and selling dozens of businesses.
Because those businesses created so much cash flow for me, I never cared much about investing. I just looked for the safest places I could find.
I was a big buyer of real estate, both commercial and residential, from about 1990 to 2005. But then the values became unattractive. So I exited. This was just the moment that all my friends and colleagues were jumping into them. They thought I was a fool for getting out. They don't think I'm a fool now.
I also spent 20 years buying high-quality municipal bonds. I began to worry about them in 2008, and restructured my portfolio soon thereafter. I'm very comfortable with what I have now.
And when gold was trading for $400 an ounce, I bought a ton of bullion coins. That portfolio is looking pretty good today.
These were, for me, safe investments. Except for real estate, I didn't have to study them individually. I just bought as much as I could because the fundamentals were there. But all this changed for me about three years ago, when the financial crisis struck.
I was already out of the real estate market. And the few safe bonds I could find were just enough to maintain my bond portfolio, not add to it. I had all the gold I could ever need. So cash was piling up quickly in my bank accounts. I had as much as $5 million sitting idly in accounts earning 0.5%. That really burned me.
I had to face facts. I could no longer ignore conventional investing. I had to get into stocks. And probably for the rest of my life.
And so, in the fall of 2010, I decided to put my attention toward the stock market and commodities. I consulted with Porter Stansberry and Steve Sjuggerud, former protégés who had become bona fide investment experts. They suggested I open my own investment research office and apply what I knew about business to picking stocks.
I liked the idea, but only if I could put together a great team of experienced analysts. Porter generously suggested Tom Dyson, a young man whose work as editor of The 12% Letter I had long admired. Tom was thrilled with the challenge and hired a superstar number cruncher from India: Nirav Desai. Then, he hired several more sharp people to fill out the team.
So there I was – after 30 years as a consultant to the investment publishing business – about to launch my own letter. I was more than a little nervous. But having Tom and his team behind me (and Porter and Steve's support) was a great boon.
The basic idea behind The Palm Beach Letter is simple. I take the lessons I've learned in my 30-plus years buying, selling, and consulting with businesses and apply them to passive investments.
I meet with my team regularly. They sift through hundreds of stocks and investment ideas to find a handful about which they are excited. They know to bring me nothing risky. (My risk tolerance is zero.) And they know to suggest nothing that is already being recommended by any other investment publication.
They cherry-pick great opportunities – ones they would be happy to put their money in. And then, I ask them questions. I ask them lots of questions. Questions about funding and use of capital, but also about marketing and cash flow, and so on.
I am not asking the kind of questions a 26-year-old kid at Goldman Sachs would ask. My questions are about how businesses really work – what makes them succeed and the problems (invisible to most analysts) that often spell doom.
This process allows us to eliminate lots of otherwise good-looking companies. But that is not enough for me. I won't go ahead and recommend anything unless I feel I truly understand the business.
For me, this is the first rule of investing. Any time you invest in something you don't really understand, you are shooting craps. It doesn't matter to me how good the stock story sounds. In fact, the better it sounds, the more skeptical I become.
Think about the investments you've lost big money on.
I'm willing to bet you bought them because you loved the story you were told about them. I'm also willing to bet that if you are honest with yourself, you will admit that you really didn't understand how the business really worked. Or the industry within which it competed.
I never made a nickel by investing in a company I didn't fully understand. And so I promise you this one thing above all about The Palm Beach Letter: You will never get a recommendation from us that you don't understand. If I can't spell out the logical reasons for buying something, I simply won't recommend it.
In tomorrow's essay, I'll tell you about another critical rule I follow when investing. And I'll invite you into my investment club, where I discuss investment ideas with other millionaire businessmen...
Good investing,
Mark Ford
P.S. So far, we have found several safe ways to grow your money, which the average American has never considered. For example, did you know there's a unique asset available in every U.S. state, which has returned more than 13,400% over a recent 40-year period... and has not had a down year since the 1980s (when it dropped just 1%)? These returns are several times better than stocks, bonds, gold, and houses. That's why many rich people I know are buying up this asset in droves... Yet the average American remains totally clueless. I'll give you more details if you are interested in learning more about this investment and the other ideas we are pursuing. Click here for the full story.
Record highs for gold and silver... China warns the U.S. again... 'The investment opportunity of a lifetime'... Watch out for 'confetti'... Greek bonds at 22%... Origins of The Palm Beach Letter...