This Blue Chip Is 'Hoarding' Gold
This blue chip is 'hoarding' gold... Resource legend: 'The five-year bear market for gold is over'... How high could this rally go?... The latest 'must-read' column from P.J. O'Rourke...
You know the world is anything but normal when one of the largest and most respected companies in Europe is "hoarding" gold...
Regular Digest readers know we believe every investor should own a little gold (and silver). It's not that we're "gold bugs" who believe gold can only go up. We just understand history.
Gold is the only asset that is no one else's liability... and the only form of money that can't be inflated or created out of thin air by a government printing press.
We view gold not as an investment, but as a form of savings. It's real money... and the world's most enduring form of wealth. (If you're new to the reasons for owning gold, be sure to read our free interview in the Stansberry Research Education Center right here.)
Still, even we were surprised to hear Nikolaus von Bomhard – CEO of Munich Re – publicly admit that his firm was loading up on gold and cash.
Munich Re is one of the world's largest reinsurers – firms that insure other insurance companies. At a recent press conference, von Bomhard said the moves are meant to help diversify the company's portfolio in response to the European Central Bank's ("ECB") move into negative interest rates. As he said at the time...
Sometimes it's lack of understanding or it's pure sheer horror when you look at what they [the ECB] are doing... The side effects of the ECB policy is of course now having quite devastating consequences. I think they are solving the wrong problem with the wrong remedies.
It's rare to hear executives of major corporations speak so candidly. But if von Bomhard is concerned, you can be certain there are plenty of others who are thinking the same thing.
If the world's central banks continue their moves into negative interest rates and other "nontraditional" forms of easing, you can expect this trend to grow.
As we've discussed several times recently, we believe a new rally phase in gold is beginning now. But we aren't alone...
Earlier this month, resource veteran Pierre Lassonde sat down for a fantastic interview with Canada's Business News Network.
If you're not familiar, Lassonde is a true legend in the gold and resource markets... He is the former president of giant gold miner Newmont Mining (NEM), and cofounder and chairman of gold-royalty firm Franco-Nevada (FNV).
According to him, "the five-year bear market for gold is over and we are at the beginning of a new bull market. And I'm very, very sure about that."
Like Munich Re's CEO, Lassonde pointed to negative interest rates as a big potential driver for higher gold prices...
Don't forget that the biggest knock on gold for the longest time was that [it doesn't pay interest]. Well now, even bonds have a negative carry...
If I look 10 years out, what would I rather own... A government bond where they're going to confiscate – for sure – 6% at the end? Or... gold which doesn't cost me anything to carry, and in 10 years' time it may be worth a factor of that.
He also noted that for the first time in years, gold is rallying around the world...
If you look at gold today, it's moving up in every single currency... That's the definition of a bull market.
Lassonde also had some classic advice for gold-stock investors. If you've been with us for long, it should sound familiar...
I have a chart that I show in some of my presentations... I call it my "McDonald's chart." You know, the "golden arches."
Well, those are the cycles in the mining business. I've seen seven of those arches. So, they are very cyclical, by and large you want to buy them early in the cycle.
I've been saying for the past six months, now is a good time to buy... But people are [fearful,] so they don't want to buy. They tend to buy at the top. You've got to resist that urge... You've got to buy them when you hate them, and sell them when you love them.
How high does he think this gold bull market could run? You may want to sit down before reading. More from Lassonde...
I have another chart that I show, and it's the Dow Jones Industrial Average divided by the gold price. When you think about it, it's the relationship between financial assets and hard assets. And that chart over 100 years, clearly shows there are times to own gold and there are times to own financial assets.
So from 1980 to 2000, for example, you really wanted to be in financial assets. From 2001, when gold was at the bottom at $250, until [the top of the market] at $1,800, it clearly shows you should have owned gold.
As you can see in the chart (recreated below), Lassonde said that at the end of each of the prior big gold cycles in 1934 and 1980, the Dow-to-gold ratio fell to nearly par. He thinks that could happen again...
In 1980, gold was at $800 and the Dow was at 800. In 1934, gold was $36 and the Dow was at 37. Where is the Dow today? Do I know it's going to go back to 1:1 – I don't know... [but] even if it gets to 2:1, that's $8,000 [per ounce]. I'm slightly optimistic.
After soaring nearly 20% to start the year, the sector is overdue for a short-term correction. But as you can see, the Dow-to-gold ratio is just beginning to reverse. If Lassonde is correct, this rally has much, much further to go.
The next several weeks could offer one of the best, low-risk buying opportunities of the last several years. If you've been looking for a great chance to buy gold or gold stocks, get your cash ready.
One last note for today... Please read on past the mailbag for the latest essay from legendary satirist, best-selling author, and Stansberry Research contributing editor P.J. O'Rourke.
New 52-week highs (as of 3/24/16): PNC Financial Services – Series P (PNC-PP), Reservoir Minerals (RMC.V), and Wells Fargo – Series W (WFC-PW).
In today's mailbag, a longtime subscriber shares his experience with Stansberry Research... and even offers to buy a OneBlade razor for a fellow subscriber. We'd love to hear from you. Send your questions and comments to feedback@stansberryresearch.com.
"I have been a Stansberry Alliance member since 2010 (if memory serves me). You have taught me, or should I say, I have learned so very much these last five plus years. I knew nothing about options, bonds, selling short, warrants, stops or position sizing. I now make $1000-$2000 a month with options.
"I own 8% of my net worth in gold and silver. I have purchased three of your bond recommendations and I will add the other two as soon as they come down to your buy up to price. I have shorted three of the stocks you recommended. I just pocketed $1900 on your Alpha trade for JNJ. Some of the stocks and funds I have purchased and the money I have made, are as follows. CSCO, $19,000–50%, INTC, $11,000-35%, NPM, $2000-5%, PFE, $9600-22%, IIM, $1600-9%, EOI, $1900-10%, MSFT, $23,000-76%, PNC Warrants, $8000-107%. I am still holding these and reinvesting the dividends. I purchased six gold miners recently and I am up $11,000 on them. I plan on adding to them soon. So as you can see the cost of my membership to Stansberry Alliance was well worth it. I appreciate all the hard work by all of the staff!
"On another subject, I purchased a OneBlade razor last December. I am very impressed. I actually bought when you were having a special so I received two razors and I gave one to my business partner. We both enjoy the shave it gives us. As we say, 'Smooth as a Baby's Butt.' I used an electric razor for 20 years (very expensive models) and they don't even come close. I would suggest to everyone to watch the video on the proper method of shaving. It really works.
"In the March 24 Stansberry Digest you published a letter from a subscriber Quint R. who is going to save up for the OneBlade. If possible send him one from me, if he will accept it. Call me at my office if need be. Once again thank you." – Paid-up subscriber Steve F.
Regards,
Justin Brill
Baltimore, Maryland
March 28, 2016
Fresh off the Press: Forbes' Annual Jerk Detector
By P.J. O'Rourke
Forbes just published my favorite issue of the year – its annual "jerk detector"...
The financial magazine just released its annual "Billionaires" edition. It says the world has 1,810 billionaires. Their combined net worth is $6.5 trillion.
I always look forward to the Forbes "Billionaires" issue even though it's not full of hints and tips about how to become one. (For that, you have to read the Stansberry Digest.)
What's great about "Billionaires" is how people react to it. Some people see the magazine and frown and say, "It's wrong for a few fat cats to have so much money when there's terrible poverty in the world."
The people who say that are jerks. This edition of Forbes is a jerk litmus test. If you want to avoid jerks, carry a copy with you everywhere you go.
Yes, there's terrible poverty. And yes, $6.5 trillion is a bunch of money. But the jerks – and if you have a "Feel the Bernie" sticker slapped on your car, I'm talking to you – can't do the math (or don't want to face the facts the math will prove).
If we take all the money away from every billionaire and divide that $6.5 trillion by the world's population of 7.125 billion, we each get a check for $912.28.
Once.
Because now all the money is gone. And if any of the 1,810 impoverished former billionaires ever make any more money, I doubt they will let Forbes or the rest of us know.
Also, we never got our $912.28. We forgot to figure in "confiscation costs." The expropriation of $6.5 trillion would require an enormous, expensive international legal and bureaucratic system. Also, the police probably would need to get involved. Such a project would end up costing about – I'm just making a guess here – $6.5 trillion.
Furthermore, we didn't get our $912.28 because it doesn't exist. The world's 1,810 billionaires are worth $6.5 trillion on paper. They're not worth $6.5 trillion in gold, silver, diamonds, rubies, and pearls. It's not like they have pieces of eight and Spanish doubloons stuffed under their mattresses. (A very lumpy mattress that would be.)
The wealth of billionaires is in negotiable assets – stocks, bonds, certificates of deposit, real estate, etc. The price of negotiable assets is... negotiable. It varies. (Forbes notes that due to market woes and currency fluctuations, there are 221 fewer billionaires this year than there were in 2015.)
Dumping $6.5 trillion in negotiable assets on global markets would cause those markets to crash. Markets would go down by about – I'm making another guess here – $6.5 trillion.
Anyway, what's the matter with a few people having money when a lot of people don't? The jerks are acting like the rich people took the money from the poor people.
How?
Did Warren Buffett (the third-richest man in the world) come over to my house and snatch $912.28 from each member of my family? Good luck with my 17-year-old daughter who's saving up for a pair of Manolo Blahnik high heels. She would have bonked Warren on the head with her iPhone.
Maybe the rich got rich by "exploiting the workers." Three of the six richest people in the world created industries from scratch. Those industries never had any workers before... because these industries weren't there in the first place. It's hard to exploit workers who don't have any place to work.
The world's richest man pulled Microsoft out of thin air. (The mathematics involved in computer programming being "thin air," as far as I'm concerned.) All Bill Gates exploited was a long string of 0s and 1s. Now, Microsoft employs 118,000 people.
No. 6 on the rich list, Mark Zuckerberg, created Facebook out of less than nothing. All Mark had was a dumb idea that everybody wants to tell everything about themselves to everybody else. Current net worth of the person with that dumb idea: $11.2 billion.
The world's second-richest person, Amancio Ortega, used to be an example of global poverty himself. He dropped out of school at 14 to go to work to help feed his family. His chain of Zara clothing stores was founded on the opposite of exploitation, by organizing thousands of poor Spanish women into sewing cooperatives.
Maybe the rich got rich through "unfair business practices." Hard to say that about Berkshire Hathaway unless you consider it unfair that some people have patience, prudence, and intelligence. Should we pass a law against it?
What kind of legislation would make the world's third-richest person, Warren Buffett, hasty, impulsive, and stupid?
Owners of brick-and-mortar retail outlets may criticize Internet store Amazon for being unfair. But stores don't exist to benefit owners (even if Amazon has benefited Jeff Bezos to the extent of making him the world's fifth-richest person).
Stores exist to benefit shoppers. And we love shopping on Amazon. Would it be better for America to have my daughter drive 75 miles to Boston to buy her Manolo Blahniks and then come home and fall off her new high heels and drive 75 miles back to return them? You wouldn't think so if you had ever seen my daughter drive.
I suppose monopolistic accusations might be leveled against Mexican telecommunications magnate – and world's fourth-richest person – Carlos Slim. On the other hand, he brought working telephones to Mexico. Anybody who tried to make a phone call in that country before the 1990s can tell you it was like talking to the donkey, but you were less likely to get through.
The jerks aren't just wrong about how the rich make money. They're wrong about money itself. It's not a zero-sum game. Money isn't a pizza where, if I gobble too many slices, you have to eat the California Pizza Kitchen box. We can make more pizza. And we can get it for a bargain price at Wal-Mart, thanks to Jim Walton, Alice Walton, and S. Robson Walton, the 15th-, 16th-, and 17th-richest people in the world.
Keep carrying that copy of the Forbes "Billionaires" issue around with you. It's not only a jerk detector... it's a good-person detector, too.
When somebody sees it and smiles and says, "Hope you made the list this year!" that's a good person.
Regards,
P.J. O'Rourke
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