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Honestly, It Doesn't Get Any Better

By Al Korelin      Printer Friendly Version Bookmark and Share
May 25 2009 2:10PM

www.kereport.com

I started a Kitco column a few months back  with the following introduction, “All of the bad luck experienced by George Clooney a number of years ago in that great movie, “The Perfect Storm?, is about to be replaced by good things assuming that Mr.  Clooney is an investor in gold.?

I am even more convinced today that this “perfect storm? is getting stronger and stronger  and that the opportunities for profits in precious metals and precious metal related equities is huge.

Before I state my case, let’s consider market action since I wrote that article back in February:

  • The price of gold has moved up and down and is currently over $950/ounce.
  • The price of silver has moved up and down and is currently over $14/ounce.
  • The prices of the mining stocks which I hold in my wife’s and my portfolio have increased better than 25%.
  • The dollar amount of our administration’s bailout package has increased astronomically and the President stated that, “We are out of money?.
  • Unemployment in the United States has skyrocketed to over 9%.
  • The government now owns 50% of General Motors and the UAW owns 39%
  • Chrysler has declared bankruptcy.
  • China is buying less U.S. paper and more gold.

Are you surprised that the prices of gold, silver and our stocks increased given the other events? I’m not and, unfortunately, I could expand that list tenfold, but I think you get my point.

If there was ever a time to take defensive action within our financial lives it is today.

I am not going to tell you what to do because I do not have the official qualifications to do that, but what I am going to tell you what the Korelin family is doing. Before I do that, I need to stress that Al Korelin gets the best advice in the world and he gets that advice from the various guests,  who appear on The Korelin Economics Report radio program.

I had the privilege of hosting the opening panel at the Hard Asset Investment held May 11th and 12th in Manhattan.  This panel consisted of three of my regular guests: Jay Taylor, John Kaiser and Brent Cook.

The first topic was to define the economic environment that we are all in.

Jay began by saying that he was very concerned by deflation and the fact that the demand side of the economy was slipping away because it was fueled in the past by borrowing and he brought up the point that credit lines were being drastically curtailed in the United States.

He  then put the ball in Kaiser’s court by asking him if the demand on a worldwide level would be increased by the millions of people living in China.

John began by saying that his problem with all the economic optimism was people seem to be forgetting that the consumption boom of the last few years was “debt fueled? all because of mortgage securitization which changed the fundamental relationship between borrowers and lenders.  The problem, in his view, began to compound itself when the Chinese fueled their economy by demand from the United States and then took the U.S. dollars which paid for the Chinese goods and purchased U.S. debt. He stressed that this situation has unraveled because of the lack of credit availability today and he can’t see how it can ever come back.

The next topic that I shifted to was something which I mentioned earlier, a description of what my wife and I are doing. Purely and simply I told the audience that we are investing in gold and silver and equities associated with those two commodities.

I then asked the panelists if they agreed or disagreed with our actions.

Brent Cook went first by bringing up the fact that gold production is decreasing and has been for the past few years effectively reducing the supply. He went on to say that he is doing the same thing because he believes that the U.S. dollar, and consequently U.S. dollar investments, will decrease in value relative to the value of gold and gold-related equities.

Kaiser believes that the junior gold related equities are where the money will be made.  He correctly brought out the advantage which they could have over the commodity itself and that is the leverage factor. A 50% increase in the price of gold historically has resulted in a 100% or better increase in the value of many of these equities.

Jay, for as long as I have known him, has been a big believer in precious metals and equities. So, it goes without saying that he believes  strongly in investing in these arenas.

The next question to ask is , what percentage of a person’s portfolio should be invested in this arena?

Jon Nadler, a frequent guest on both our pre-recorded and live radio programs said to our live audience on September 23rd that he felt that 10% to 15% of these portfolios should be in the commodities themselves. Jon stressed that gold and silver are more of a prudent insurance policy and should not be looked at as anything more than that. I would agree that this is a very common sense approach.

Regarding investing in the equities of precious metal related stocks, Jon joined Jay, Brent and John Kaiser in the bullish camp.

As readers of my work and listeners of my radio program which now, by the way, is broadcast live on the Talkstar Radio Network between 2 p.m. and 4 p.m. east coast time, are aware I have been a gold bull since way back when you could buy an ounce for $250. At that point our radio program focused on conventional business issues and our guests included executives from companies like The Boeing Airplane Company and Microsoft.

For the last eight or nine years, that has not been the case. Now I talk weekly with experts like Congressman Ron Paul, James Turk, Jay Taylor, David Morgan and others. We don’t discuss the conventional stock market, we talk about asset based investing, worldwide economic events and asset based investing.

Why the big change?

Well, in the late 1990’s, I realized that the U.S. economy was right around the corner from being in serious trouble. All people were interested in was “something for nothing? and “instant gratification?. 

Okay, here we are. What should we do?

Let me repeat what I wrote in the previously mentioned article “I, for one, am doing just the opposite of what people and governments have done to get us into this mess. My wife and I are eliminating any debt that we have and we are putting our trust in the opinions of the experts who appear on The Korelin Economics Report. Each of these people is saying, “Put a portion of your assets in precious metals and precious metals related investments?. “Jay, Brent, Mr. Kaiser and Jon, for your advice I thank you!

A.B. Korelin
May 23, 2009

 

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Al Korelin is the host of the internationally syndicated Korelin Economics Report. This program airs live on Saturdays on the Talkstar Radio Network from 2 p.m. to 4 p.m. east coast time. A one hour pre-recorded version along with the Korelin Economics Minute airs on weekends or daily on about 100 radio stations around the world.