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The Jury Is Deadlocked, Will the Defendant Hang?

By Al Korelin      Printer Friendly Version
Oct 20 2008 11:42AM

www.kereport.com

We are living in confusing and frightening times. I have to say; however, that Big Al (that’s me) is neither confused nor frightened.

Most of my radio guests are very bullish in the area of both resource stocks and precious metals. Are they crazy? Gold and silver continue to decline and resource stocks can be bought for pennies on the dollar.

Other people, spurred on by the media who purport that the western world is going to hell in a hand basket, are today’s consummate bears and will not go outside without their hard hats because they believe Chicken Little.

Well, the world seems to be headed in that direction but you must keep in mind that doesn’t mean that every investment sector is going to blow up.

I would like the “bears” to consider the following opinions:

“The financial world is a mess, both in the Unites States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary”

“So … I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds.

(This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities”.

“Why?”

“A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors.”

Who recently said that? It was no other than Warren Buffett.

My buddy, Bob Moriarty of 321gold and 321energy, was on The Korelin Economics Report twice last week. Both times he said, “put me on record as saying that we are about to experience a huge upward explosion in the prices of resource stocks”.

I agree with Bob because as he said on our show, times are really going to get tough and when that happens people are going to want to buy “things”. And, these “things” are going to be pieces of companies that hold tangible assets. Precious metals and base metals are both tangible. These are commodities that the people of the world simply cannot do without.

The prices of the stocks of the public companies that hold these assets currently are valued at only pennies on the dollar. In some cases the market capitalization (share price multiplied by the number of shares outstanding) of these companies are equal to the amount of cash that they hold. If that isn’t the definition of grossly undervalued, I don’t know what is.

Solid companies whose stocks are currently trading at 90% less than they were a few short months ago still have their mineral properties, their cash and their competent management. Their share prices are not down because of a change in the company’s basic fundamentals. The prices are down because as John Embry said on The Korelin Economics Report a few short months ago, “People are just damn scared.”

What about the people who believe Chicken Little? Well, the Vancouver Sun gave them more fuel for their fires when the publishers devoted an entire edition on Saturday, October 18, 2008 to the economy. Think of it, an entire edition of the paper!

Okay, in all fairness it can be said that this publication and others like it are only printing news. But that is not the point. The point is that today almost everyone believes that it is time to throw in the towel as far as investing in the stock market is concerned. Why do they believe it? Because almost all of the publications which they read and almost all of the television shows they watch tell them that is what they should do.

I am not an expert when it comes to investing in what I call the “conventional stock market”. I don’t invest in companies included in the Dow Jones Industrial Average, the Standard and Poor’s Index or others, I leave that to professionals with expertise in that sector and I invest in the resource market, specifically resource stocks.

Have I seen people throw in the towel in the resource stock sector? You bet I have. And you know what, for all the reasons mentioned above, I think they are nuts.

I may be in the minority, but I would like you to think about it. Listen to the experts on The Korelin Economics Report and hear what they have to say. You may or may not agree. But, you know what? You will definitely be in a better position to make your own informed decision after you consider all opinions. That decision, made after listening to the thoughts of others, may sway the jury and the defendant may be set free.

A.B. Korelin

 

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Al Korelin is the host of the internationally syndicated Korelin Economics Report. The program is broadcast on the radio to an audience in excess of five million people and is also available for listening at his website. He is also the founder of A.B. Korelin and Associates – a consulting firm that works in the area of regulatory consulting with public companies. Unless it is clearly stated neither he, his family or his associates own any shares or receive any compensation in the companies he mentions on his program.