Should You Be Thinking About Selling Your Gold?

If you happen to own physical Gold and/or Silver, you are in the minority! Congratulations if you do, but a smooth road it has not been…we get that. We are there with you.

Fortunately we first got in at MUCH LOWER PRICES over a decade ago, but we own many ounces at higher prices too.

So what’s to be done now? Buy more? Sell? Stand pat?

As with most investment topics, top experts can be found on both sides of that argument. Historically, Summer “doldrums” provide an excellent opportunity to buy precious metals and precious metals shares at discount prices, but it’s no longer a slam dunk that you will be booking paper profits by Thanksgiving.

When so many are willing to throw in the towel, like now, we take notice and wonder if it is not a contrarian indicator. Yet buying more when you have paper losses is not easy.

Each person needs to be able to SLEEP AT NIGHT with what they have done. Of course, there can be nothing worse than missing out on a once in a lifetime opportunity either… I just saw this heart-breaking photo today:

ronald wayne sells apple stock for 800

So with that let’s turn the mic over to Jeff Clark and hear more about his bet with Harry Dent on the price of Gold:

This guest editorial is from Casey Research’s Gold Specialist Jeff Clark

Have you noticed the trend in mainstream headlines over the past week?

The gold price may be stagnant, but forces behind the scenes signal that something big is gelling.

What conclusion would you draw from this rundown of recent headlines?

China Creates Gold Investment Fund for Central Banks. China announced a new international gold fund. Over 60 member countries have already invested. The fund expects to raise 100 billion yuan ($16 billion). It will develop gold mining projects in the new Silk Road economic region.

China Could Send Gold Up At Least $200. Saxo Bank’s Steen Jakobsen says China’s multibillion-dollar Silk Road Initiative will prompt Beijing to pull money out of Europe and the United States for infrastructure investments elsewhere. This could send commodities higher and push Europe into recession. As a result, his 2015 price for gold is $1,425 to $1,450, more than $200 higher than its current level.

Red Kite Launches New Base and Precious Metals Fund. The fund has already deployed almost $1 billion in equity, loans, and royalty streams into at least 17 junior mining firms. It hired a physical metals trader to handle all the supply. The fund will likely fund underserved juniors that have struggled to get funding.

Texas Senate Passes Bill to Establish Bullion Depository for Gold and Silver Transactions. A bill to make gold and silver legal tender in Texas passed in the state senate by an overwhelming 29–2 vote. The bill essentially creates a way to transact in precious metals. It will allow citizens to deposit precious metals in the state depository and then use the electronic system to make payments to any other business or person who also holds an account.

Gold Smuggling in India at All-Time High. Customs agencies seized over 3,500 kilograms of gold (112,527 ounces) in 2014–15, the largest stash ever confiscated in Indian history. The report says gold smuggling has grown by 900% in just two years. It also estimates that seizures could be less than 10% of actual smuggling.

Russia Boosts Gold Holdings as a Defense Against “Political Risks.” Dmitry Tulin, monetary policy manager at the Russian central bank, said it is increasing its gold holdings because “it is a 100% guarantee from legal and political risks.” Part of the motivation is certainly that their overseas assets could be frozen if sanctions over the Ukraine crisis tighten.

Austria Repatriates 110 Tonnes of Gold from UK. Austria is repatriating 110 tonnes (3.53 million ounces) of gold from the Bank of England. It eventually wants to have 50% of its holdings stored at home. The country has reportedly been transferring its official gold reserves from unallocated to allocated accounts in recent years, and also reduced its leased gold by 60%.

D.E. Shaw Buys $231 million of GLD. D.E. Shaw & Company bought $231.07 million worth of SPDR Gold Trust last quarter. This is a new position for the company.

Canadian Fund Makes $700 Million Bet on GLD. Canadian asset manager CI Investments purchased a whopping 6,117,900 shares of GLD last quarter, worth $703.6 million. GLD is now the single largest holding of the fund—bigger even than its position in Apple.

More Funds Increase Their Shares in GLD… A Swiss investment bank increased its position in GLD by 490%, to over 4 million shares. Lazard Asset Management doubled its holding to over two million shares. Morgan Stanley increased its holding by 8.3%, and Blackrock Group added 167% more to its position.

Traders Buy Gold and Silver at Fastest Pace in Over a Decade. Large speculators haven’t bought silver this aggressively since September 1997. Net speculative longs in gold also added over 45,000 contracts, the most since July 2005.

HSBC Warns Titanic Global Economy May “Collapse.” The chief economist of the world’s third-largest bank, HSBC’s Stephen King, has compared the global economy to the Titanic. “We may not know what will cause the next downswing, but at this stage we can categorically state that in the event we hit an iceberg, there aren’t enough lifeboats to go round. The world economy is like an ocean liner without lifeboats.”

Global debt has soared by 40% since the Great Recession. It’s now $200 trillion, almost three times the size of the global economy. “It would be a truly titanic struggle for policymakers to right the economy,” King said. He doesn’t specifically mention gold, but…

IMF Says China’s Currency Is “No Longer Undervalued.” The International Monetary Fund declared that China’s currency is “no longer undervalued.” The statement is a major vote of confidence for Beijing and the renminbi. Recall that China wants its currency to be included in the IMF Reserve basket.

I predicted China would update its gold holdings to increase the likelihood of getting that acceptance. And that they could surprise the market by announcing a higher amount than the mainstream expects.

It’s one reason I bet Harry Dent that gold won’t fall to his predicted $700 level. I’m so confident I put up my own gold. He did, too.

Check out our 17-page report, where we each argue our case. You can read it free of charge—just enter your email address here, and you can access it immediately.

The report includes eight “proof points,” along with the details of our wager and the date the winner will be announced.

Which headline will you read in early 2017—Jeff Clark Wins Two Ounces of Gold, or Harry Dent Bests Gold Bull Jeff Clark? I invite you to read our debate and decide for yourself. Enter your email address, and see who wins!

Jim Rogers on Opportunities in Russia and Other Hated Markets

Well, I’m optimistic about the future of Russia. I was optimistic before this war started in Ukraine, which was instigated by the US, of course. But in any case, I bought more Russia during the Crimea incident, and I’m looking to buy still more.

Unfortunately, what’s happening is certainly not good for the United States.

Where Jim Rogers Is Investing

This guest editorial is by Nick Giambruno of International Man

Nick Giambruno: Welcome, Jim. As you know, Doug Casey and I travel the world surveying crisis markets, and we always like to get your take on things. Today I want to talk to you about Russia, which is a very hated market right now. What are your thoughts on Russia in general and on Russian stocks in particular?

Jim Rogers: Well, I’m optimistic about the future of Russia. I was optimistic before this war started in Ukraine, which was instigated by the US, of course. But in any case, I bought more Russia during the Crimea incident, and I’m looking to buy still more.

Unfortunately, what’s happening is certainly not good for the United States. It’s driving Russia and Asia together, which means we’re going to suffer in the long run—the US and Europe. Another of the big four Chinese banks opened a branch in Moscow recently. The Iranians are getting closer to the Russians. The Russians recently finished a railroad into North Korea down to the Port Rason, which is the northernmost ice-free port in Asia. The Russians have put a lot of money into the Trans-Siberian railroad to update it and upgrade it, all of which goes right by China.

Usually, people who do a lot of business together wind up doing other things together, such as fighting wars, but this isn’t any kind of immediate development. I don’t think the Russians, the Chinese, and the Iranians are about to invade America.

Nick: So because of these economic ties to Asia, the Russians are not as dependent on the West. Is that why you’re optimistic about Russia?

Jim: I first went to the Soviet Union in 1966, and I came away very pessimistic. And I was pessimistic for the next 47 years, because I didn’t see how it could possibly work.

But then I started noticing, a year or two ago, that now everybody hates Russia—the market is not at all interesting to anybody anymore.

You may remember in the 1990s, and even the first decade of this century, everybody was enthusiastic about Russia. Lots of people had periodic bouts of huge enthusiasm. I was short the ruble in 1998, but other than that, I had never invested in Russia, certainly not on the long side. But a year or two ago I started noticing that things are changing in Russia… something is going on in the Kremlin. They understand they can’t just shoot people, confiscate people’s assets. They have to play by the rules if they want to develop their economy.

Now Russia has a convertible currency—and most countries don’t have convertible currencies, but the Russians do. They have fairly large foreign currency reserves and are building up more assets. Having driven across Russia a couple of times, I know they have vast natural resources. And now that the Trans-Siberian Railway has been rebuilt, it’s a huge asset as well.

So I see all these things. I knew the market was depressed, knew nobody liked it, so I started looking for and finding a few investments in Russia.

Nick: Yeah, that definitely seems to make sense when you look at the sentiment and long-term fundamentals. So where do you see the conflict with Ukraine and the tensions with the West going?

Jim: Well, the tensions are going to continue to grow, at least as long as you have the same bureaucrats in Washington. You know, they all have a professional stake in making sure that things don’t calm down in the former Soviet Union—so I don’t see things getting better any time soon.

I do notice that some companies and even countries have started pulling back from the sanctions. Many companies and people are starting to say, “Wait a minute, what is all this about?”

People are starting to reexamine the propaganda that comes out of Washington. Even the Germans are starting to reassess the situation. I suspect that things will cool off eventually, because the US doesn’t have much support and they’ve got plenty of other wars they want to fight or are keen to get started.

So Russia will become more and more dominant in Ukraine. The east is more or less Russian. Crimea was always Russian until Khrushchev got drunk one night and gave it away. So I suspect you will see more and more disintegration of Ukraine, which by the way is good for Ukraine and good for the world.

We don’t complain when the Scots have an election as to whether they want to leave the UK or not. People in Spain want to leave. We say we’re in favor of self-determination. We let Czechoslovakia break up, Yugoslavia break up, Ethiopia break up. These things are usually good. Many borders that exist are historic anomalies, and they should break up. Just because something happened after the First World War or Second World War and some bureaucrats drew a border doesn’t mean it’s logical or should survive.

So I suspect you will see more of eastern Ukraine becoming more and more Russian. I don’t see America going to war, I certainly don’t see Europe going to war over Ukraine, and so America will just sort of slowly slide away and have to admit another miscalculation.

Nick: I agree. Would you also say that Europe’s dependence on Russia for energy limits how far the sanctions can go? There’s been speculation that the Europeans are going to cut Russia out of the SWIFT system, like they did with Iran.

Jim: Well, anything can happen. I noticed SWIFT’s reaction when America tried to force them to do that: they were not very happy at all.

I’m an American citizen like you, and unfortunately the bigger picture is forcing the Russians, the Chinese, and others to accelerate in finding an alternative. That is not good for the US.

The Americans have a monopoly, because everyone who uses dollars has to get them cleared through New York. People were already starting to worry in the past few years about the American dominance of the system and its ability to just close everything down.

So now the Russians and Chinese and others are accelerating their efforts to find an alternative to SWIFT and to the American dollar and the dominance of the US financial system.

As I said earlier, none of this is good for the US. We think we’re hurting the Russians. We are actually hurting ourselves very badly in the long term.

Nick: I think one area where you can really see this is that the US essentially kicked Russia out of Visa and MasterCard. And what did Russia do? They turned to China UnionPay, which is China’s payment processor.

Jim: We could go on and on. There are things that have happened, and everything is underway now because Putin has told everybody, “Okay, we’ve got to reexamine our whole way of life that has evolved since the Berlin Wall fell,” and that’s one of the things. By the way, the Chinese love all of this. It’s certainly good for China. It’s not good for the US in the end, but it’s great for China and some Asian countries, such as Iran.

Nothing we have done has been good for America since this whole thing started—nothing. Everything we’ve done has been good for the Chinese.

Nick: So why are they doing it?

Jim: You know as well as I do: these are bureaucrats who shouldn’t be there in the first place. Power corrupts, and it has.

You look at the beginning of the First World War, the Emperor, who was 85 years old at the time, made nine demands on the Serbians. Serbia met eight of his demands. For whatever reason they couldn’t meet the ninth. And so they said, “Okay, that’s it… war.” And then everybody was at war.

The bureaucrats everywhere piled in with great enthusiasm—great headlines about how the war will be over by Christmas. By the way, whenever wars start, the headlines always say the war will be over by Christmas, at least in Christian nations. But six months after that war started, everybody looked around and said, “What the hell are we doing?” This is madness. Millions of people are being killed. Billions of dollars are being lost. This is not good for anybody. And why did it start? Nobody could even tell you why it started, but unfortunately it went on for four years with massive amounts of destruction, all because a few bureaucrats and an old man couldn’t get their acts together. None of that was necessary. Nearly all wars start like that.

If you examine the beginning of any war, years later you ask, “How did it happen? Why did it happen?” And usually there’s not much explanation. The winners write history, so the winners always have a good explanation, but more objective people are usually confused.

Nick: Excellent points that you make, Jim. I want to shift gears a little bit. I know you’re a fan of agriculture, and parts of Russia and Ukraine are among the most fertile regions in the world. Investing there is a nice way to get into agriculture and also Russia at the same time. What do you think about companies and stocks that own and operate farmland in that region?

Jim: Well, historically you’re right. Ukraine was one of the major breadbaskets of the world, and some of those vast Russian lands were great breadbaskets at times in history. Communism can and does ruin everything it touches. It ruined Soviet agriculture, but many of those places have great potential and will revive.

I haven’t actually gone and examined the soil myself to see that it’s still fertile, but I assume it is because you see the production numbers. That part of the world should be and will be great agricultural producers again. It’s just a question of when and who.

By the way, I have recently become a director of a large Russian phosphorous/fertilizer company, partly for the reasons you’re discussing.

(Editor’s Note: We recently discussed how investors can access agricultural investment opportunities in Russia. There’s an accessible stock that makes it easy to do just that. For all the details, you may want to check out Crisis Speculator.)

Nick: We were talking about Russia and Iran. I’ve had the chance to travel to Iran. It has a remarkably vibrant stock market, all things considered. It’s not heavily dependent on natural resources. They have consumer goods companies, tech companies, and so forth.

Do you see the potential for Iran to open up anytime soon, maybe a Nixon-goes-to-China moment?

Jim: I bought Iranian shares in 1993, and over the next few years it went up something like 47 times, so it was an astonishing success. I got a lot of my money out, but some of it is still trapped there. I don’t know if I could ever find it, but I took so much out it didn’t really matter.

Yes, I know that there’s an interesting market there. I know there’s a vibrant society there. I know huge numbers of Iranians who are under 30, and they want to live a different life. It is changing slowly, but it’s in the process.

Part of it, of course, is because the West has characterized them as demons and evil, which makes it harder. I was never very keen on things like that. Throughout history and in my own experience, engagement is usually a better way to change things than ignoring people and forcing them to close in and get bitter about the outside world.

So I don’t particularly approve of our approach or anybody’s approach to Iran. I certainly don’t approve of old man Khamenei’s approach to Iran either. There were mistakes made in the early days on both sides. But that’s all changing now. I see great opportunities in Iran. If they don’t open to the West, they’re going to open to Asia and to Russia.

There are fabulous opportunities in Iran, with over 70 million people, vast assets, lots of entrepreneur-type people, smart people, and educated people. Iran is Persia. Persia was one of the great nations of world history for many centuries.

So it’s not as though they were a bunch of backward people sitting over there who can’t read or find other people on the map. Persia has enormous potential, and they will develop it again.

Nick: I completely agree, and we’re looking at Iran closely, too. If the West doesn’t open up to Iran, it’s going to lose out to the Chinese and the Russians, who are going to gobble up that opportunity and really eat the Americans’ lunch.

Of course with the sanctions, it’s pretty much illegal for Americans to invest in Iran right now.

Jim: That wasn’t always the case. Years ago, if the investment was less than a certain amount of money, and some other things, there were no problems. I don’t know the details of the current law.

Nick: It’s difficult to keep up with, because the story is constantly changing.

Jim: Well, that’s the brilliance of bureaucrats; they always have something to do. It gives them ongoing job security.

Nick: Exactly.

Nick: Another place we have on our list is Kurdistan.

Jim: The Kurds have been a pretty powerful group of people for a long time. I hope they can pull it together. An independent Kurdistan would be good for Turkey and good for everybody else. Unfortunately, again, you have all these bureaucrats who don’t like change.

I’ve certainly got it on my radar, and maybe I’ll bump into you in Iran, or Russia, or Kurdistan, or who knows where.

Nick: Sounds good Jim, we’ll be in touch.

Editor’s Note: This was an excerpt from Crisis Speculator, which uncovers the deep-value investment opportunities waiting behind the news that frightens others away.

2015 Gold Outlook: Is Your Portfolio Safe?

In the January issue of BIG GOLD, I interviewed 17 analysts, economists, and authors on what they expect for gold in 2015. Some of those included what we affectionately call our Casey Brain Trust—Doug Casey, Olivier Garret, Bud Conrad, David Galland, Marin Katusa, Louis James, and Terry Coxon. The issue was so popular that we decided to reprint this portion.

What You Really Need To Know

This Guest Editorial is by Jeff Clark, Senior Precious Metals Analyst for Casey Research

In the January issue of BIG GOLD, I interviewed 17 analysts, economists, and authors on what they expect for gold in 2015. Some of those included what we affectionately call our Casey Brain Trust—Doug Casey, Olivier Garret, Bud Conrad, David Galland, Marin Katusa, Louis James, and Terry Coxon. The issue was so popular that we decided to reprint this portion.

I think you’ll find some very insightful and useful reading here (click on a link to read his bio)…

Doug Casey, Chairman

Jeff: The Fed and other central banks have kept the economy and markets propped up longer than you thought they could. Has the Fed succeeded in staving off crisis?

Doug: I’m genuinely surprised things have held together over the last year. The trillions of currency units created since 2007 have mostly inflated financial assets, creating bubbles everywhere. There’s an excellent chance that the bubble will burst this year. I don’t know whether it will result in a catastrophic deflation, extreme inflation, or both in sequence. I’m only sure it will result in chaos and extreme unpleasantness.

Jeff: Are we still going to get rich from gold stocks? Or should we face reality and start exiting?

Doug: The fact so many people are discouraged with gold and mining stocks is just another indicator that we’re at the bottom. Gold and silver are now, once more, superb speculations. And I think we’ll see some 10-to-1 shots in gold stocks—if not this year, then 2016. I can afford to wait with those kinds of returns in prospect.

Olivier Garret, CEO

Jeff: The crash in the general markets we warned about didn’t materialize. Have those risks dissipated, or should we still expect to see a major correction?

Olivier: Last October the risk of a very severe market correction was indeed very serious; hence our call to subscribers to batten down the hatches, tighten their portfolios, and have cash and gold on hand. We warned of further downturn across all commodities, including oil. We also highlighted the dollar would be strong and that an excellent short-term speculation was to be long 10- to 30-year Treasuries, as they would be considered a safe haven.

Let’s look at where we are today. Clearly, the S&P did not extend its correction after its initial dip in mid-October. In light of the possibility of a perfect storm coming, the Fed announced that it may not end QE in early 2015 as anticipated if the economy failed to continue to pick up. Then the Bank of Japan announced its version of QE infinity, followed by the largest Japanese pension fund’s decision to invest in equities worldwide.

The bulls were reassured and came back with a vengeance; the crash was averted. That said, fundamentals are still very weak, and market growth is concentrated within the largest-cap stocks. Mid- and small-caps are hurting, and many economic indicators are still concerning.

Jeff: What about lower energy prices—aren’t these good for the economy?

Olivier: In theory, yes. In practice, there is another crisis brewing. Most of the development of new shale resources in the US has been financed by debt based on oil prices of $80 and above. This easy debt was immediately securitized, just like home mortgages were in 2003-2006, and we have a monstrous bubble about to pop with oil around $55. The potential risk of another derivative crisis is as high or higher than in 2007.

Jeff: Does that mean the inevitable is imminent?

Maybe, maybe not. We know central bankers will do whatever it takes to provide liquidity to the markets. That said, I do not believe central bankers are wizards endowed with supernatural powers that enable them to stem all crises. Bernanke told us in 2007 and 2008 that there was no real estate crisis and that he had everything under control—will Janet Yellen be better?

My view is that our subscribers should be prepared for the worst and hope for the best. Sacrifice a bit of performance for safety, and use money you can afford to lose to speculate on opportunities that could bring outsized upside. I believe subscribers should continue to hold cash (in dollars), gold (the ultimate hedge against crisis), and stocks in best-of-breed companies that are unlikely to collapse during a financial meltdown.

For speculations, I still believe that we should be invested in the best gold producers, in well-managed explorers with good management and first-class resources, in long-term Treasuries, and top-quality tech companies.

Jeff: As a former turnaround professional, what would signal to you that the gold market is about to turn around?

Olivier: Two things: market capitulation, and valuations for the best companies not seen in decades. The cure for low prices is low prices.

Cyclical markets do turn around, and I would rather buy low and hold on until the market turns around than buy in the later stage of a bull market. At this point, the gold market presents amazing value for the patient investor. In my opinion, that is all that matters. The gold market may take longer than I want to turn around, but I know I am near an all-time low.

Bud Conrad, Chief Economist

Jeff: What role do big banks and government currently play in gold’s behavior? Is this role here to stay?

Bud: I’ve looked at the huge demand for gold from China, Russia, India, and private investors and been surprised the price has eroded over the last three years. My explanation is that the “paper gold futures market” sets the price of gold, with very little physical gold being traded. There are two parts of futures market trading: one is the minute-by-minute trading of only paper contracts that dominate 99% of the trading, in which every long position is matched by a short position. That is why the futures market is called “paper gold.” Almost all trades are unwound and rolled over to another contract. Only a few thousand contracts are held into the second process, called the “delivery process.” Just a handful of big banks dominate that delivery process, so they are in a position to affect the market. There is surprisingly little physical gold used in the delivery process compared to the 200,000 ongoing paper trading of the contracts not yet in delivery every day, where no physical gold is used.

Big players can place huge orders to move the “paper price” for a short term, but eventually 99% of these paper positions are unwound before delivery, so their effect in the longer term is canceled. The delivery process is the only time where physical gold is actually sold (delivered) or purchased (stopped). The gold price can be influenced in one direction in this process by bringing gold to the market from their own account (or the reverse).

Big banks gain a big benefit from the Fed driving their borrowing rate to zero with the QE policy. Banks lend that money at higher rates and have become very profitable. If gold were soaring, then the Fed would be less inclined to keep rates low, as it would be concerned that the dollar is purchasing less and inflation is returning. So banks are happy to have the gold price contained so the Fed is more likely to keep rates low.

The above chart shows that in the delivery process for the December 2014 contract, only three banks—JP Morgan, Bank of Nova Scotia, and HSBC—handled most of the transactions. Big banks can act as either traders for other customers or as trading for the banks themselves in their in-house account. In the December contract, 90% of the gold was purchased by HSBC and JP Morgan for themselves, and Bank of Nova Scotia provided over half of the gold from its in-house account. With so few players, the delivery market is prone to being dominated and price being set.

Jeff: So if the big players influence the market, why should we own gold?

Bud: I see the regulators issuing big fines to banks who have been caught manipulating foreign exchange, LIBOR, and even the London Gold Fix (which is being changed) as evidence that the methods used to influence the futures market will be curtailed by the regulators. So gold will become the recognized alternative to paper money issued in excessive amounts to fix whatever problems the governments want.

I also see the collapse of the petrodollar as leaving all currencies in limbo, which will lead to big swings in the currency wars, where ultimately gold will be the winner. Governments themselves are recognizing the value of gold, as I’m sure Russia does after the ruble collapsed in half since last summer.

David Galland, Partner

Jeff: What personal benefits have you achieved from living in Argentina?

David: Most important, my stress levels have fallen significantly. Even though I wouldn’t consider myself a high-stress type, I used to be on meds for moderately high blood pressure and for acid reflux… both of which I take as signs of stress. After a few months back in Cafayate, I am med-free.

Second, living in the Argentine outback provides perspective on what actually matters in life. Life in Cafayate is very laid back, with time for siestas, leisurely meals, and any number of enjoyable activities with agreeable company. There is none of the ceaseless dosing of bad news that permeates Western cultures. After a week of unplugging, you realize that most of what passes as important or urgent back in the US is really just a charade.

Finally, my personal sense of freedom soars, as life in rural Argentina is very much live and let live.

In sharp contrast, returning to the USA for even a short visit reveals the national moniker “land of the free” as blatant hypocrisy. There are laws against pretty much everything, and worse, a no-strikes willingness to enforce them. That a person can get mugged by a group of police over selling loose cigarettes tells you pretty much everything you need to know.

Jeff: Gold and gold stocks have been hammered. What would you say to those precious metals investors sitting on losses?

David: I doubt anything anyone can say will prove a panacea for the pain some have suffered, but I do have some thoughts. Like many of our readers, I have taken big losses as well, but because I have long believed in moderation in most things, especially the juniors, I have taken those losses only on smallish positions.

Specifically, about 20% of our family portfolio is in resource investments, with about half in the stocks and the rest held as an insurance position in the physical metals, diversified internationally. So a 70% loss on 10% of our portfolio, while painful, is not the end of the world.

I guess my primary message would be to continue to view the sector for what it is: physical metals for insurance, and moderate positions in the stocks—big and small—as speculative investments.

I remain convinced the massive government manipulations that extend into all the major markets must eventually begin to fail, at which time investors will come back into the resource sector in droves. When the worm begins to turn, I anticipate the physical metals will recover first—and $1,200 gold is starting to look like a fairly solid foundation. The BIG GOLD companies, which I’m starting to personally get interested in, will rally soon thereafter.

When the producers decisively break through resistance levels on the upside, it will be time to refocus on the best juniors.

But regardless, per my first comment, while these stocks can offer life-changing returns, being highly selective and moderate in the size of your positions is the right approach. Then you can sit tight and wait for the market to prove you right.

Marin Katusa, Chief Energy Investment Strategist

Jeff: I loved your book The Colder War. And I liked your concluding recommendation to buy gold. Are events playing out as you expected? And does the fall in the oil price change the game at all?

Marin: First off, thank you. A lot of personal time was spent completing the book. And yes, most of the events are playing out as expected in the book. I expect this trend to continue over the next decade, as the Colder War will take many years to play out.

As I stated to all our energy subscribers and to attendees at the last Casey Conference in San Antonio, we expected a significant drop in oil prices, but it has happened a lot faster than I expected. I think we will continue to see volatility in oil; we’ll probably get a rally to the mid-$60s for WTI, but I think it will hit $45 before January 1, 2016.

This definitely makes Putin’s strategy harder to implement—but we are in the Colder War, not the Colder Battle, and wars are made of many battles. Putin’s strategy is still being implemented, and it will play out over many years.

Jeff: You’re calling for the end of the petrodollar system. This is very bullish for gold, but won’t that process take many years? Or should investors buy gold now?

Marin: The process is well underway, and yes, as I point out in the book, the demise of the petrodollar will take many years—but it will happen.

Each investor must evaluate his position and situation, but I don’t believe anyone knows when the bottom in gold will happen, and I see gold as insurance. You never know exactly when you need health insurance, but speaking from personal experience, it’s good to have, and good to have as much as you can afford, because when you need it, trust me, you won’t regret it.

Resources are in the “valley of darkness” right now—but this is part of the cycle. The key is portfolio survival. If you can get to the other side, the riches will be much greater than you can fathom. I’m speaking from personal experience. I’ve been through this before, and while it was stressful, what happened on the other side blew away my own expectations. We are in a cyclical business, and this bottom trend has been nasty—longer and lower than most have expected—but I am excited, because this is what I have been waiting for and what will take my net worth to a new level.

I see no difference in the outcome for yourself, Louis James, and all of those who follow you and survive to the other side. I believe there will be significant upside in gold stocks, especially certain junior gold explorers and developers. Subscribers are in good hands with you and Louis in that regard, and I always read my BIG GOLD and International Speculator when I get the email, regardless of where I am—the most recent being in an airport in Mexico. Keep up the great work, Jeff; even though it’s a difficult market, you’re doing the right things. It will pay off—maybe not on our desired schedules, but it will pay off.

Louis James, Chief Metals & Mining Investment Strategist

Jeff: The junior resource sector tends to progress in cycles. Is the current down cycle about over, or should investors expect the recovery to drag out for several more years?

L: That’s essentially a market-timing question—literally the million-dollar question we all wish we could answer definitively. That’s not an option, and I’m sure your readers know better than to listen to anyone who claims to be able to time the market with any precision or reliability.

That said, I don’t want to dodge the question; for what it’s worth, Doug Casey and I both feel that gold has likely bottomed. Yes, it’s true that I felt that December 2013 was the bottom—but it’s also true that most of our stocks are up since then. So, gold may have put in a double bottom, but our stocks outperformed the metal and the market.

Either way, if we’re right, the next big move should be upward, and that’s as good for BIG GOLD readers as it is for International Speculator readers.

I should also add that precious metals are not just “resources”—gold is money, not a regular commodity like pork bellies or corn. It’s the world’s most tested and trusted means of preserving wealth. So even though resource commodities tend to move as a group in cycles, gold and silver can be expected to act differently during times of crisis.

And 2015 looks fraught with crises to me… I am cautiously quite bullish for this year.

Jeff: Where will gold speculators get the biggest bang for their buck in 2015?

L: If you mean when, statistically the first and fourth quarters of the year tend to be the strongest for gold, making now a good time to buy.

As to what to buy, it depends on whether you want to maximize potential gains or minimize risk. The most conservative move is to stick with bullion, which is not a speculation at all, but a sort of forex deal in search of safety. For more leverage with the least amount of added risk, there’s the best of the larger, more stable producers that you recommend in BIG GOLD. For greater wealth-creation potential, as opposed to wealth preservation, there are the junior stocks I follow in the International Speculator.

As to where in the world to invest, I’d say it’s easier to get in on the ground floor investing in an exploration or development company working in less well-known countries—you always pay more of a premium for North American projects where the rule of law is well established. That’s obviously riskier too, but that doesn’t mean you have to go to a kleptocratic regime with a history of nationalization. There are stable places off most investors’ radars, like Ireland and Scandinavia. Africa plays may be oversold in the wake of the Ebola outbreak, but that story isn’t done yet, so even I am waiting before going long there again.

Terry Coxon, Senior Economist

Jeff: In spite of profligate money printing over the past six years, there’s been minimal inflation. Should we give up on this notion that money printing causes inflation?

Terry: No, you shouldn’t. As Milton Friedman put it, the lags between changes in the money supply and changes in prices are “long and variable.” I’m surprised we haven’t yet seen the inflationary effects of a better than 60% increase in the M1 money supply. But the Federal Reserve has essentially guaranteed that those effects are coming, since they are committed to keep printing until price inflation shows up. And when it does appear, the delayed effects of all the money creation that has occurred to date will start to take hold. There won’t be “just a little” inflation.

Jeff: What do you watch to tell you the next gold bull market is about to get underway?

Terry: Beats me. I won’t know it is happening until it’s already started. But because high inflation rates are already baked in the cake, so is another strong period for gold. That’s a reason to own gold now, and the reason is compelling if you believe, as I do, that there’s little downside. At this point, given the metal’s weak performance since 2011, virtually everyone who lacks a clear understanding of the reason for owning it has already sold. So it’s safe to buy.

 10 other analysts were also interviewed, plus Jeff recommended a new stock pick. Tomorrow’s BIG GOLD issue has another new stock recommendation—an exciting company that has the biggest high-grade deposit in the world. Now is the time to buy, before gold enters the next bull market! Check it out here.

How to Find the Best Offshore Banks

Learn How To Go Global With Your Finances

This Guest Editorial is by Nick Giambruno of International Mans

It’s hard to think of a topic where following the conventional wisdom can be more dangerous.

And that topic is banking.

It’s generally accepted as an absolute truth by the public and most financial experts that putting your money in a domestic bank is a safe and responsible thing to do. After all, if anything were to go wrong, your deposits are insured by the government.

As a result, most people put more thought into which shoes they should purchase than which bank should be entrusted with their life savings.

It’s a classic moral hazard—a situation in which a person is more likely to take risks because the costs won’t be borne by that person. In the case of banking, that’s how a lot of people think, but it isn’t necessarily true that individuals bear no costs of their banking decisions.

The prudent thing to do is ignore the conventional wisdom and look at the facts to form your opinions. Choosing the right custodian for your life savings makes a difference—and it deserves some serious thought.

A False Sense of Security

In the US, the Federal Deposit Insurance Corporation (FDIC) insures bank deposits. In the case of a bank failure, the FDIC pays depositors up to $250,000. The FDIC has a reserve of around $30 billion for this purpose.

Now, $30 billion might sound like a lot of money. But considering that the FDIC insures around $9 trillion in deposits, the $30 billion in reserve amounts to just a drop in the bucket. It’s actually less than half a penny for every dollar it supposedly insures.

In fact, there are over 36 banks in the US that have deposits larger than the FDIC’s reserve. It wouldn’t take much for the FDIC itself to go bust. One large bank failure is all it would take. And with many of the big banks leveraged to the hilt, that isn’t as remote a possibility as many would believe.

Oddly, this doesn’t shake the confidence the public and most financial experts place in the US banking system.

Also, it’s already an established precedent that whenever a government deems it necessary, deposit guarantees can be disregarded on whim. We saw this in the early days of the financial crisis in Cyprus. The Cypriot government initially sought (but was ultimately rebuffed) to dip its hands into bank accounts under the guaranteed amount. Similarly, Spain has imposed a blanket taxation on all bank deposits. I’d bet this is only the beginning. We haven’t even made it through the coming attractions.

Taken together, this shows that the confidence in the banking system—merely because of the existence of a bankrupt government promise—is dangerously misplaced.

Follow conventional wisdom at your own peril.

Fortunately, in this day and age the decision on where to bank doesn’t have to be constrained by geography. Banking outside of your home country—where much sounder governments, banking systems, and banks can be found—is in most ways just as easy as banking with Bank of America.

The Solution

Obtaining a bank account outside of your home country is a key component of any international diversification strategy.

It protects you from capital controls, lightning government seizures, bail-ins, other forms of confiscation, and any number of other dirty tricks a bankrupt government might try.

Offshore banks offer another benefit: they are usually much safer and more conservatively run than banks in your home country… at least if you live in the US and many parts of Europe.

It’s hard to see how you’d be worse off for placing some of your cash where it’s treated best. In the event that your home government does something desperate or your domestic bank makes a losing bet, it could turn out to be a very prudent move.

When Doug Casey and I were in Cyprus, we met with a number of astute Cypriots who saw the writing on the wall. They got their money outside of the country before the bail-in and capital controls, and they were spared. It would be wise to learn from their example.

But you shouldn’t just blindly move your savings to any foreign bank. You want to consider only the best.

For me, being able to find the safest and best offshore banks comes naturally. In the past, I worked as a banking analyst for an investment bank in Beirut, Lebanon. While there, I rigorously assessed countless banks around the world. This experience and the analytical tools I developed have been very helpful in evaluating the best offshore banks worthy of holding deposits.

A basic rundown (but not inclusive) of factors I look for when analyzing an offshore bank include:

  • The economic fundamentals and political risk of the jurisdictions the bank operates in.
  • The quality of the bank’s assets—namely its loan book and investments. This helps you determine what the bank is doing with your money. I look for banks that are conservatively run and don’t gamble with your deposits. Banks that make leveraged bets with things like mortgage-backed securities or Greek government bonds are obviously to be avoided. Having a sound loan book with a low nonperforming ratio is crucial.
  • Liquidity—a relatively safer bank will keep more cash on hand rather than invest it in risky assets or loan it out, all else equal. That way it can meet customer withdrawals without having to potentially sell off assets for a loss—which could affect its ability to give you back your deposits.
  • Capitalization—this is a measure of its financial strength of the bank. It also shows you if the bank is using excessive leverage, which can increase the risk of insolvency. A bank’s capitalization is like its margin of error: the higher the better.

Another important factor is whether an offshore bank has a presence in your home jurisdiction. To obtain more political diversification benefits, it’s better that it does not.

For example, assume you are a Chinese citizen and want to diversify. It wouldn’t make much sense to open an account with the New York City branch of the Bank of China. It would be much better from a diversification standpoint for the Chinese citizen to open an account with a sound regional or local bank that doesn’t have a presence or connection to mainland China—and thus cannot have its arm easily twisted by the Chinese government.

The Best Offshore Banks

Each year, a prominent financial magazine publishes a study on the world’s safest banks. Below are its top 10 safest banks in the world (notice that none of them is in the US).

Naturally, things can change quickly though. New options emerge, while others disappear. This is why it’s so important to have the most up-to-date and accurate information possible. That’s where International Man comes in. Be sure to get the free IM Communiqué to keep up with the latest on the best offshore banking options.

Now, as an American citizen, it’s very unlikely that you could just show up to one of these banks and open an account as a nonresident of that country. That is, unless you plan on making a seven-figure or high six-figure deposit. Then you might have a chance, but even then it’s not guaranteed.

This dynamic is thanks to FATCA and all the red tape that the US government imposes on foreign banks who have US clients. For foreign banks, the logical business decision is to show Americans the unwelcome mat. The costs simply do not justify the benefits.

This is unfortunately true for many banks the world over. The net effect is to drastically reduce the number of choices that Americans have when banking offshore. It’s a sort of de facto capital control.

There are of course exceptions. Some solid offshore banks still accept Americans, and some even open accounts remotely. This means you could obtain huge diversification benefits without having to leave your living room.

In our comprehensive Going Global publication, we discuss our favorite banks and jurisdictions for offshore banking, crucially including those that still accept Americans as clients. It’s a list that is constantly dwindling, which highlights the need to act sooner rather than later.

Eating Away At Your Wealth – State Taxes

An Often Overlooked Predator: State Governments and Income Taxes

[Editor’s Note: We personally left Ill-inois, otherwise known as the Land of Corrupt Politicians, a few years ago in part because of – well, the crooked politicians – unreasonable taxes. When we were younger Ill-inois income tax was 2% of income with few deductions. It was ‘temporarily’ raised to 2.5%, which was temporary only until it was ‘temporarily’ raised to 3%.

3% was temporary only until being ‘temporarily’ being raised to 5% and there was a proposal by now former Governor Quinn to make that permanent. It sunsets partially this year (effective Jan 1, 2015) down to 3.75% if lawmakers take no action. Corporate taxes have followed a similar path.

Sales tax was 5% way back in the day, but with an increase from the state and local counties and cities allowed to tack on their own flesh extraction schemes (usually by a combination of promises and threats to voters) about the lowest rate you will find in the ‘Land of Lincoln’ is 7.75%.

BTW, our destination when we put Ill-inois in our rear view mirror was the Lonestar State, Texas, which has no personal income tax at all.]


And Now Our Esteemed Guest

This Guest Editorial is By Nick Giambruno of International Man

International Man is all about making the most of your personal freedom and financial opportunity around the world. To do this, by definition, you must minimize the amount of money any government takes from you.

Unlike every other country in the world, the US successfully taxes its nonresident citizens on their global income. This means Americans living abroad have to not only deal with the tax system in the foreign country in which they live, but also with the multiple layers of tax bureaucracy from the US. It’s a uniquely American burden.

The layer that is often overlooked by US citizens abroad is state governments and state income taxes. Depending on which state claims you as its milking cow, the consequences could be substantial.

Some states are downright vicious and relentless when it comes to shaking down anyone with the smallest link to their territory. California, for example, has the highest state income tax at 13.3% and is notorious for being ultra-aggressive in its collection efforts.

State Income Taxes

It would be a grave mistake to assume that just because you’ve moved abroad, you don’t have any state income tax requirements. Proper planning must be made and precautions taken.

The main issue at hand here is intent.

Generally speaking, in order to be off the hook from state income taxes, you have to leave your state and become a genuine tax resident of another jurisdiction with no intention to return to your former state.

It’s up to you to prove—to the state government’s satisfaction—that you left and have no intention of returning. If you cannot do that, don’t be surprised if your state government pursues you.

For example, suppose you’re a resident of California and take on a project in Dubai as a temporary contractor. Since the project is only temporary, you clearly have an intent to return to California when it’s over, which probably makes the income you earn in Dubai taxable by California.

The rules and regulations naturally vary by state. Some states don’t even have an income tax and are no problem; others—like California—are an expensive nightmare.

Let’s start with the most favorable states.

The Best States

Some states make going abroad and eliminating state income tax easy—because they don’t have a state income tax in the first place.

If you’re a resident of the following states, you will have no state income tax (and associated complex forms) to worry about when you move abroad:

  1. Alaska
  1. Washington
  1. Nevada
  1. Wyoming
  1. South Dakota
  1. Texas
  1. Florida

The next-best states are Tennessee and New Hampshire, which only tax interest and dividends.

If you’re a resident of one of these seven states, consider yourself lucky: you will have no state income tax burden to worry about when you leave.

The Worst States

The four states that make life most difficult for American expats are:

  1. California
  1. New Mexico
  1. South Carolina
  1. Virginia

If you moved from one of these four states, you’ll likely still have a state income tax obligation—unless you’ve taken proactive measures.

In order to escape the tenacious grip of these states, you must sever all ties, which includes (but not limited to):

  • Renting—or better, selling—any real estate left behind
  • Changing your voter registration and driver’s license to a new state
  • Ending all of your memberships and/or associations in the state
  • Closing all bank and other accounts in the state
  • Moving any children or dependents out of the state
  • Making sure you have no telephone, utility, or other bills in the state.

For many people, the most practical solution to ending their relationship with these four nasty states is to establish genuine residency in one of the seven friendlier states mentioned above before moving abroad. This generally means spending at least six months in one of the more favorable states and establishing ties like a driver’s license, voter registration, community and professional memberships, financial accounts, and so forth in the new state.

For those who live in the 37 other states (not the seven favorable ones, New Hampshire, Tennessee, or the four worst states), you generally have to spend at least six months outside of the state to be considered a nonresident for tax purposes. The 37 other states are also generally not as picky as the four worst states when it comes to claiming residual ties to the state create a justification for tax residency—as long as you spend at least six months outside the state.

The Best Solution of All—America’s Tax Free Zone

Getting rid of your state income tax obligations is great, but it also fails to address the federal income tax, which is really the big enchilada. And there are only three ways to get rid of it.

  1. Death
  1. Renounce your US citizenship
  1. America’s Tax Free Zone

There’s an incredible solution to eliminating not only state income taxes but federal income taxes as well—one that doesn’t require you to give up your US citizenship or even leave the US. It’s like obtaining the tax benefits of renunciation without actually having to do so.

That solution has been dubbed “America’s Tax-Free Zone.”

If you can move from one state to another, you can just as easily move to America’s Tax-Free Zone to obtain substantially more benefits.

I know it sounds too good to be true, but I assure you it’s most certainly not. It’s 100% real and legal.

Peter Schiff, a best-selling author, financial commentator, and business owner, has already moved one of his businesses to America’s Tax-Free Zone and plans to move there personally sometime in the future.

But it’s not just Peter Schiff: many regular people of average means—business owners, individual investors, and entrepreneurs—are legally eliminating most taxes thanks to America’s Tax-Free Zone. And it’s no surprise that their numbers are constantly growing.

This amazing opportunity is exactly why we’ve teamed up with Peter to create a free video that explains it all.

If you’d like to see what it’s all about and how you can reclaim your freedom, you need to see this video by clicking here.

 

Five Financial Keys to Fatherhood, Not Friendship

How To Avoid Destroying The Relationship With Your Children

This exceptional guest editorial is by Dennis Miller of Miller’s Money Forever

[Reading this resonated quite closely with me, and practically brought tears to my eyes. Lots of wisdom here.]

My oldest grandson, Justin, has cerebral palsy. When he was in middle school, my daughter and her husband invited me to attend a parent-teacher conference. Justin’s teacher told us that one of his classmates had announced to the whole class that, according to his mother, all of the kids would be moved along no matter what.

These were special needs students, and she shared her frustration that most of the kids simply stopped doing their homework.

I took out my business card and wrote my home phone number on the back. I told her that if Justin wasn’t working to the best of his abilities, to call his parents. If the problem continued, she could call me. Then I told my grandson I never wanted to hear from her.

To his credit, Justin graduated from college, earned a master’s degree, and now works as an accountant. He heard the message.

Dropping the Ball

Everywhere I look, I see signs that parents are screwing up their most important job: raising self-sufficient adults.

  • Only 39% of incoming college freshmen graduate within four years.
  • 50% of recent US college graduates report accepting financial help from family, although half of these new graduates have full-time jobs, per the ongoing study, Arizona Pathways to Life Success for University Students.
  • In the US, 14% of adults ages 24-34 live at home with their parents, according to Gallup.

These are bleak statistics, but instead of dwelling on failure, I prefer to focus on the key practices of parents who are getting it right.

Key #1—Set expectations early. When baby boomers were growing up, they were expected to go to college and then move out on their own. Mom and Dad made that crystal clear by about fifth grade and helped their kids prepare. If you want Junior to move out and stay out, make that expectation explicit, and help him set and meet realistic goals for making that happen.

Key #2—Make independence the goal. We’d all like to go through life with the privileges of adulthood but the responsibilities of children. As sociologists Allan Schnaiberg and Sheldon Goldenberg have pointed out, the benefits young adults from middle-class professional families enjoy often make independence less appealing than extended adolescence. Parents need to make independence the more attractive choice.

We all know parents who help with rent or car payments for their adult children. In one such case, the young guy confided to me that he and two buddies split the cost of season tickets to the local NHL team. I shook my head in amazement. The longer parents support that kind of behavior, the harder it is to wean kids off the dole.

Key #3—Teach good financial habits early. A friend shared a creative money teaching moment with me. When he and his wife took their three young kids on long car trips, he would give each child $5 every morning. The rules were clear. No one asks Mom and Dad to buy anything when they stop for gas, lunch, or at a souvenir shop. They could spend the $5 on whatever they wanted, or they could save it.

The first day, one child spent all the money, one spent half, and the other saved it all. He said the system worked like a charm. By the time the vacation was over, there were three savers in the back seat.

It’s never too early to start showing children how to earn their own way. At what point do you stop handing out no-strings attached allowances and assign chores to make them earn that money? There’s no reason a third grader can’t work around the house for his pocket money.

Key #4—Saving is a must. When your children earn money from chores or little jobs and when they receive money as gifts, help them set put a certain percentage in savings. Talk about the difference between saving to buy something and saving for college, a rainy-day fund, and long-range wealth accumulation. Help them prepare the deposit slips and review their monthly statements with them.

Key #5—Mentor. I saved my favorite for last. When my oldest daughter was in her early 30s, she had two children and a full-time job. Her youngest has some medical challenges, and they were struggling financially. She attended a personal finance class, and she and her husband added up all their debts, including credit cards. It was significant.

As she told me this, I felt a knot in my stomach. Being a Mr. Fixit, I wondered if she was going to ask for a loan. When she finished covering all the debt they’d accumulated, I took a deep breath and said, “Wow! What do you plan to do?”

In a very excited tone, she told me about the financial plan they’d put together with help from the class. It would take five years, but they could do it.

She wasn’t calling to ask for money; she was asking for advice. I thought later about what a disservice I would have done to their marriage if I had helped them financially. What would I have done to their self-esteem? Every few months she would call and announce that they’d cut up another credit card, and we would cheer.

I hear many stories about parents who want to be friends with their children. I say, give praise when they deserve it and deliver the tough messages. That’s the job of being a parent. Then, when your children become parents, you can be best friends forever.

Dependent Adult Children Can Destroy Your Retirement

Raising financially independent adults is also critical to your own financial freedom. It takes an awfully large nest egg—far larger than most people have—to subsidize two or three adult children and still retire comfortably before age 100.

At Miller’s Money we give baby boomers the tools to live their second or third act on their own terms. Every Thursday we share timely investment news, economic analysis (in plain English) and homespun wisdom in our free e-letter, Miller’s Money Weekly. Click here to start receiving your complimentary copy today.

 

The Asian Age of Transformation

This Guest Editorial Is By Casey Research

Financial pundits are divided on Asia. Some believe China and Japan are going to have their day in the sun, while others fear that economic mismanagement will lead to a similar collapse as we’ve seen in the US in 2008. Here are some opinions of prominent investment experts from the just-concluded Casey Research Fall Summit.

John Mauldin, chairman of Mauldin Economics and bestselling author of Endgame and Code Red, thinks we’re in an age of transformation. “Keynesians rule the world, whether we like or not, so we should invest with that reality in mind.”

He believes that of the major developed economies, Japan is furthest down the road to ruin. It’s literally a dying country, growing older more quickly than any country in recorded history.

Mauldin predicts that the yen will decline to at least 200; he hedged his own mortgage by shorting the yen with 10-year options at a 130 strike.

China, on the other hand, is trying to proactively and slowly pop its debt bubble, Mauldin says, something no other country has ever attempted.

Michael “Mish” Shedlock, investment advisor with SitkaPacific Capital Management, is also seeing storm clouds on the horizon, but he’s bullish on Japanese equities right now—with the caveat that investors should make sure to hedge exposure to the yen.

Mark Yusko, founder and CEO of Morgan Creek Capital Management, is even more optimistic. While he says US stocks are “second most overvalued they’ve ever been,” he recommends Japanese equities as a good bet. Japan, he believes, will beat the US over the next 10 years by a huge margin.

China, Yusko says, is on the verge of a massive bull market and will have the greatest consumption boom in history.

Leland Miller, president of China Beige Book International, couldn’t disagree more. Inaugurated in 2012, the China Beige Book is the most comprehensive survey ever conducted on national, regional, and sectoral economic conditions in China, and the only real-time, independent window into China’s opaque credit and shadow credit environments.

Current data show, according to Miller, that the Chinese economy is broadly decelerating. Inflation is declining, and borrowing continues to dwindle despite lower-interest credit, while the labor market is still stable. Bottom line: the Chinese economy is on the way to slowing substantially.

There are two ways, says Miller, how that could occur:

  1. The best-case scenario: The Chinese government institutes policies to encourage slower, healthier growth, cuts down the massive credit expansion, and lets bad firms go out of business. That way, the formerly rapid growth of the economy would slow, but grow more sustainably in the long run.
  1. The worst-case scenario: The Chinese government resists to implement much-needed reforms and instead caters to vested interests. As a result, the economy will see a hard landing.

Miller suggests investors should be careful investing in emerging markets right now, as “the reverberations from China will be considerable.”

He recommends one Chinese company traded on the New York Stock Exchange as a good short-term investment, but warns to “be very careful long term.” This company, he says, is irritating entrenched interests by fundamentally altering the way business is done in China.

To get Leland Miller’s timely stock pick (and those of the other speakers), as well as every single presentation of the Summit, order your 26+-hour Summit Audio Collection now. It’s available in CD and/or MP3 format. Learn more here.

 

Thriving In A Crisis Economy – Charles Biderman (TTFS)

Using Supply and Demand to Beat the Market: Charles Biderman

 

Casey Summit - San Antonio
Casey Summit Comes To San Antonio

This guest editorial is by Dan Steinhart, Managing Editor, The Casey Report

It’s an investing strategy so simple, you’ll wonder why you didn’t think of it.

Like any other market, the stock market obeys the laws of supply and demand. Reduce supply, and prices should rise.

Therefore, companies that reduce their outstanding shares by buying back their own stock should outperform the market.

That’s the basic theory that Charles Biderman, who was recently featured in Forbes and is chairman and founder of TrimTabs Investment Research, follows to manage his ETF, TrimTabs Float Shrink (TTFS).

And it works. Since its inception in October 2011, TTFS has beaten the S&P 500 by 15 percentage points. That’s no small feat, especially during a bull market. Most hedge fund managers would sacrifice their firstborns for such stellar performance.

There are, of course, nuances to the strategy, which Charles explains in an interview with Casey Research’s managing editor Dan Steinhart below.. For example, companies must use their own money to buy back shares. Borrowing for buybacks is a no-no.

It’s also worth mentioning, you can meet and learn all about Charles’ strategy in person. He’ll be available at  Casey Research’s Summit: Thriving in a Crisis Economy in San Antonio, TX from September 19-21 where he’ll be working with attendees to teach them how to beat the market using supply and demand analysis.

And Charles is just one of many all-stars on the faculty for this summit—click here to browse the others, which include Alex Jones, Jim Rickards, and, of course, Doug Casey.

Also, you can still sign up for this Summit and meet some of the world’s brightest financial minds and receive a special early-bird discount. You’ll save $400 if you sign up by July 15th. Click here to register now.

Now for the complete Charles Biderman interview. Enjoy!

Using Supply and Demand to Beat the Market: An Interview with Fund Manager Charles Biderman

Dan: Thanks for joining us today, Charles. Could you start by telling us a little bit about your unique approach to stock market research?

Charles: Sure. I’ve been following the markets for 40 years. Everybody talks about earnings and interest rates and growth rates and what the government is doing. But here’s the thing: the stock market is made up of shares of stock. That’s it. There is nothing else in the stock market.

So my firm tracks the supply and demand of the stock market. The number of shares outstanding is the supply. Money is the demand. We discovered when more money chases fewer shares, the market goes up. Isn’t that shocking?

Dan: [Laughs] Not very, when you put it that way.

Charles: Whenever I talk with individual investors, I tell them that there’s only one reason for them to listen to me: that they think I can help them beat the market. I’ve spent 40-some years looking at markets in a different way than other people. I’ve found that the market is like a casino: it has a house and players. You know the house has an edge, because if it didn’t, the stock market wouldn’t exist.

Who is the house in the stock market? Not brokers, or even high-frequency traders. Companies are the house. As investors, we’re playing with their shares, and the companies know more about them than we do.

I’ve discovered that companies buy back their own shares because they think the price is heading higher. So when a company buys back its own shares using its own money, you should buy that stock too. But only if the company uses its own money. Borrowing money to buy shares is a no-no.

Conversely, when companies are growing their shares outstanding by selling stock to raise money, they don’t like where their stock price is headed. If they don’t want to own their own stock, you shouldn’t either.

My basic philosophy is to follow supply and demand of stocks and money, and you can’t go wrong.

Dan: Your theory has worked very well in practice. Your TrimTabs Float Shrink ETF (TTFS) beat the S&P 500 by an impressive 12 percentage points in 2013. And that’s really saying something, considering how well the S&P 500 performed.

Charles: Yes, and we’ve outperformed the S&P 500 over the past year as well.

Dan: What specific investment strategies did you use to generate that return?

Charles: Our fund invests in 100 companies that are growing free cash flow—which is the money left over after taxes, R & D, capital expenditures, and dividends—and using it to buy back their own shares.

We modify our holdings every month because we’ve discovered that the positive effects of buybacks only last for a short time. So when a company stops shrinking its float, we kick it out. Our turnover is about 20 stocks per month.

Dan: The supply side of the equation seems pretty straightforward. What do you use to approximate demand? Money supply numbers?

Charles: Sort of. Institutions own around 80% of the shares of the Russell 1000, so we track the money that flows through them into and out of the stock market.

We also track wage and salary growth. We’re not interested in income generated by government actions, but rather by the wages of the 137 million Americans who have jobs subject to withholding. Money for investment comes from income. People can only invest the money they have left over after they cover expenses.

Income in the US is currently around $7.5 trillion per year. That’s an increase of around $300 million over last year, or a little under 3% after inflation. That’s not sufficient to generate money for investment.

However, the Fed’s zero interest-rate policy has showered companies with plenty of cash to improve their operations. As a result, many industries have record-high profit margins. But at the same time, most management teams are still afraid to reinvest their profits into expanding their businesses because they don’t see final consumption demand growing. So these companies have been buying back their shares instead. The total number of shares in the market has declined pretty much consistently since 2010.

An investment institution typically targets a specific percentage of cash to hold, say 5%. So when a company buys back its own stock from these institutions, the institutions now have more money and fewer shares. To meet their cash allocation target, they have to go out and buy more shares. So the end result is more money chasing fewer shares.

This is why we’ve been experiencing a “melt-up” in the market. It has nothing to do with the economy—it’s solely due to supply and demand. And as buybacks continue, stock prices will continue to rise.

The caveat is that unless the economy recovers in earnest, the gap between stock prices and the real-world economy will continue to grow. At some point, it will get too wide, and we’ll get a bang moment similar to the housing crisis, when everyone realized that housing prices were too far above their underlying value in 2007.

Dan: Do you monitor macroeconomic issues as well?

Charles: Yes, but as I like to say, all macro issues manifest as supply and demand eventually. Supply and demand is what’s happening right now. All of those other inputs get us to “now.”

Dan: I understand. So you’re more concerned with the effects of supply and demand than the causes.

Charles: Right. Price is a function of the world as it exists right now. If you don’t have cash, it doesn’t matter how fantastic stock market fundamentals look. Without cash, you can’t buy, no matter how compelling the value.

Dan: Could you share a preview of what you’ll be talking about at the Casey Research Summit in San Antonio?

Charles: I’ll be giving specific advice to individual investors on how to beat the market. Outperforming the overall market is very difficult to do, and earnings analysis and graphic analysis has never been proven to do it over a long period. Supply and demand analysis has. So I will work with attendees and show them how to apply those strategies to beat the market going forward.

Dan: Great; I look forward to that. Is there anything else you’d like to add?

Charles: The phrase “disruptive technology” is popular today. I think investing on the basis of supply and demand is a disruptive technology compared with other investing strategies, most of which have never really worked. Cheap, broad-based index funds are so popular because very few investing strategies offer any real edge. I believe supply and demand investing gives me an edge.

Dan: Thanks very much for sharing your insights today. I’m excited to hear what else you’ll have to say at our Thriving in a Crisis Economy Summit in San Antonio.

Charles: I’m looking forward to the Summit as well. I hope the aura of the San Antonio Spurs’ victory will rub off on all of us.

Dan: Me too. Thanks again.

How To Profit In Platinum And Palladium

The Only PGM Stock You Should Buy

Find out how you can profit from the mining unrest in Africa and the general rise in price of Platinum and Palladium, the “white” precious metals with industrial use – that are NOT Silver!

This guest editorial is by Jeff Clark, Senior Precious Metals Analyst

It’s quite the dilemma.

One of the major reasons my colleagues and I are so bullish on platinum group metals (PGM)—palladium, in particular—is because of the intractable problems with supply. But most of the producers are backed into corners, with few options for improving their outlook. There’s simply no way for these metals to avoid a long-term production deficit due to the deep-seated problems with the companies that produce them.

So, how to invest?

Since we’re talking about profiting from a metals bull market, we could just buy bullion—and we have indeed recommended doing so to our readers. But to really maximize your leverage to the upside (and avoid more risky futures and options), a stock in a company that produces the metal is normally the way to go. Unfortunately, as above, the pickings are slim.

For us to invest in a PGM producer, the company would have to be:

  • Outside of South Africa and Russia. The problems with miners in both countries are numerous and difficult.
  • Making money. Many producers are not profitable at current prices because production costs are so high. And they won’t come down just because the strikes ended—they’ll go up, due to higher wages.
  • Have a strong growth profile. We want a company that can capitalize on burgeoning demand, which would add further leverage to our investment.
  • Have strong management (of course!). The last thing we want is a team with no experience navigating a volatile market such as this.

Does such a stock exist?

It’s a tall order, but the answer is yes. The company we recommend in this area meets all the criteria above—and is the safest speculation in this space. We consider it so safe, in fact, that we just “graduated” it from the International Speculator to BIG GOLD.

How’s This for Leverage?

This profitable mid-tier producer is perfectly positioned: it’s not so small that we’re purely speculating on some uncertain game-changing event, and yet it’s small enough to generate much larger share price gains than would be possible for one of the major mining companies. On the other hand, it’s big enough to catch the attention of mainstream investors.

Here are seven reasons why we’re excited about this company and the leverage we think we’ll get by owning shares…

#1: Large, High-Grade Assets

The company has two distinct but closely related mine sites. These alone will support the company’s growth for many years. However, only nine miles of an estimated 28 miles of known mineralization has been developed between them—essentially one-third of one giant mineralized structure. Management thinks it has an additional 102 million tonnes of undeveloped resources waiting to be dug up.

And get this: the average grade of their proven and probable reserves is 0.45 ounces per tonne, the world’s highest-grade PGM deposit. Of these, 78% is palladium, a very attractive figure since we’re even more bullish on it than platinum.

At the right metals prices, this company could double or triple production and still maintain a very long mine life.

#2: Growing Production and Low Costs

The company grew 2013 production by 10,000 ounces, but has yet to use all its milling capacity. It currently uses about 3,600 tonnes per day (tpd) of its 6,000 tpd total capacity. The company is working to increase ore production this year, which is good timing for us.

With a much cleaner balance sheet and a forecast of $800-$850 per ounce for all-in sustaining costs (AISC) in 2014, the company looks poised to make money in the current price environment—and a lot of money in the supply squeeze we anticipate.

#3: Recycling Business

In addition to mining, this company recycles depleted catalyst materials to recover palladium, platinum, and rhodium at its smelter and base metal refinery. It’s been doing this since 1997, and business is booming. Pre-tax earnings last year rose a whopping 233% over 2012. And management says it will expand this end of their business over the next few years.

#4: Strong Financial Performance

This company reported over a billion dollars of revenue last year, up nearly 30% from 2012. It finished the year with a very strong working capital position of almost a half billion dollars.

#5: Unique North American Operations

The company is one of only a few PGM producers in North America. Nearly all other PGM mines operate in South Africa (Impala, Amplats, Lonmin, etc.) or Russia (Norilsk). Therefore, this company is more stable than most that mine in other jurisdictions.

#6: Upgraded Management

A prior management team made a poor investment in Argentina a few years back, which led to major changes in the board of directors and top management last year. The new president and CEO is a 21-year industry veteran and has experience in both M&A and mine optimization. He’s already corrected past mistakes, and we’re happy with the direction he’s taken the company. The technical people on the ground seem competent and are getting admirable results.

And finally…

#7: We’ve Been There!

Our Chief Metals Investment Strategist Louis James, who conducted a due-diligence trip to the company’s operations last year, says:

I liked the story when I visited and considered it to be the company to buy in a safe mining jurisdiction. But I didn’t want to bet on the team in place at the time. Flash forward and now it’s under new management, which is very focused on cutting costs and expanding the core business. The company’s results for 2013 were quite impressive, and I expect them to get better going forward.

I’m convinced this company is uniquely positioned to benefit from potential supply shortages. Coupled with a likely rise in demand from the global auto industry in the years ahead, this stock is a very attractive play.

Here’s a picture from his visit.

Pay dirt: this is what the company’s palladium-platinum mineralization looks like before blasting. You can see the closely spaced holes that will be blasted a fraction of a second before the surrounding ones—in successive waves—so the ore is blasted inward. This high-grade resource in a safe and stable jurisdiction is the heart of our speculation.

The Only Stock to Buy, in a Market Backed into a Corner

Johnson Matthey, the world’s leading authority on PGMs, estimates the platinum market will register a deficit of at least 1.2 million ounces this year. This would be the largest shortfall since it first compiled data in 1975.

While it will take an enormous amount of time and expense to recover from the strikes in South Africa, that’s only the first layer of problems for the industry:

  • According to consultancy GFMS, 300,000 ounces of platinum and 165,000 ounces of palladium could be lost after the strikes end, as it will take time and money to ramp up to full capacity—if that’s even possible since some mines have been damaged. The Implats CEO said it will take his company at least three months to return to full production, and they’ve already put the development of three new replacement shafts in the Rustenburg area on hold. Anglo American announced just last week that it plans to sell its platinum operations.
  • Holdings of physically backed palladium ETFs continue to hit record highs. In less than two months, a half million ounces were added to ETFs. Fund holdings will likely continue to climb and push the palladium market further into deficit.
  • The Russian government has been reportedly buying palladium from local producers, since it appears its stockpiles are near exhaustion. Exports ticked higher last month, but that was likely in anticipation of potential sanctions.
  • Some recyclers announced they are holding back on sales, as they believe prices will move higher.
  • Platinum demand in India is expected to grow 35% this year.
  • Reports have surfaced that tout replacements to platinum and/or palladium. However, these are mostly research projects and are at least two to three years away from commercial viability (some will never make it).
  • Auto sales in the US, China, and Europe, the three biggest regions by consumption, were up 12% through May over 2013.
  • Existing stockpiles of these metals have dwindled. Based on prior estimates from Citigroup, only nine weeks of palladium and 22 weeks of platinum supplies remain—and half of those are in Russia. Standard Bank projects that stockpiled material from South African producers will run out in a month or less.

The key point is that platinum and palladium supply is in a structural deficit. Prices will pull back now that the strikes have ended—and that is your opportunity. The bull market in these metals is really just getting underway.

And we have the primo pick in the space. The shares of this stock would have to climb 50% just to match its 2011 highs—and that’s without the platinum/palladium supply crunch we’re speculating on.

As you’ve surmised by now, I can’t give away the name of this stock in fairness to paid subscribers. But you can get it by giving BIG GOLD a risk-free try. You’ll receive our full analysis and specific buy guidance, along with an exclusive discount on a popular gold coin in the June issue. And, if you want the absolute safest way to invest in PGMs, check out the options recommended in the May issue.

If you’re not 100% satisfied with the newsletter, simply cancel during the 3-month trial period for a full refund—no questions asked. Whatever you do, though, don’t miss out on the best stock pick in the PGM bull market. Click here to learn more about BIG GOLD or click here to go straight to the order form.

We here at InvestLetters have been profiting from BIG GOLD picks for many years now and find the investment newsletter indispensable.

What Is The “Nuclear Solution” to Underfunded Public Pensions?

Be Very Afraid For Your Pension

What follows is a very important warning from Dennis Miller about pensions, in this case government pensions – particularly by states with underfunded pensions.

Read this no matter what age you are!

The key takeaway is that you should count on NO ONE other than YOURSELF to assure your financial future and a retirement that allows you to enjoy your golden years and not be reliant on hand-outs, whether from the government or relatives.

Fleeing The Insolvent States

The trend to flee states like ILL-inois is real, we are one of them along with Dennis and his wife. Unfortunately that trend also makes it difficult to find buyers for anything other than prime real estate!

Contrary to what you may expect base on what you read here, though, is that people are still flocking to Texas; though it should be pointed out that many are those fleeing states WORSE than Texas such as California (people who know how to bid up the price of real estate which is something Texas is now suffering from) and ILL-inois.

So it is our pleasure to bring you this CRITICAL READ from our friend Dennis.

This guest editorial is by Dennis Miller of Miller’s Money Forever

With few exceptions, state and local pension funds are woefully underfunded. Five heavily populated states—California, Illinois, Ohio, New Jersey, and Texas—collectively lack $431.5 billion; money that won’t be paid out to hopeful pensioners. That’s according to those states’ own accounts published in a 2012 Harvard University study that was led by former Assistant Treasury Secretary Tom Healy.

And the real numbers may be even worse: Accounting for current low interest rates, Healy and his coauthors estimate that the true extent of underfunding is $1.26 trillion.

When your tab is floating in the nebulous zone between $431.5 billion and $1.26 trillion, does the exact number really matter? Either way, you can’t pay it. Even wrapping your mind around numbers that large is difficult—like trying to visualize distances described in light-years.

In an understandable move to protect their interests (read: limit future tax liability), corporate heavyweights including Dow Chemical, ExxonMobil, Google, and Walmart sponsored a three-day judicial conference on public pension reform at George Mason University School of Law last month. One headline from the conference agenda: “Bankruptcy: The Nuclear Option.”

If the “nuclear option” scares you, it should. Still, some cash-strapped state governments are pushing for it.

A Political Solution Is Unlikely

The upside of a republican form of government—like we have here in America—is that it’s difficult to get much done. That’s also its downside. There’s a lot of political maneuvering among pensioners, union representatives, taxpayers, corporations, and politicians themselves, but very little progress has been made to find a long-term solution to the pension problem.

The union position is simple. The public employees they represent upheld their end of the bargain, and now it’s up to the legislators to find the money to uphold theirs.

Where? In his report The Plot Against Pensions, liberal columnist David Sirota suggests redirecting the “$80 billion a year states and cities spend on corporate subsidies” toward the $46 billion annual public-pension shortfall.

Corporate leaders see things a bit differently, of course. They say reducing corporate subsidies or raising corporate taxes would hamper business development and lead to lower employment rates.

Like the unions, they blame state and local politicians for not properly funding their pension programs in the first place. Both have a fair point.

The Plot Against Pensions vs. the Plot Against Jobs

What Sirota didn’t mention in his report is that corporate subsidies attract and retain much-needed jobs. One Illinois school district nearly learned that the hard way. In 2011, District 300 rallied to end $14 million in annual tax benefits for Sears Holding Corp., the parent company of Sears, Kmart, Land’s End, and other brands.

Sears promptly countered by threatening to move its corporate headquarters out of Illinois if the state ended the tax advantages it had enjoyed for 23 years.

And it wasn’t an idle threat either. Office Max, which recently merged with Office Depot, started moving 1,600 jobs out of Illinois last month after the state refused millions in tax breaks the company had requested.

Smaller businesses are getting out of Dodge too. Deron Lichte moved his 100-job business—Food Warming Equipment Co.—to Tennessee to escape Illinois’ 2011 income tax increase and its hefty corporate income tax—the highest in the nation.

The Little Guys Are Walking Too

Speaking of taxes, individual taxpayers are no more inclined to pay for underfunded pension promises than corporations are. Just like Office Max, Illinois residents are voting with their feet. And why shouldn’t they?

Legislators can’t hike taxes indefinitely to cover underfunded pensions and other government debts, and then gasp in surprise when their constituents walk. In fact, my wife and I sold our Illinois home because we were fed up with the high taxes.

In the book How Money Walks, author Travis H. Brown writes that from 1992 to 2011, Illinois lost $31.27 billion in taxes per year because former residents like myself refused to put up with its predatory taxation.

The same goes for New Jersey, which according to wealth management firm RegentAtlantic Capital lost $5.5 billion in taxable income in 2010 alone because residents moved out of state, often fleeing the state’s “millionaire’s tax.”

Plus, US citizens from all 50 states (including one member of our team) are now heeding the call of Puerto Rico’s alluring new tax benefits.

States and cities can’t tax their way out of the public pension crisis. More and more people will simply get up and move. Would the last person out the door please turn out the lights?

A Radical Solution That Will Never Come to Pass

While campaigning, Illinois governor Pat Quinn pledged to cut government expenses instead of raising taxes. We’ve heard that many times before, of course, and true to form, shortly after taking office, Quinn gave raises averaging 11.4% to 35 staffers. The public howled, so Quinn back-pedaled, giving the staffers 24 days off without pay so their salaries would ultimately stay the same.

Apparently it never occurred to Quinn that if 35 staffers can do their jobs with an additional 24 days off, he might be overstaffed. If all politicos are this financially pragmatic, don’t expect a pension-funding solution anytime soon.

The Nuclear Option: State Bankruptcy

Federal law allows local governments to seek Chapter 9 bankruptcy protection so long as state law permits it where the municipality is located. Cities like Stockton, CA, San Bernardino, CA, and most famously Detroit have already taken this path.

On the other hand, federal law doesn’t offer states bankruptcy protection—and it probably wouldn’t be constitutionally sound if it did. State-level bankruptcy is a scary thought—but it isn’t all that far-fetched either. Mainline politicians like former House Speaker Newt Gingrich and former Florida Governor Jeb Bush have both supported it.

There are obstacles, though: Congress would first need to amend the bankruptcy code, individual states would need to authorize application of that hypothetical law, and the Supreme Court would have to rule on whether the contracts clause prohibits states from declaring bankruptcy even if Congress allows it.

I don’t expect this particular nuclear bomb in my lifetime. I can’t say the same for my grandsons, on the other hand.

Your Shelter from the Fallout

There are real-life people depending on these underfunded public pensions. While I’m still flabbergasted that anyone would rely on promises made by the government, these public employees will suffer from the fallout.

I would suggest that every public employee should immediately—as in yesterday—start charting a private path to retirement. If those pension checks are there when you retire, they’ll be a welcome bonus. But don’t rely on them.

For that matter, private- and public-sector employees alike should independently prepare for their retirement. The only person you can rely on is you—and all it takes to turn that self-reliance into a low-stress retirement is a working knowledge of investing and personal money matters.

It is possible to plan ahead and get a steady flow of income every month, even if your public pension checks never come in and whether or not you’re still working. My team of analysts has put together a special report called Money Every Month that details how you can get a regular “paycheck” by investing in certain stocks—which we name in the report—according to a certain schedule.

For a limited time, we’re making this in-depth report available for free. Click here to get your copy now.