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September 10, 2009 |
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China hates the dollar, buys gold (again)... Barrick takes off hedges... Congo gold... P&G growing again... Banks loving record foreclosures...
 In an interview with the London Telegraph, Cheng Siwei, former vice chairman of China's Communist Party's Standing Committee, said China has lost confidence in the dollar (nothing new there), and it is buying massive gold reserves to protect itself...
"Gold is definitely an alternative, but when we buy, the price goes up," Cheng, now a global economic ambassador for China, says. "We have to do it carefully so as not stimulate the market." So as a policy, China will buy gold on dips, creating a strong floor for the metal. China's buying – the country has doubled its reserves to 1,054 metric tons – also explains why gold has held strong despite a soaring market.
The world's biggest gold miner, Barrick Gold, hears China loud and clear... Barrick is rushing to unwind its fixed-price bullion contracts, which would expose Barrick to swings in the metal's price. Barrick is selling 94.8 million new common shares (17% more than the original sale, announced Tuesday) to help cover the $5.6 billion charge it will take to eliminate some of the hedges it has on 9.5 million ounces of gold.
And other miners are heading to the Congo – one of the poorest and most dangerous countries in the world – to find more gold to sell at these prices. AngloGold Ashanti and Randgold Resources are buying control of a deposit in the Democratic Republic of Congo (DRC) containing around $22 billion of gold. Production in South Africa has fallen, and after eight straight years of price increases, miners are desperate for untapped reserves. The DRC is one of the last known frontiers of untapped gold reserves. If AngloGold and Randgold have even mild success, expect every mining company in the world to set up shop.
Betting against the majority usually pays off, but we're still bullish on gold. The fundamentals are too strong. As Dr. Sjuggerud says, until the average American – who laughed at the idea of owning gold last year – starts e-mailing us asking us for advice, we're buying.
I think gold will hold on above $1,000 for another reason... the astronomical amount of money the Fed has printed into existence to fund the current bailout.
Last November, ace researcher James Bianco figured bailout spending at that time was equal to the inflation-adjusted cost of the Marshall Plan, Louisiana Purchase, Race to the Moon, S&L Crisis, Korean War, New Deal, Iraq invasion, Vietnam, and NASA – combined. Only World War II rivaled the bailout. And that was back in November.
All that spending originates as borrowing, and there's no way it'll ever be repaid. It'll be inflated away by the Federal Reserve's money printing. That will erode the value of the money in your pocket, in your bank account, and, yes, in your stock portfolio, too.
To take advantage of this nasty trend, I've recommended what I call "gold-backed annuities." These are the safest way to protect yourself from the coming inflation. To learn more, click here.
Since relaunching Inside Strategist with Braden Copeland in February, the results have been remarkable... By following what the insiders are buying, we've constructed a portfolio that is up an average of more than 20%. Last week's pick alone is already up nearly 10%... and the insiders are still buying.
This week's recommendation could be the biggest winner yet. It is a little-known company that generated more than $100 million in free cash flow last year. And the company just purchased 20% of the outstanding shares. Shares are still incredibly cheap, and management says the business should grow 10% this year.
But it's not just the lucrative business that will drive shares higher. This company is also super-leveraged to dollar weakness and the rising price of gold. The company earns almost all of its revenue in the currency of one of the world's leading gold-producing countries. If you're looking for a way to bet on gold with returns far higher than the actual metal, this stock is it. To sign up for Inside Strategist – for less than $4 per week – click here...
One way or the other, it's getting harder to argue there's a real economic recovery going on. Now, even Procter & Gamble, the largest consumer-products company in the world, says it'll start growing again in the fourth quarter, after two quarters of declines.
But my guess is we're not seeing a recovery so much as witnessing the effects of all those new dollars magically brought into existence as digits on Federal Reserve computers. Wouldn't it be great if you and I could do that? Don't have enough to pay the bills this month? No worries! Just add another zero to your checking account balance. You and I would get thrown in jail for it, but that's how Uncle Sam pays his bills everyday.
The more banks are able to lend, the more inflation heats up. That's how most of our money is created. It's lent into existence.
And apparently the banks are looking so healthy these days, they no longer need the government's help. The FDIC is considering withdrawing its guarantee on more than $300 billion in debt banks took on recently. The guarantee expires October 31... but it could be extended for another six months. The Treasury, too, says it plans to let the guarantee of money-market mutual funds expire on schedule, on September 18.
The banking system is like something out of Alice and Wonderland. It just gets curiouser and curiouser...
If banks are in such great shape, it makes me wonder why more than 100 of them have failed since early 2008. And how are they in such wonderful shape when housing foreclosures are still near record highs? In August, foreclosure filings exceeded 300,000 for the sixth month in a row. Deutsche Bank says foreclosures will top 2 million this year, keeping housing prices low into 2010. Nevada continues to be the worst hit state, with one out of every 62 homes getting a foreclosure notice in August, up 8% from July.
New highs: Annaly (NLY), Sprott Resources (SCP.TO).
In the mailbag... finding places that let you keep what's yours is getting harder and harder. Share your havens at feedback@stansberryresearch.com.
"I agree with you that the world has gone mad. However, I don't see why it is a problem for any foreign country to own real estate in our country. They have to pay taxes, keep the property in proper order. Obey our laws, and, who knows, maybe place a successful business in the commercial property that will hire people and give jobs that pay more taxes. They might have to put their money (foreign) into improving the property and subsidizing the business. They surely wouldn't want anything bad to happen to what they own here. I don't see the problem except that they might give money to politicians to use tax money for their gain-much like large corporations do now that are American owned." – Paid-up subscriber William Ribblett
"WA state does have an income tax, but only for businesses; it is based on a percentage (mostly 1.5% per annum of the gross income of the business over $12,000 per annum). So, if you are coming to WA, don't get a state business license if you can keep from doing so... WA state has the highest state gas tax in the nation and ranks right up there with Oregon for property tax rates (in most areas you pay 1% to 1.5% of assessed value per year, but some areas go up to 2%)." – Paid-up subscriber Joe
Ferris comment: Thanks, Joe. Good to know. Any readers out there recommend moving to a particular U.S. state?
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and Baltimore, Maryland
September 10, 2009
Stansberry & Associates Top 10 Open Recommendations
| Stock |
Sym |
Buy Date |
Total Return |
Pub |
Editor |
| Seabridge Gold |
SA |
7/6/2005 |
1,043.94% |
Sjug Conf. |
Sjuggerud |
| Crucell |
CRXL |
3/10/2004 |
227.31% |
Phase 1 |
Fannon |
| EnCana |
ECA |
5/14/2004 |
184.83% |
Extreme Val. |
Ferris |
| Humboldt Wedag |
KHD |
8/8/2003 |
179.68% |
Extreme Val. |
Ferris |
| Exelon |
EXC |
10/1/2002 |
173.77% |
PSIA |
Stansberry |
| International Royalty |
ROY |
3/16/2009 |
132.75% |
Extreme Val. |
Ferris |
| Icahn Enterprises |
IEP |
6/10/2004 |
131.59% |
Extreme Val. |
Ferris |
| Facet Biotech |
FACT |
7/15/2009 |
107.25% |
FDA Report |
Huang |
| QLT Inc |
QLTI |
12/17/2008 |
102.57% |
FDA Report |
Huang |
| VeriFone |
PAY |
4/24/2009 |
102.48% |
Inside Strategist |
Copeland |
| 4 |
Extreme Val. |
Ferris |
| 2 |
FDA Report |
Huang |
| 1 |
PSIA |
Stansberry |
| 1 |
Inside Strategist |
Copeland |
| 1 |
Phase 1 |
Fannon |
| 1 |
Sjug Conf. |
Sjuggerud |
Stansberry & Associates Hall of Fame
| Stock |
Sym |
Held |
Gain |
Pub |
Editor |
| JDS Uniphase |
JDSU |
1 year, 266 days |
592% |
PSIA |
Stansberry |
| Medis Tech |
MDTL |
4 years, 110 days |
333% |
Diligence |
Ferris |
| ID Biomedical |
IDBE |
5 years, 38 days |
331% |
Diligence |
Lashmet |
| Texas Instr. |
TXN |
270 days |
301% |
PSIA |
Stansberry |
| MS63 Saint-Gaudens |
|
5 years, 242 days |
273% |
True Wealth |
Sjuggerud |
| Cree Inc. |
CREE |
206 days |
271% |
PSIA |
Stansberry |
| Celgene |
CELG |
2 years, 113 days |
233% |
PSIA |
Stansberry |
| Nuance Comm. |
NUAN |
326 days |
229% |
Diligence |
Lashmet |
| Airspan Networks |
AIRN |
3 years, 241 days |
227% |
Diligence |
Stansberry |
| ID Biomedical |
MIDBE |
357 days |
215% |
PSIA |
Stansberry |
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