Occupy Gold

Lately, commodities and natural resource stocks have been through a pretty rough patch. But I’d be wary of NOT being exposed to a market that’s been beaten down so hard. In other words, don’t panic out of your positions.

Whatever daily disaster leads the news cycle, the fact is that people everywhere still want their world to work. People want food and clean water. People want housing, and they want the lights to come on when they flick a switch. They want gasoline for their cars (and they want cars!). Basically, people want stuff, and that requires a resource economy to deliver the energy and minerals that the world needs.

Invest in it.

You create wealth by digging or pumping something out of the ground. Then you refine it and process it, adding value along the way. Then you turn the product into a finished good that somebody else needs or wants. The idea of “finance” is OK to facilitate the foregoing, but not as an end in and of itself.

That’s why I pound the drum so hard for you to “occupy” the resource space, so to speak. Banks come and go — although many of them don’t go fast enough, in my view. But the resource industries endure. Occupy that.

The investment ideas in my letter, Outstanding Investments, are based on companies that control solid resource assets. I mean oil, natural gas, uranium, gold, silver, copper and much more. These are real things, not vaporware.

The companies I recommend not only have great assets, but also great management and excellent business plans. These companies are building themselves over time and creating new wealth. Over the long haul, I’m not overly concerned about these companies. When the smoke clears, they’ll be standing tall.

Still, in the short and medium term, the declining stock markets hurt. The markets reflect the world’s economic and political issues. Thus, it’s fair to say that the world is hurting us.

We’re living through some serious history right now.

The welfare-warfare state is broken…and broke. The West doesn’t have the overall economic capacity, or the future population of young, educated workers, to make it all work. The wheels are coming off, and we’re in for a romping ride on a rocky road.

Since the 1960s or so, politicians everywhere made too many promises that the long-term economy could not afford to pay. Whether it was defined-benefit pensions for government retirees or “free” medical care for everyone or “long wars” that transcended generations, there was simply not enough money to pay for it. And no, you can’t tax the “millionaires and billionaires” and make the numbers work.

Face it. Whether you’re liberal or conservative, or anything else, you can’t deny that most politicians in the West have spent their national treasuries deep into debt. Most national obligations — the U.S., the EU, the UK and many more — are far beyond the ability of their respective national economies to support the debt service, let alone to re-pay the original funds.

Greece speaks for itself. As does Italy. And Spain and Portugal. And the U.K., to get blunt. And of course, the U.S., with its $14 trillion national debt — a year’s worth of GDP. Hey, can a whole country work for free for a year, just to pay down debt? No way.

So if things are so bad, what can you do? What will you do? Go to a Tea Party rally? That’s nice, but will that alone secure your future? Or how about going to an Occupy Wall Street (OWS) protest? Yeah, right. A lot of good it’ll do you.

Here’s my plan. Skip the rallies and protests, and buy gold and silver. Which gets back to the point that I’m bullish for precious metals because I’m bearish on the prospects for the dollar, as well as the euro and most other national currencies. Long term, it’s just a question of which ones will decline the most, and in what order.

As the current, bloated structure of the Western Welfare State comes to an end, so will the currencies issued by those Welfare States.

We’re going to have to come up with other ideas for how to transact business. Maybe people will go back to trading seashells and wampum. But I’m inclined to think that the next financial revolution will bring competition to government-issued currencies. The next useful currencies will be backed by real assets — gold, silver, energy and more. So owning an interest in oil, uranium, precious metals and more will be like owning the “banks” of the future.

Every household ought to have, at the very least, a well-stored stash of bullion coins and small ingots. Keep the loot in a bank safe-deposit box if you can’t ensure security at home.

Gold is money. So is silver. If you’re reading this, I hope I don’t have to explain it. If you’re reading this, consider yourself part of the monetary resistance.

How much of your portfolio should be in precious metals? At least 10%. That’s the absolute bottom-line number. Any less, and you’re really taking your financial situation for granted. In my view, metal holdings of 15% or 20% of your total portfolio are better. Or hold more, if your circumstances warrant it.

People have been telling me that “gold is risky” and “silver is risky” for at least 10 years. That is, I’ve heard the warnings since I was buying gold at $290 per ounce and silver for under $4 per ounce.

But what if you didn’t buy gold and silver, starting 10 years ago? What if you’re just starting now? Well, there’s more downside than before. If you buy silver at, say, $30, it can drop to $20. Heck, it might fall to $10 — but not for long, in my view.

Gold and silver prices have been rising for ten years because politicians and bureaucrats across the planet, who control the world’s money supply and public spending, have messed things up. So unless you think that the political classes are all about to have a huge epiphany and begin governing responsibly, gold, silver and most other hard assets are a buy…still.


Byron King,
for The Daily Reckoning