The Midas Touch

by Dr. Steve Sjuggerud

Up to this point, my speech this week in San Francisco had gone over well…

I started out by sizing up the stock market. I showed how, even after nearly five years of stock market weakness, stocks are simply not a bargain. I showed some fancy graphs, and the crowd was with me, so far, so good…

Then I compared the asset bubble in the U.S. to the asset bubble in Japan. The comparison is remarkable, for its similarities and differences. (Bill Bonner does a nice job on this topic in his book, Financial Reckoning Day.)

For example, Japanese stocks soared 400% from 1980 to 1989, and Japanese commercial real estate rose by the same amount. When you look at it today (adjusted for inflation), you actually see that Japanese stocks and real estate rose nearly identically, and both crashed so hard, today they are back near 1980 levels (when you account for inflation).

American stocks acted like Japanese stocks, with a lag of 10 years. We had a huge bull market in stocks. However, contrary to what most people believe, we did not have a “bubble” in U.S. real estate, like Japan did. When you adjust for inflation, U.S. home prices are not up much at all since 1980… a gain of less than 2% a year. Hard to believe, but true.

This is when I started to loose the folks in San Francisco. I said that home prices nationwide were not in a bubble, and that home prices could continue to rise. They weren’t buying it. This is a place where “starter” homes can cost a million dollars or more. But they were intrigued, and they appreciated the fancy graphs. In other words, I might be right, but they weren’t going to buy anywhere.

After outlining the present state of investments as I saw it, I then shared my favorite investments with them. As a reader of True Wealth, you know what I told them… I mentioned timberland (through Rayonier) and they nodded in agreement. I mentioned 40% on our cash (through Apollo Investment) and the pens were out in full force. For my next investment idea, the room went silent. The pens stopped. Clearly, this San Francisco crowd was not interested at all in one of my top recommendations: gold coins.

Nothing I said got anyone to lift a pen…

To me it was a strong buy signal for gold coins. More evidence this is a truly hated investment, I thought. It follows just a few days after I talked to long-time True Wealth reader Ted B. at the rehearsal dinner for Porter Stansberry’s wedding. “Steve, you’ve made me a lot of money over the last few years. I appreciate your conservative style. But I lost my shirt in coins in the early 1990s, and I’m never buying them again.”

Ted is not alone. My father is an avid reader of True Wealth. He likes to buy most everything I write about. But he hasn’t bought any coins. And my mother-in-law is in the exact same boat – she can tell you all about our virtual banks, but no coins for her, either.

Were they all burned a dozen years ago by some shady coin salesman on the phone, and they don’t want to talk about it? Or do they have a friend that was really hurt? Is it that investing in coins is so different from buying a stock or a home, and they don’t want to try something new? I don’t know. The intrinsic value of the coins I’ve recommended so far is high, and downside is very limited. I don’t get it.

What I do know is that gold coins are super cheap, as I’ll share a bit today. And they are hated right now… nobody owns them. (Even people who love and trust me won’t buy them!) Meanwhile, gold coin prices have been in an up trend since 2001 (after falling for all of the 1990s, gold coins have performed the opposite of the stock market for the last dozen years). Those are the three things I look for in an investment – super cheap, hated, and in an up trend.

To me, the way you make money investing is extremely simple. You buy something of extraordinary value at a time when nobody else wants it. And you sell it at a time when people are willing to pay any price to get it.

Gold coins offer the best opportunity to do this in the investment world right now. If the last few coin bull markets are any indication, you could literally make hundreds of percent in the next few years. It’s happened before…. Remember David Hall’s quote at the beginning of this letter: “With a modest investment in the right coins in the early 1970s, you could cash out and buy a house by 1980, and many did.”