Hey fellow TYL’ers, here are some investment ideas for each of you. One thing before I get into the details: be sure you check the twitter feed (right-hand side) on my site from time to time as I post my real-time trades on there. If you have a twitter account, it may be easier to follow me there when it comes to live trades. My twitter account name is yajnikletter.
Buy gold and silver
What more can I say that hasn’t been said before. Government continues to print dollars paving the way for future inflation. This creates uncertainty and nervousness with those holding US treasuries as a reserve. If you spent $1 million per day from the time of the founding of Rome – roughly 2,700 years ago – until today, you would have accumulated about $1 trillion in debt. Now, double that amount. And that’s the size of our annual foreign borrowing obligation, which equates to about 20% of our GDP!
Also, governments around the world are in a long-term trend of debasing their currencies, which will send the price of “real assets” like silver much higher.
With this said, I recommend buying bullion (my preference…no funny money stuff can happen here as can be done with paper assets), ETFs (GLD and SLV…convenient and liquid enough for most investors to have an ownership stake in bullion, also look at GDX which is an ETF of gold mining companies), and mining companies (several to choose from…Barrick Gold, Pan American Silver, AngloGold Ashanti, Silver Standard Resources are a few I have traded).
Invest in uranium
Did you guys read this article? As you know, I have been bullish on uranium and nuclear energy even through the collapse of uranium prices a few years ago. The reason is because the fundamentals never changed and the sell-off was due to hedge funds liquidating their positions in this sector to meet capital calls due to the real estate collapse. Who would have thought a few years ago that we would be building nuclear power plants here int he US. France gets 70%+ of their energy needs from nuclear energy, India and China are building nuclear reactors, Russia is also active in this space, and Canada and Australia hold huge amounts of uranium. It’s the only environmentally friendly alternative to oil that can provide a widespread source of energy. The idea is that nuclear energy will not replace oil…rather, it will lower our dependence on oil. The way to invest in this sector is via uranium mining stocks. Keep in mind they can be volatile because volume across the board is low. I have no doubt that will pick up over time as this form of energy continues to gain popularity. This is an area you buy some shares and don’t look at it for a while. The ones I like are Fronteer Development Group, Laramide Resources, Mega Uranium, and Pinetree Capital to name a few.
Short the Euro
This type of opportunity doesn’t come along very often. It is time to bet against the euro. It is overpriced. The euro is in a horrible situation right now. A mountain of factors is against it. And in just the last 6 weeks or so, a downtrend has been established – so it’s time to make the trade. At the beginning of December, it cost $1.50 to buy one euro. Six weeks ago, it was at $1.45. As I write, it is at $1.36. It doesn’t sound like much, but a 9%-plus drop for a major currency in two months is big. I recommend buying ProShares UltraShort Euro Fund (EUO), which is a leveraged ETF to return 2 times the inverse of the movement in the euro on a daily basis. For example, if the euro falls by 1% in a day, EUO will increase by 2% in a day. Keep in mind there are some risks because these leveraged ETFs don’t move perfectly to that of the underlying asset over the long term…just on a daily basis as it essentially resets itself each day. I plan to hold this for about 2 months or so.
The reality is, the current problems in Europe are not going away. In the Wednesday edition of the Gartman Letter, Dennis Gartman said he is convinced “we are watching the first battles in a long war that shall end with the dissolution of the European Union and the European Monetary Union.” Then on Thursday, he made another great point: Let’s say you run the government in China or India, and you’ve been diversifying your reserves outside of the dollar and into euros. Now the euro is in danger of breaking apart. What would you do? Would you hold your euros and hope? Or begin a hasty exit? The choice is clear: “Sell… and sell what you can,” Gartman says.
The cultural differences between each of the European countries is just too great. Europe is not America as Americans have common ground and common culture. That’s just not the case in Europe. It was just a matter of time before these differences came to the surface and that time is now. So, let’s look to profit from it. As I said, let’s buy EUO. Uncertainty is here and it will be around for a while.
Buy world dominating brands with a history of increasing dividends
Let’s face it…the economy is not stable yet. The minute you remove the government assistance, instability returns. That happened when the $8,000 first time home buyer credit refund expired just to see it extended. Banks are still struggling and when the mountain of commercial real estate debt comes to maturation, watch out! During these times, you want tried and proven companies with dominant global brands and a history of increasing their dividends to weather any potential downturn. You talk to 10 economists and 5 will say we are in a bull market and the stimulus is working. The other 5 will say it’s just a matter of time before the other shoe falls and that the stimulus is simply preventing the inevitable pain from occurring. For what it’s worth, I am in the camp of the latter.
With that said, I like companies such as McDonald’s, Wal-Mart, Verizon, Family Dollar, Exxon, Johnson and Johnson, Proctor and Gamble, and Microsoft. All of these companies are leaders in their respective industries, have pretty good dividend yields, most have a history of increasing their dividends on a regular basis, and are well capitalized (plenty of cash), should still perform well if the economy continues to struggle.
If you wanted to be speculative with some money and willing to hold for at least 3-4 years, you could look at these stocks as I am pretty sure they will still be around 5-10 years from now and in better shape when the economy should be better. I would recommend Citigroup, Bank of America, Ford, and Toyota.
What about real estate? Has the industry reached a bottom?
Like I said above, banks are still struggling in midst of a mountain of commercial real estate debt coming to maturation right at them. I have read reports that quantify the amount to be in the $600 billion to $1 trillion range. The issue is that many of these loans are in the form of interest only structures with massive balloon payments at the end. The reason for this is because, typically, developers want the payments to be low during the development process and then once they exit the asset and capture the revenue, they are able to pay off the balloon payment. The problem is that many of these balloon payments exceed the appraised value of these developments. So, with the tighter underwriting standards in place now, there is no way these loans can be refinanced. The only things that can happen is the government coming to the rescue by printing more dollars (read here: positive for precious metals) and/or the banks “pretend and extend” these loans hoping for the market to rebound. This will only delay the inevitable which is a write down of these assets on the banks’ books and allowing the free market to determine price. So, I am negative on commercial real estate. For the opportunistic investors out there, I think there are some one off good deals out there right now and surely more to come.
Let me know your thoughts. To provide full disclosure, these are all areas I am invested in. Before you invest, I recommend you consult your personal financial advisor.
-Samir