Casey Research founder Doug Casey is loading up on gold again.
As you probably know, Doug made a huge bet on gold stocks last December. Since then, he’s put more than $1 million of his own money into this tiny sector.
Doug did this because he thinks the price of gold is heading much higher…and gold stocks are the best way to profit from rising gold prices. He wrote in March:
When people wake up and realize that most banks and governments are bankrupt, they’ll flock to gold…just as they’ve done for centuries. Gold will rise multiples of its current value. I expect a 200% rise from current levels, at the minimum. There are many reasons, which we don’t have room to cover here, why gold could see a 400% or 500% gain.
This should produce a corresponding bull market in gold stocks…perhaps of a magnitude we’ve never seen. A true mania for gold stocks could develop over the coming years. This could make anyone who buys gold stocks at their current depressed levels very rich.
But Doug didn’t buy “blue chip” gold stocks. He bet on tiny gold miners.
These companies are very risky. Some aren’t even making money yet. But, if gold rises like we expect, these stocks could hand Doug, and investors like him, monster gains.
We’re talking returns in excess of 1,000%, 2,000%, or even 5,000%. Most people can’t imagine making that much money on a single stock. But Doug’s hit many home runs like this over his career.
• To be fair, Doug bought most of these stocks months ago…
At the time, the price of gold was rising.
Of course, that’s not happening right now. The price of gold has fallen 10% since early August…including a 4% drop since Election Day. This wasn’t supposed to happen.
Heading into the election, most analysts thought gold would do well no matter who won. HSBC, Europe’s biggest bank, said the price of gold would hit $1,400 by the end of the year if Hillary won. If Trump won, it predicted gold would spike to $1,500 an ounce. That’s 18% higher than where gold closed on Election Night.
• Many precious metals investors are worried that gold’s falling…
But not Doug. He’s used the recent downturn as an opportunity to buy more gold stocks.
Louis James, editor of International Speculator, also sees the pullback in gold and gold stocks as an opportunity.
Louis explained why in an alert that he sent out to his subscribers yesterday. Today, we’re sharing the best ideas from that note with you for two reasons. One, we know many (if not most) of our readers own gold stocks. We also received many emails from concerned readers over the last few days.
We hope Louis’ insights help you better understand the recent pullback in gold.
• Louis says expectations of rising interest rates have hurt gold…
He wrote yesterday:
Many pundits have reasonable arguments for why gold’s retreat on Trump’s victory makes sense. To me, the most compelling one is that he’s been saying that the Fed should raise interest rates faster. As gold prices have dropped on mere hints of rate hikes, for years, the advent of an administration that will push the Fed to raise them more and faster is a perfectly plausible explanation.
You see, gold doesn’t pay an interest like a bond. Because of this many, many investors don’t like to own gold when rates are rising or likely to rise. But as we showed you yesterday, gold can do quite well during periods of rising interest rates.
In any case, the anticipation of higher rates appears to be weighing on gold.
• Louis also says Trump might not be as much of an “outsider” as people thought…
According to Louis, Trump’s tone has changed since he won the election:
[I]nstead of mustering his new power to declare war on the Establishment that had done everything it could to stop him, he declared peace. He asked his former opponents to work with him. He dropped the insults, bigotry, and boorish behavior. He sounded… presidential.
That’s when gold started sliding.
Then, as the week went on, Trump started backpedaling on repealing Obamacare and other measures. Perhaps most telling of all, he started tapping Washington insiders for his team. That’s a far cry from his pledge to “drain the swamp.”
• It looks like many investors aren’t as afraid of Trump as they were before the election…
In other words, the needle has swung from fear to greed in record time. Louis explained:
It sounds thin, but as the ridiculous saying goes, perception is reality. At least, in market psychology, it can be. If gold rose when Trump was up in the polls because investors feared him, it makes sense for that factor to lose force if investors stopped fearing him. That creates space for Trump’s stance on interest rates to become the dominant factor, pushing gold down.
Trump’s upset victory may be weighing on gold now. But Louis isn’t convinced this will last long:
Well, Trump is nothing if not hard to predict. It’s too soon to say that since Trump was bad for gold last week, he will be bad for gold in the weeks ahead. If investors’ perceptions of Trump changed so much in a day, they can change again some other day. All it will take is for Trump to say something truly alarming on TV. And the odds of that can’t be bad.
• Now, you're probably wondering what you should do with your gold stocks…
Louis and Doug are personally treating the recent pullback as a buying opportunity:
[T]he perception of Trump’s bark being worse than his bite creates a risk of more downside for precious metals and upside for industrial metals in the near term.
Does that mean it’s time to sell gold and silver stocks? Get out of harm’s way? Or is it an opportunity? One last chance to back up the truck for bargains ahead of the next major surge in the precious metals bull market?
I expect you know that Doug says it’s an opportunity. He tells me that he’s already started buying again, as he did last December.
Personally, I’m looking forward to adding to my bullion stash and buying some shares that got away from me before.
• Louis added that Trump’s policies should favor gold over the long term…
He wrote yesterday:
In addition to raising interest rates faster and higher, Trump wants to 1) Spend a trillion dollars the government doesn’t have. 2) Cut taxes.
I’m sure you can see the problem here. I’m all in favor of tax cuts, but there’s no way to spend more and take in less without taking on a huge amount of new debt or printing massive amounts money. Most likely, it will be both.
Of course, borrowing and printing more money won’t fix anything. It will only make current problems much worse. People who think otherwise are ignoring basic economics. Louis explained:
Could it be that in this new age, the government can rack up all the bills it wants without worrying about paying them?
I don’t buy it.
Human nature hasn’t changed. Neither have the laws of economics.
If Trump does what he says he’s going to do, we’re looking at more deficit spending, more debt, and more currency debasement—all things that should push silver and gold prices much higher.
• Louis sees “any more weakness in gold and silver in the near term as a buying opportunity”…
That said, he encourages you to use discipline during these uncertain times.
Mr. Market’s newfound love for Trump suggests that the next crash is likely a way off. A significant “honeymoon” period seems likely. That argues for caution and discipline.
Louis will take a closer look at the gold market in the upcoming issue of International Speculator, which comes out tomorrow. You can receive Louis' best ideas before anyone else by signing up for International Speculator.
But, before you do, check out this new presentation that our team put together. It explains why Louis and Doug are bullish on gold stocks right now. This video also reveals the secret method that they use to find gold stocks with massive upside.
As you’ll see, Doug has been perfecting this approach for decades. He’s used it to book gains of 487%, 711%, and even 4,329%.
This presentation also shows you how to access nine gold stocks with huge upside. Each of these stocks could double in the coming months. Many of these stocks are trading at deep discounts after the recent pullback.
• Before we sign off, you need to look at this important chart…
It shows the performance of Doug’s top gold stock since Election Day.
Unlike most gold stocks, this stock didn’t fall over the past week. It skyrocketed.
It’s now up 65% since last Tuesday. The VanEck Vectors Gold Miners ETF (GDX), which tracks major gold miners, is down 8% over the same period.
If you’ve been reading the Dispatch, you know this company has a stake in the world’s biggest undeveloped copper and gold deposit. You may also know that E.B. Tucker recommended this stock to readers of The Casey Report in August. His readers are up 68% on this stock in just three months. But E.B. thinks this stock is just getting started…
According to E.B., Trump’s victory is great news for this company. That’s because Trump’s pro-business administration “makes development of the company’s flagship project more likely.” If the company does break ground on this project, its stock could shoot through the roof…even if it takes time for gold prices to rebound.
Unfortunately, we can’t reveal the name of this stock out of fairness to our paid subscribers. But you can learn all about it by signing up for The Casey Report.
Before you do, watch this new presentation. It talks about three little-known events that could send gold prices much higher. Most investors have never heard about these potential catalysts. But we think that could soon change. To see why, watch this brand-new video.
Delray Beach, Florida
November 15, 2016
‘You Can’t Fix Stupid’
Editor's note: Today, we're wrapping up our special miniseries from Stansberry Research founder Porter Stansberry.
As you may know, U.S. corporations went on an unprecedented debt binge over the last decade. And now, all of the bad debts will be coming home to roost. Below, Porter explains what this means going forward...and gives an inside look at the research behind his "Dirty Thirty"...
(The following essay was published on November 15, 2016, in the Stansberry Digest.)
***In today's Digest... a look behind the curtain...
We finalized our "Dirty Thirty" list of companies that are most likely to default on their debts over the next three years. To make the list easier to follow, we've broken down the 30 different companies into several segments, including autos, malls, oil companies, master limited partnerships, and subprime lenders.
If you were an early subscriber and you saw our beta version, you'll notice a few changes to the names we've selected for our final list. We've focused on firms that have significant "near term" debt maturities.
In total, our final Dirty Thirty list includes publicly traded companies with more than $130 billion in debt repayments due over the next 36 months.
Here are a few highlights...
***Been to a mall lately?
Oh man, are these firms in trouble.
The most unusual aspect of commercial real estate (like malls, shopping centers, and office buildings) is that, most of the time, mortgages on these properties aren't paid down like residential mortgages are. Instead, the owners typically pay interest on the loan and then refinance when it comes due. (That's called "rolling" the note.) But what happens to properties with big vacancies that can't generate enough income to safely support a new loan?
Well, then there's a big problem.
You'll recall that the key default threshold in "junk" bonds is 5%. Once defaults reach that level, the losses associated with the bad loans cause lenders to draw in their credit. They get more conservative and demand higher interest rates and other safeguards that significantly restrict access to more credit. Well, the same thing happens in virtually every other segment of the credit market, including commercial real estate.
This morning's Wall Street Journal featured an article warning about the big problems developing in commercial real estate, especially for shopping centers. Overall, the default rate on commercial real estate loans that have been packaged into securities (about $400 billion of debt) has now breached the critical 5% threshold. The default rate on these securities is 5.6%. That means, going forward, it's going to be a lot harder for commercial real estate firms to move risky mortgages off their books.
Research firm Morningstar now predicts that 40% of commercial-mortgage-backed securities loans maturing next year won't be paid off.
If that's anywhere close to accurate, the entire market for commercial real estate lending will be virtually shut down, making it almost impossible to "roll" even relatively safe mortgages forward. This is a huge risk to real estate companies.
***And there's more bad news...
Under the Dodd-Frank regulatory overhaul, a series of new rules will go into effect on Christmas Eve. These new rules require issuers of commercial mortgage-backed securities to retain 5% of the securities they package and sell. That means these firms' balance sheets will take on even more stress, as they won't be able to sell all of their loans. Tad Philipp, director of commercial real estate research at ratings agency Moody's, told the Wall Street Journal, "You couldn't have planned worse timing."
***Finance is often poetic...
Let me tell you the best part about this bad news. Most of the commercial real estate loans that are going bad are loans that were made in 2006 and 2007 and then packaged into securities.
If you recall, that's the same period when corporate borrowing broke the $1 trillion annual threshold for the first time and saw a huge increase in low-quality residential mortgage underwriting. These residential mortgage securities going bad in 2008 and 2009 created the housing bust and led to speculators making billions in The Big Short. So... if you didn't make any money from our speculations (we shorted Lehman Brothers, Fannie and Freddie, and General Motors), you have one more shot at the brass ring. Ironic, isn't it? (To read the rest of Porter's essay, click here.)
Editor's note: Porter is about to recommend a speculation that promises to be the most profitable one of his career. If he's wrong, you'll lose a little money. But if he's right, you could make 10 or 20 times your money. He'll explain all the details and walk you through it step by step in a FREE live event on Wednesday. Reserve your spot here.
Porter recently sat down with Palm Beach Research Group co-founder Tom Dyson to discuss his Big Trade. You can watch it here: