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Economic Volatility
Is Economic Volatility Coming?
Source: Karen Roche and JT Long of The Gold Report (5/9/12).
One special session at the April 27–29 Casey Research Recovery Reality Check Summit wasn’t on the agenda—a private panel for The Gold Report readers with three of the premier summit speakers: Global Resource Investments Founder and Chairman Rick Rule, Casey Research Senior Editor Louis James and Casey Energy Opportunities Senior Editor Marin Katusa. You won’t pin them down to a timeframe, but they’re looking forward to a buyer’s market, as equity prices fall and volatility increases. As Rule puts it, “When the luster is off the sector, it’s off all parts of the sector, so in bad markets the best companies are cheap. When the best come cheap, you have to play.”
Casey Research Summit Special Report: Reality Check or Checkmate?
The Gold Report: When we talked last fall after the When Money Dies summit, Rick, you were looking forward to the volatility preceding the decline of paper currencies as an opportunity to take advantage of the liquidity crisis.
Rick Rule: The volatility I anticipated didn’t happen because the amount of quantitative easing—I would call it counterfeiting—was extraordinary. That cash coming into the system acted as a soporific, so the volatility I had hoped for did not in fact come to pass. People whose portfolios declined probably felt they experienced volatility, but I think it was the weight of the chronically overvalued junior resources sector. Probably 80% of the sector is nonviable and in a state of permanent decline, with the market occasionally punctuated by up moves driven by performance among the best companies.
TGR: So, you were disappointed.
RR: I was very disappointed. I expected a Volatility S&P 500 (^VIX) in the range of 30. For somebody who makes a living basically as a pawnbroker, there are no better circumstances than extraordinary volatility. I didn’t get to practice my trade.
TGR: Do you think it will change in the second half of 2012? Continue reading
What Is Contrarian Speculation?
Rick Rule’s Primer on Contrarian Speculation
In an interview with Louis James, Rick Rule provides an excellent summary of what contrarian speculation investment is and makes a powerful case that the current metals climate means gold stocks are the play to make.
[If you weren't present at this timely summit, you can still learn the details of Rick's current investment strategy, plus much, much more. Get the actionable advice and economic perspectives and insights of 31 financial luminaries to make sure you don't miss the opportunities ahead.]
Louis James: Ladies and gentlemen, welcome. Thank you very much for tuning in. We are at the Casey Research Summit – the reality check on the recovery of the economy. One of our luminary speakers who is always at our events, Rick Rule, is with us here now. We’d like you to give us the quick tour of your talk today and we’ll go from there.
Rick Rule: Sure. My role here wasn’t to do economics; that’s not what I am. I am a speculator, and so I talked about where we are in the context of where people are with their own portfolios – in particular portfolios that are junior-resource centric – which is what I think most of your audience was interested in.
Louis: Right.
Rick: And my point was that there were some good forces in the market: lots of cash on the sidelines; some good work being done; and basically a good market for resources as a consequence both of population growth and demographic growth at the bottom of the economic pyramid, and in terms of historical supply constraints. And there were some bad factors in the market: excessive debt in the system; way too much government interference; very large social takes on a global basis, beginning to impact extractive industries. And there were some truly ugly factors – the ugly factors in particular being poor corporate as opposed to share market performance, and the unfortunate truth that probably 80% of the junior resource stocks on a global basis are valueless. So the sector itself is in perma-decline. Although the performance – as you know from being affiliated with Casey – of the top 10% of the sector can be extraordinary. It often serves merely to focus attention on the worst companies in the sector. And then I went on to say: “This is the set of circumstances that exists, now what can we do with this?” Continue reading
Is it a Good Time to Buy REITS?
Buy Rental Property or a REIT?
Although many individuals prefer rental units as additional income, one of the last things you probably want to do in your retirement is to find renters and deal with the drama that comes from having them rent for you. You have to find tenants with reliable income, continue to provide maintenance and other support for them, and worry about potential problems with non-payment or other issues.
Buy REITS?
Traditionally, one of the best retirement investment options is a real estate investment trust (REIT). According to Wikipedia:
A REIT or “real estate investment trust” is a tax designation for a corporate entity investing in real estate. The purpose of this designation is to reduce or eliminate corporate tax. In return, REITs are required to distribute 90% of their taxable income into the hands of investors. The REIT structure was designed to provide a real estate investment structure similar to the structure mutual funds provide for investment in stocks.
As opposed to buying rental homes or properties, REITs offer a lot of diversification and are very liquid. It’s easy to sell REIT shares on the stock market and they are usually very stable. On the other hand, houses can be difficult to liquidate and people are finicky, leaving landlords with a lot of potential risk. Continue reading
Investing in a Mutual Fund
Mutual Funds
Even in the wake of the Great Recession, the mutual fund has proven itself a worthy investment for the average person. In fact, many people are actually looking towards mutual funds as their hedged bet into the world of variable investments.
In order to fully understand how to invest in a mutual fund, you must first understand exactly what a mutual fund is.
What Is A Mutual Fund?
A mutual fund is a basket of investments that is chosen by a management team for the profitability of the investors. This is why many financial investors actually say that when you are investing in a mutual fund, you are investing in the reputation of the managers as well as the reputation of the underlying businesses.
Mutual funds usually have some kind of theme that combines the investments in the basket. For instance, all of the investments may be related to the precious metals market. In this case, the title of the mutual fund would be something like “Bank X Precious Metals Growth Fund.” Although the title of the mutual fund can give insight as to the underlying investments, they may only represent the top percentage of holdings. We recommend that you check into the actual underlying investments that are currently being held in the mutual fund to be sure that it is actually investing in what you think it is.
How Mutual Funds Work
The main idea behind a mutual fund is to allow an investor to instantly diversify their investments with a single purchase. The managers will spread out the total money collected from the investors into companies that are related to the theme of the mutual fund. Because of this, mutual funds are usually thought of as a relatively safe investment that is made for those of a lower risk tolerance. However, the rewards that accompany a mutual fund are usually not comparable to those of individual securities and short-term. They may be in the long-term depending on many variables.
Mutual funds have a scale of risk that is associated with a general view of the mutual fund market. If a mutual fund is marked as a “growth fund,” this means that investors should invest in this fund with the hopes of growing their investments over a certain time period. However, Continue reading
Invest in Structured Bonds?
By Tim McMahon, editor
What Are Structured Bonds?
First let’s look at what makes up a bond. A bond is a form of debt where a company borrows money from investors and has a certain expiration date called a “Maturity Date”. The interest rate that the company pays is called the “coupon rate.” One advantage of a bond over a stock is that a bond is a debt so bondholders are “creditors”.
In the event of corporate bankruptcy bondholders go to the head of the line while shareholders as owners go to the back of the line and only get whatever is left over (if anything) once all the creditors (including bond holders) are satisfied.
In an effort to lower the interest rate they had to pay to investors companies started offering “convertible bonds.” Thus a convertible bond has all the security benefits of a bond with some of the upside potential of stocks.
A convertible bond has the option to be able to be converted into stock if the price of the stock rises high enough. In this way, investors were not only lenders to the company but could also participate in the growth of the company as shareholders. In exchange for this added potential gain the bondholders were given a lower interest rate, i.e. the “Coupon rate” is lower on a convertible bond than on a similar standard bond.
Structured bonds are based on the idea of convertible bonds. In an effort to add even more flexibility and additional features including higher yields, lower risk or a variety of other features, investment banks started ‘slicing and dicing’ traditional bonds in a variety of ways creating derivatives called structured bonds.
Two Forms of Structured Bonds
There are two basic forms of structured bonds Continue reading
Where (and When) to Place Your Investment Bets?
By Jeff Clark, Casey Research
Let’s explore the advantages of saving in gold and silver over dollars. Here’s a hypothetical look at what could occur over the remainder of this decade.
The charts below compare saving $100/month in gold and silver vs. an interest-bearing money-market account. For our projections, we assumed gold’s average annual gain of 18% since 2001 will continue through 2020. For the money-market account, we used an annual interest rate of 1% in 2012 and added 0.5% each year, so that by 2020 it’s earning 5%.
Here’s what would transpire by 2020: Continue reading
Will India Stop Buying Gold?
By Jeff Clark, Casey Research
We’ve read mixed reports about how lofty gold and silver prices are affecting demand in India. One month we’re told demand is up, and the next it’s supposedly down. I’m not suggesting that official reports are inaccurate, but it is admittedly confusing and doesn’t help us understand the real trend in the country.
Why should we care about the gold market in India? Well, let’s face it; the nation is one of the biggest consumers of the metal, a major driver that can give us hints about demand and investment trends, along with what to perhaps eventually expect here in North America. But reading third-party reports about India is very different than getting information firsthand from a credible source in the country. I wanted to get to the bottom of what’s really going on in India by talking to a reputable bullion dealer who could give me the inside scoop, an up-to-the-moment dispatch from the front lines, as it were. So I did just that.
Ashish and Rashmi Sand own Savio Jewellery (Savio means “shine” in Italian), a design studio and jewelry factory in Jaipur, India. They’ve received many design and manufacturing awards since starting their business six years ago, winning five awards in just the past six months. They source gold from bullion agents in Jaipur, who in turn obtain it from dealers in Hong Kong, Dubai, Mumbai, and Delhi. They have industry contacts, friends, and relatives that span the globe, from the US and UK to Asia and Australia. If anybody knows what’s happening in the physical gold and silver bullion markets and the Indian jewelry market, it’s them.
In this exclusive interview, you can read what Ashish and Rashmi told me about unstoppable demand, growing silver interest, budding demand for coins and bars, reduced selling, shifting trends with women, burgeoning ETFs, and why they believe a bubble is headed our way…
Jeff Clark: Ashish, tell us about your manufacturing facility and design studio. Continue reading
ETFs: Do You Really Know What You’re Buying?
By Vedran Vuk, Casey Research
Exchange-traded funds have been all the rage in recent years – they are easy to buy, easy to sell, and often have lower expense ratios than index mutual funds. But the Casey Research team dug deep into the complex world of ETFs and found that in many cases, their names can be utterly deceptive.
Here are a few excerpts of our revealing special report, The Top Ten Misleading ETFs.
Market Vectors Junior Gold Miners (GDXJ) – This ETF sure has a funny definition of a junior mining company. In my opinion, a junior miner is a small, speculative company just getting off the ground. Our publication, Casey International Speculator, specializes in this particular kind of company. If I had to put a number on the market cap, I’d say that junior miners fall under the $500 million mark. If you really want to push the definition to its limits, maybe a market-cap ceiling of $1 billion could still qualify for junior status.
Regardless of the exact line of demarcation, most of us can agree that “junior” means “small.” Furthermore, most investors can agree that market caps over a billion dollars are anything but small. A billion isn’t a major, but it’s clearly in mid-tier territory. That said, the Junior Gold Miners ETF’s top 10 holdings are all over a billion dollar or more. The top holding, with 5.23% of assets, even has a market cap of $2.4 billion – that’s not exactly a junior, to say the least, and neither are the other companies on the list: Continue reading
The Pesky Details of Prospectus Disclosure
By Vedran Vuk, Casey Research
In the infamous case of the Goldman Sachs Abacus 2007 AC-1 fund, it doesn’t take a whole lot to figure out the wrongdoing. Paulson & Co., a multibillion-dollar hedge fund, helped select the mortgage-backed securities held by Abacus while at the same time, Paulson was planning on shorting it. This was all unbeknownst to Abacus buyers, since Goldman Sachs conveniently left out the details of Abacus’ creators and their bet against the fund in the investment marketing materials. Ultimately, the case was settled for $550 million.
Goldman Sachs made a huge mistake here. By not telling its clients about the conflict of interest, the whole thing seemed like the coverup of a malicious act in order to defraud investors. What it really should have done is put the fund’s flaws in difficult-to-understand language on page 82 of the hundred-page prospectus. After all, that’s what everyone else in the industry does, and they’re certainly not settling for half a billion dollars with anyone.
The exchange-traded fund (ETF) industry has made millions – if not billions – of dollars on products sold with a similar approach. If the problems are laid out somewhere, it’s not the ETF company’s fault when the fund fails. Better yet for them, ETFs never promise results… they are marketed only as an investment tool. In the majority of cases, this works just fine. It’s wonderful that investors can purchase a whole index such as the S&P 500 with a single ETF.
Unfortunately, these incentives can create a serious problem in the ETF industry, as popularity drives much of its profits, rather than results. When commodities became all the rage in the past decade, retail investors flooded billions into futures commodity ETFs promising to provide an easy way to invest in the asset class. It didn’t matter that the underlying investments were doomed for failure. The funds lay out the risks in the prospectus and then wash their hands clean should the ETF head for the worst. Sometimes the failure of those funds is hardly an accident or the result of bad luck. Continue reading
Casey Research Recommended Reading
By Robert Ross, Casey Research
We at Casey Research are often asked, “What books have had the biggest impact on your investing philosophy?” To find out, we took a quick, informal poll of our most prominent economists, editors, and analysts to see which books helped form their unique economic outlooks. The books range from mainstays of the political economy, such as Thomas Sowell’s A Conflict of Visions, to classics from antiquity, including Plato’s The Republic. However, genres often overlooked – like our founder Doug Casey’s longtime interest in science fiction – should give current and prospective subscribers a glimpse into the diverse influences that drive our publications. Continue reading
