By: Arnold Bock
Investing in natural resources (i.e. energy, agriculture and minerals – and especially gold and/or silver) is virtually guaranteed to be the most investor-friendly sector.
So says Arnold Bock (www.FinancialArticleSummariestoday.com) in an article* which Lorimer Wilson, editor of www.munKNEE.com, has reformatted below for the sake of clarity and brevity to ensure a fast and easy read.
Economic Realities That Will Adversely Affect Your Approach to Investing
a) Increased Volatility:
The period ahead will be marked by uncertainty and increasing anxiety in terms of economic direction which will lead to dramatic volatility in the financial markets.
b) Lower Asset Prices:
Asset prices generally, but not commodities, are expected to continue to drift lower.
c) Higher Interest Rates:
While interest rates are currently at multi-decade lows, they will not remain there indefinitely. The inevitable rise in interest rates will trigger a variety of new financial and economic crises affecting governments and the private sector.
d) Bursting Asset Bubbles:
Record low interest rates initiated by central bank policy have caused several financial bubbles. The technology sector which burst during the 2000/02 period was followed by the residential real estate sector which peaked in 2006/07 in the U.S.
Moreover, the bottoms for residential and commercial real estate have not yet been reached.
Excessively low interest rates led not only to asset bubbles but to easy credit, borrowing and excessive leverage. The consequences are serious disruptions in the broader economy starting with the financial sector and now the government sector with its unprecedented deficits and debt.
e) Continuing Debt Crises:
Financial sector debt, personal debt and sovereign government debt have become realities for which the consequences are only partially visible. Nations experiencing the greatest financial stress are mature advanced economies which include the United States and much of the EU and Euro zone of western Europe and Japan.
f) Slower GDP Growth:
With the partial exception of a few nations of the developed world whose economies are based on natural resources (Canada, Australia, New Zealand, Denmark, Norway, Sweden and Finland) most other developed nations are incapable of growing and taxing their economies sufficiently to avoid future debt default, dramatic currency devaluation, and price inflation leading to insolvency. Germany and the Netherlands are likely exceptions.
How to Prepare for Such an Investing Environment
1. Pay off debt – get liquid and save.
2. Don’t buy on credit – unless the rate is locked-in for the long term.
6. Don’t make frequent buy and sell transactions – trading and speculating is best left to knowledgeable and experienced professionals.
7. Keep informed – read extensively, ask questions of persons without vested interests in the sale of financial products, and resist the hype of the popular financial media.
Where to Consider Investing – 12 Suggestions
1. Consider investing in securities other than fixed income/fixed interest rate investments such as bonds, financial institution CD’s and money market funds. Higher interest rates lie ahead which will cause the price of one’s current fixed income investments to plummet.
2. Consider investing in securities/assets denominated in more than one currency. The ramifications of currency devaluation brought about by excessive money printing (i.e. quantitative easing and debt monetization) will lead to a reduction in the value of your investments.
3. Consider investing in stocks of companies with a large percentage of their income derived from emerging markets to hedge against currency devaluation as well as from dislocations in the economic and financial markets of your own country.
4. Consider investing in securities and assets denominated in currencies other than the U.S. dollar. It will become increasingly dangerous to place all one’s investment eggs in the U.S. basket. An exception is to invest in American companies which obtain a majority of their income from business activities in foreign countries and emerging markets (Warren Buffett frequently advocates asset diversification of this kind).
6. Consider investing in Emerging Markets in order to achieve a more balanced investment portfolio. Countries holding the most potential in the period ahead include the (BRIC) countries of Brazil, Russia, India and China as well as Indonesia, Thailand, Singapore, Taiwan, Malaysia, South Korea, Vietnam, Turkey, Chile, Colombia and Peru for their economic potential and relative political stability.
7. Consider investing in resource based nations of the developed world such as Canada, Australia, New Zealand, Denmark, Norway, Sweden and Finland. The currencies of such financially vibrant nations invariably rise in value when compared to the declining value of currencies of nations in decline.
8. Consider investing in natural resources which are almost guaranteed to be the sector most likely to benefit during the period ahead, especially when the global economy experiences substantial forward traction. The primary resource sectors of Energy, Agriculture and Minerals are and will be the most investor-friendly sectors.
10. Consider investing in the primary agricultural grains of rice, wheat, corn and soybeans along with their processors and distributors, fertilizer manufacturers, seed and chemical suppliers as well as machinery suppliers.
11. Consider investing in minerals, especially base metals, which are absolutely necessary in order to develop massive public infrastructure and products for the rapidly developing world with 6.5 Billion growing population.
12. Consider investing in precious metals. Not only is global population growth continuing unabated, people in emerging markets are rapidly entering the middle class from basic standards of living. Elevated demand for quantity and quality of life’s amenities beyond basic needs will fuel much added demand for basic materials and resources needed for manufacturing in order to satisfy growing middle class needs and wants. Precious metals, especially Gold and Silver, have industrial applications as well as being stores of value/money…especially gold.
Conclusion
With paper/fiat currencies susceptible to rapid devaluation caused by rampant and out of control ‘money’ creation by their respective governments, ‘tangibles’ of all kinds including natural resources and real estate (after it has corrected from prior bubble levels) are preferred investments in this type of environment. To be even more specific:
Investing in precious metals is virtually guaranteed to be your safe haven refuge.
All Things Considered – John’s Commentary:
Gold and silver is not the only asset class to consider, but it should play a role in your portfolio’s diversity. Clients and prospects ask me, “How much should I have in gold and silver?” Formerly I would have said 5-15%. I now will not hesitate suggesting 10 – 30%, based on your personal view of the economic landscape. If you are highly optimistic, I would suggest 10%. If you are struggling to find reasons for optimism, I would suggest 30%. If you are reading this and you do not have at least a 10% position, don’t wait – act now!
What to buy: Begin to split your purchase 50-50 between gold and silver. If you are holding a lot of silver, consider swapping some of it for gold as the gold:silver ratio currently favors moving some silver into gold. Expect to gain 20% in additional ounces by deploying this strategy. Call us to discuss if this is a good strategy for you.
Quote of the day: “Monopoly money is the money over which some government has a monopoly.” – – Robert Prechter
