Worried Investors Wonder What to Do
May 14, 2009 by Chip Wood
What a difference a year can make. Last year at this time, investors at the various financial conferences I attend were feeling pretty good. Oh, there were a few storm clouds on the horizon. No one was singing “Happy days are here again.” But an air of quiet contentment seemed to prevail.
Not any more. Today, the mood is much more “Buddy, can you spare a dime?” Or as my fellow MC, Gary Alexander, put it, a lot of folks have changed their theme song from “If I were a rich man” to “I used to be a rich man.”
The devastation has been well-nigh universal. Every market sector in the country, and in fact every bourse around the world, has seen its share prices plummet. Even Warren Buffett, the legendary Sage of Omaha, who had demonstrated an uncanny ability to compound wealth for himself and his investors for more than two decades, was unable to keep Berkshire Hathaway from dropping like a rock.
So when the audience took their seats for the opening of the Atlanta Investment Conference three weeks ago, virtually every person present had the same questions and concerns. Where is the market headed next? Is the worst behind us? Or is this just a sucker’s rally, with worse news and further lows ahead of us?
And the most plaintive question of all: What do I do with my money now?
I was interested to note that none of the speakers and presenters was willing to take an all-out bullish stance. While several speakers saw some very profitable opportunities among the carnage (more on some of these in a moment), no one would declare that the market couldn’t or wouldn’t go lower. In fact, if you made a list of all the potential troubles they described — from a collapse in municipal bonds to more havoc in commercial and residential real estate — it would be enough to depress Mary Poppins.
If there was a consensus about anything, I would summarize it as follows: The massive government intervention in the marketplace is exactly the wrong thing to do. The cost — in wasted dollars, higher taxes, and bigger government — will be astronomical. The tsunami of new money being created makes it inevitable that the dollar will continue to fall in value. Under the circumstances, the best investments you can make will be in real things — with gold and gold-related investments near the top of many lists.
Veteran resource analyst Rick Rule put it this way: “The next five years will be spectacularly scary times. There are many black swans still be to seen.” That’s the bad news. The good news, he assured us, is that “We’ll be able to buy really, really good assets at really, really good prices.” And he added, “This will be the best buying opportunity of my career.”
So what will he be buying for himself and his clients? High on his list will be energy producers. He pointed out that most of the world’s oil is produced, not by private businesses, but by national oil companies. Instead of reinvesting in their industries, countries like Venezuela, Mexico, Ecuador, and Indonesia have been diverting the cash from their oil operations to fund social programs. These countries account for 30% of the world’s oil exports, Rick said. Over the next five years, he expects their exports to fall to zero. As that happens, expect the price of oil — and oil-company stocks — to zoom.
What about mining stocks? The odds against making money in the mining business are staggeringly high, he warned his audience. “Only one of 5,000 companies that says they are searching for metal ever becomes a mine,” he said. “A 1-in-5,000 chance of making 20-to-1 returns doesn’t strike me as very good odds.”
The best way to put the odds in your favor, he said, is through “prospect generators.” These are the small exploration companies with rights to a number of properties. When they find something worth developing, they partner with a major and use other people’s money to do the heavy lifting.
Two of Rick’s favorite prospect generators — or as he prefers to put it, “companies where I have significant conflicts of interest” — were exhibitors at the conference. They are Riverside Resources, Inc. (TSX.V:RRI; http://www.rivres.com) and Almaden Minerals (TSX:AMM; www.almadenminerals.com). Three others he mentioned are Eurasian Minerals, Laura Resources, and Miranda Resources.
“If your broker isn’t familiar with any of these companies,” Rick concluded by saying, “maybe it’s time to get a new broker.” We all knew who he meant. You can reach Rick, or one of his capable associates, at Global Resource Investments, 7770 El Camino Real, Carlsbad, CA 92009, 1-800-477-7853, www.gril.net.
At the “best recommendations” panel, the ideas came so thick and fast that my fingers grew sore trying to write them all down. Here’s a sampling:
*Roger Conrad of KCI Communications thinks that energy will be a solid investment going forward. He particularly likes the Canadian energy trusts. Asked to pick just one, he mentioned Interplus Resources (ERF:NYSE), which pays a healthy 10% dividend while you wait for its price to rise.
*Ron Miller of Morgan Keegan likes to use ETFs as a trading vehicle. In the base metals, his favorite is XLB. It can be very volatile, he warned the crowd. An even more speculative play is the banking industry ETF, UYG. It uses leverage to make double the gains (or losses) of the underlying equities.
*Frank Trotter, president of EverBank Direct, had a currency recommendation for the crowd. He likes the Norwegian kroner.
*Elliott Gue, editor of The Energy Strategist, thinks that oil prices have probably bottomed. But rather than buy the big oil producers, he likes the companies that service them. His favorite is the drilling specialist Weatherford (WFT:NYSE).
*Adrian Day, the panel’s moderator, said that three of his favorite blue chips are Nestle, HSBC, and Loews. His favorite junior gold producer is Virginia Mines (VGQ on the Toronto exchange).