My High Dividend Stocks Blog

My High Dividend Stocks
This is my high dividend stocks site where I help site members find high dividend stocks with earning power and strong balance sheets.

Waiting for the Fidelity Select Gold Fund to bottom

I’m waiting for the Fidelity Select Gold fund (FSAGX) to bottom.  Then I’m going to buy some.  This is mutual fund made up of the major gold mining stocks.  The sovereign debt crisis in Europe will hurt the gold price.

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Gold mining stocks day four: Kinross Gold Corp (KGC)

It is crisis time in the Eurozone and elsewhere.  Stock markets will crash at least as hard as in 2008 when Europe goes into recession.  Gold is a crisis hedge, but it drops in a stock market crash also (just not a badly).  And gold mining stocks are a great performing asset, but only after most of the stock market crisis has passed because the world is dominated by Keynesian economics.  The financial media, government technocrats, and almost all PhD economists practice the voodoo economic religion of Keynesian economics.  Keynesian investors flee stock markets in a panic and run to US government bonds.  Bonds are bought in dollars.  Demand for dollars increases, demand for gold drops.  This is an opportunity of immense proportions if you keep your powder dry.

It is gold miners week at www.myhighdividendstocks.com, but not because gold miners are high dividend stocks.  Most are no or low dividend stocks.  However, gold mining stocks will offer some huge capital appreciation potential once the US and European stock markets crash again.  Every central bank in the world is printing money (Dollars, Euros, Yen, Pounds, and Yuan) and the commodity gold is priced in fiat currencies, so as more money is printed the price of gold expressed in fiat currencies goes up.  It really is that simple.  Gold mining companies can increase their profit margins when the cost of extracting gold from the Earth’s crust goes up a little and the price of gold goes up a lot.  But gold mining companies tend to be more volatile than the price of the underlying commodity.  They amplify gold’s gains and losses as you will see below.

So what is the best price for several of the gold majors that offers capital preservation and maximum opportunity for capital appreciation with maybe some dividends thrown in for good measure?  That’s what I hope to find out this week for you and I.

Next up is Kinross Gold Corp. (KGC)

Morningstar’s take: Kinross Gold is an intermediate-size gold company with operations in the U.S., Russia, Chile, Brazil, Ecuador, Ghana, and Mauritania. The company generates over 90% of revenue from gold sales and the rest from silver. Copper and other metal output is negligible. We do not think the company has an economic moat, as Kinross' mines are generally medium- to high-cost compared to industry peers. Over the years, Kinross has gone through a series of acquisitions and asset swaps to compile a portfolio of gold projects, however, the rising capital costs of these projects and higher production costs will be a big concern going forward.

Kinross Gold is a Canadian-based gold mining company with 62 million ounces of proven and probable gold reserves, 91 million ounces of silver reserves, and an annual production of 2.3 million ounces of gold. The company operates eight producing mines and five projects in the U.S., Latin America, Western Africa, and Russia.

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Price: $13.26

Shares: 1.14 billion

Market capitalization: $15.08 billion

Bonds outstanding: $3.3 billion

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None of Kinross’ bonds are due anytime soon.

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DIVIDEND RECORD – Kinross has been paying a low semi-annual dividend since 2008.  There isn’t much history there, but they have grown the dividend by 50% from $0.04 to $0.06 in 4 years.

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Dividend: $0.06 semi-annually

Dividend yield: 0.9% ($0.12 annual DIV/$13.26 share price)

Dividend payout ratio: 15% to 38% depending on how you calculate ($0.12/$0.81 recent EPS or $0.12/$0.26 avg adjusted EPS over six years)

EARNING POWER – Six year average adjusted earnings of $0.26 per share @ 1.142 billion shares

(Earnings adjusted for changes in capitalization – Kinross has increase the number of shares by 223% since 2006)

                        EPS       Net Inc.             Shares               Adj EPS

2006                 $0.47    $165 M              353 M                $0.14

2007                 $0.59    $334 M              566 M                $0.29

2008                 ($1.28) ($807 M)           629 M                ($0.71)

2009                 $0.44    $310 M              697 M                $0.27

2010                 $0.93    $772 M              829 M                $0.68

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2011 Q1            $0.22    $256 M              1,139 M             $0.22

2011 Q2            $0.22    $247 M              1,141 M             $0.22

2011 Q3            $0.19    $213 M              1,142 M             $0.19

2011 Q4            $0.24 E $274 M E           1,142 M             $0.24 E

20011 E             $0.87    $990 M E           1,142 M             $0.87 E

Six year average adjusted earnings of $0.26 per share.

Consider contrarian buying at $2.08 (8 times average adj EPS)

Consider value buying at $3.12 (12 times average adj EPS)

Consider speculative selling at $5.20 (20 times average adj EPS)

Kinross Gold Corp is currently trading at 51 times average adjusted annual earnings.  The is highly speculative pricing.

BALANCE SHEET – That is a nice balance sheet, but goodwill accounts for 33% of assets.  It would still be a good balance sheet if goodwill were zero.

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Book value per share: $13.22

Price to book value ratio: 1.00 (good)

Current ratio: 4.43 latest quarter (over 2.0 is good)

Quick ratio: 3.19 latest quarter (over 1.0 is good)

Debt to equity ratio: 0.09 (this is good)

CONCLUSION – Kinross Gold Corp. is a low dividend grower that is speculatively priced for its earning power.  The company’s balance sheet is strong.

Kinross bottomed in the $8.81 dollar range in October 2008 several months before the US stock market bottom in March of 2009.  That represented the best investment entry into Kinross since late 2008.  The gold price will go down at least half of the percentage of the stock market’s decline.  This happened in 2008-2009.  US stocks dropped about 50% and gold dropped about 25%.  However, Kinross dropped even more than the broader market or gold.  It dropped almost 67% from $26.84 in March 2008 down to $8.81 by October 2008.  Don’t think that it won’t happen again.  Wait for another bottom near value territory at $5.20 per share.  Kinross would be yielding about 2.3% if it keeps its new dividend rate at such a low price.  The good news is that gold will continue to go up in price as the world’s sovereign debt crisis worsens, but you have to buy extremely low to preserve your capital when purchasing mining stocks.

DISCLOSURE – I don’t own Kinross Gold Corp. (KGC).

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Gold mining stocks day three: Newmont Mining (NEM)

It is crisis time in the Eurozone and elsewhere.  Stock markets will crash at least as hard as in 2008 when Europe goes into recession.  Gold is a crisis hedge, but it drops in a stock market crash also (just not a badly).  And gold mining stocks are a great performing asset, but only after most of the stock market crisis has passed because the world is dominated by Keynesian economics.  The financial media, government technocrats, and almost all PhD economists practice the voodoo economic religion of Keynesian economics.  Keynesian investors flee stock markets in a panic and run to US government bonds.  Bonds are bought in dollars.  Demand for dollars increases, demand for gold drops.  This is an opportunity of immense proportions if you keep your powder dry.

It is gold miners week at www.myhighdividendstocks.com, but not because gold miners are high dividend stocks.  Most are no or low dividend stocks.  However, gold mining stocks will offer some huge capital appreciation potential once the US and European stock markets crash again.  Every central bank in the world is printing money (Dollars, Euros, Yen, Pounds, and Yuan) and the commodity gold is priced in fiat currencies, so as more money is printed the price of gold expressed in fiat currencies goes up.  It really is that simple.  Gold mining companies can increase their profit margins when the cost of extracting gold from the Earth’s crust goes up a little and the price of gold goes up a lot.  But gold mining companies tend to be more volatile than the price of the underlying commodity.  They amplify gold’s gains and losses as you will see below.

So what is the best price for several of the gold majors that offers capital preservation and maximum opportunity for capital appreciation with maybe some dividends thrown in for good measure?  That’s what I hope to find out this week for you and I.

Next up is Newmont Mining (NEM)

Morningstar’s take: Newmont Mining is the world's second-largest gold producer. In 2010, the company had slightly below-average operating costs. However, we expect unit costs to increase materially in 2011, driven by lower production and increases for everything from energy to labor and royalties. The company has two major advanced-stage projects in its pipeline--Conga in Peru and Akyem in Ghana--but first production will not appear until 2013-15 at the earliest. Therefore, we believe Newmont will face slightly declining overall production for the next few years.

Newmont is the world's second-largest gold producer. In 2010, the firm produced 6.5 million ounces of gold (consolidated, equity: 5.4 million) and 600 million pounds of copper (consolidated, equity: 327 million). North America accounted for 30% of consolidated gold production, South America for 23%, Asia Pacific for 39%, and Africa for 8%. As of Dec. 31, 2010, Newmont had 92 million ounces of proven and probable gold equity reserves.

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Price: $67.62

Shares: 494.82 million (504 million fully diluted)

Market capitalization: $33.44 billion

Bonds outstanding: $4.2 billion

The circle near 2019 is $900 million dollars for scale purposes.

DIVIDEND RECORD – Steady dividend payer since at least 1987.  Last dividend cut was in 1997.  Newmont appears to be a decent dividend grower since 2010.

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Dividend: $0.35/quarter

Dividend Yield: 2.08% ($1.40 annual DIV/$67.62 share price)

Dividend Payout Ratio:   ($1.40/$4.72 recent EPS)

EARNING POWER – Six year average adjusted earnings is $1.35 per share @ 504 million shares

(Earnings adjusted for changes in capitalization)

                        EPS       Net Inc.             Shares               Adj EPS

2006                 $1.75    $791 M              452 M                $1.57

2007                 ($4.17) ($1,886 M)        452 M                ($3.74)

2008                 $1.83    $831 M              455 M                $1.65

2009                 $2.66    $1,297 M           487 M                $2.57

2010                 $4.55    $2,277 M           500 M                $4.52

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2011 Q1            $1.03    $514 M              501 M                $1.02

2011 Q2            $0.77    $387 M              501 M                $0.77

2011 Q3            $0.98    $493 M              504 M                $0.98

2011 Q4            $1.38 E $682 M  E          504 M                $1.35 E

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2011 E              $4.16 E $2,076 E           504 M                $4.12 E

Estimates come from Reuters.com consensus for the next quarter

Six year average adjusted earnings per share is $1.35

Consider contrarian buying at $10.80 (8 times average adj EPS)

Consider value buying at $16.20 (12 times average adj EPS)

Consider speculative selling at $27.00 (20 time average adj EPS)

Newmont Mining is trading at 50 times average adjusted earnings.  This stock’s price is highly speculative.

BALANCE SHEET – I don’t like the recent dip in Newmont’s shareholder equity.  And the stock price is way too high compared to book value.

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Book value per share: $27.50

Price to book value ratio: 2.45 (close to 1.0 or under is good)

Current ratio: 1.42 latest qtr (above 2.0 is good)

Quick ratio: 0.63 latest qtr (above 1.0 is good)

Debt to equity ratio: 0.26 (this is good)

CONCLUSION – Newmont Mining is a low dividend grower that is speculatively priced for its earning power.  The company’s balance sheet is okay, but its hard to tell if it is deteriorating without in depth analysis.  There is no need for this deeper analysis since the stock price is so speculative compared to earning power and price to book value per share.

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Newmont bottomed in the $23.82 dollar range in October 2008 several months before the US stock market bottom in March of 2009.  That represented the best investment entry into Newmont since late 2008.  The gold price will go down at least half of the percentage of the stock market’s decline.  This happened in 2008-2009.  US stocks dropped about 50% and gold dropped about 25%.  However, Newmont dropped even more than the broader market or gold.  It dropped almost 60% from $59.87 in January 2006 down to $23.82 by October 2008.  Don’t think that it happen again.  Wait for another bottom near value territory at $16.20 per share.  Newmont would be yielding about 8.6% if it keeps its new dividend rate at such a low price.  The good news is that gold will continue to go up in price as the world’s sovereign debt crisis worsens, but you have to buy extremely low to preserve your capital when purchasing mining stocks.

DISCLOSURE – I don’t own Newmont Mining (NEM).

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Gold stock week day one - Goldcorp (GG)

It is crisis time in the Eurozone and elsewhere.  Stock markets will crash at least as hard as in 2008 when Europe goes into recession.  Gold is a crisis hedge, but it drops in a stock market crash also (just not a badly).  And gold mining stocks are a great performing asset, but only after most of the stock market crisis has passed because the world is dominated by Keynesian economics.  The financial media, government technocrats, and almost all PhD economists practice the voodoo economic religion of Keynesian economics.  Keynesian investors flee stock markets in a panic and run to US government bonds.  Bonds are bought in dollars.  Demand for dollars increases, demand for gold drops.  This is an opportunity of immense proportions if you keep your powder dry.

It is gold miners week at www.myhighdividendstocks.com, but not because gold miners are high dividend stocks.  Most are no or low dividend stocks.  However, gold mining stocks will offer some huge capital appreciation potential once the US and European stock markets crash again.  Every central bank in the world is printing money (Dollars, Euros, Yen, Pounds, and Yuan) and the commodity gold is priced in fiat currencies, so as more money is printed the price of gold expressed in fiat currencies goes up.  It really is that simple.  Gold mining companies can increase their profit margins when the cost of extracting gold from the Earth’s crust goes up a little and the price of gold goes up a lot.  But gold mining companies tend to be more volatile than the price of the underlying commodity.  They amplify gold’s gains and losses as you will see below.

So what is the best price for several of the gold majors that offers capital preservation and maximum opportunity for capital appreciation with maybe some dividends thrown in for good measure?  That’s what I hope to find out this week for you and I.

First up is Goldcorp (GG)

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Market price: $51.10

Shares: 809.73 million

Market capitalization: $41.43 billion

Bonds: Goldcorp has very little bonds outstanding

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DIVIDEND RECORD

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Dividend: $0.045/month ($0.54 annually).  Goldcorp just announced a dividend increase from $0.03/mo. to $0.045/mo.  http://www.marketwatch.com/story/goldcorp-increases-monthly-dividend-2011-12-05-73400 .  They have been paying dividends steadily since late 2003.

Dividend yield: ~1.0% ($0.54/$51.10 market price)

Dividend payout ratio:  23.8% to 52.4% depending on what you measure ($0.54/$2.26 latest EPS = 23.8% or $0.54/$1.03 avg adjusted EPS = 52.4%)

EARNING POWER

(Earnings adjusted for changes in capitalization)

                        EPS       Net inc.             Shares               Adj. EPS

2006                 $0.93    $408 M              441 M                $0.50   

2007                 $0.65    $460 M              709 M                $0.57

2008                 $2.06    $1,476 M           715 M                $1.82

2009                 $0.33    $240 M              735 M                $0.30

2010                 $2.13    $1,574 M           786 M                $1.94

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2011 Q1            $0.81    $651 M              809.73 M           $0.80

2011 Q2            $0.52    $489 M              809.73 M           $0.60

2011 Q3            $0.41    $336 M              809.73 M           $0.41

2011 Q4 (E)       $0.64 E $518 M E           809.73 M E        $0.64 E

Goldcorp’s six year average adjusted earnings* is $1.27 per share

Consider contrarian buying at $10.16 (8 times average adj. EPS)

Consider value buying at $15.24 (12 times average adj. EPS)

Consider speculative selling at $25.40 (20 times average adj. EPS)

Goldcorp is trading at 40.2 times average adjusted earnings.  This is highly SPECULATIVE despite the bull market in gold.

* includes 2011 4Q Reuters concensus earnings estimates of  $0.64 per share

BALANCE SHEET – That is a pretty good looking balance sheet

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Book value per share: $25.76

Price to book value ratio: 1.98 (not bad, but closer to 1.00 is desirable)

Current Ratio: 3.82 (latest quarter; over 2.0 is good)

Quick Ratio: 2.65 (latest quarter; over 1.0 is good)

Debt/equity Ratio: 0.03 (awesome)

CONCLUSION – Goldcorp bottomed in the $17.00 dollar range in October 2008 several months before the US stock market bottom in March of 2009.  That represented the best value entry into Goldcorp since late 2008.  The gold price will go down at least half of the percentage of the stock market’s decline.  This happened in 2008-2009.  US stocks dropped about 50% and gold dropped about 25%.  However, Goldcorp dropped even more than the broader market or gold.  It dropped almost 65% from $48.29 in July of 2008 down to $17.01 by October 2008.  Don’t think that it happen again.  Wait for another bottom near value territory at $15.24 per share.  Goldcorp would be yielding about 3.5% if it keeps its new dividend rate at such a low price.  The good news is that gold will continue to go up in price as the world’s sovereign debt crisis worsens, but you have to buy extremely low to preserve your capital when purchasing mining stocks.

DISCLOSURE – I don’t own Goldcorp (GG) now, but I did own it a few years ago.

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Central Banks in Scramble to Buy Gold

Central banks around the world are buying gold to diversify the foreign exchange reserves. They are scared of the dominoes falling. Europe will likely be the first domino to fall, then the US, and then Asia. All central bankers are Keynesians by their nature. They believe that government deficits overcome recessions. They create fiat money out-of-thin-air to buy mostly government bonds. But this increases the money supply (inflation) which normally leads to higher prices of goods. When goods prices rises massively there is societal discord and strife.

Central bankers dislike gold, but they hold it to preserve some figment of monetary legitimacy. They hold it like a housewife holds a toilet brush; with nose pinched and at arms length. It is a hated but necessary tool. That is why John Maynard Keynes called gold "a barbarous relic". Gold can't created at the whim of some anti-capitalist central banker to fund the deficits of bankrupt socialist governments.

http://blogs.wsj.com/marketbeat/2011/11/17/central-banks-in-scramble-to-buy-g...

Some central bankers are positioning their country's for the post-US-dollar-as-the-world's-reserve-currency world. When the music stops they don't want to be holding a central bank full of US I.O.U.s.

You should have 20-30% of your net worth in physical precious metal coins. They will hold their purchasing power through crisis.

There will be a time many years from now when you should sell some to pay off your mortgage. When central bankers cease to inflate their money supplies for real, then a depression will ensue that will contract the money supply (deflation). All prices will fall. The purchasing power of the domestic will rise and fixed rate loans will be harder to pay back. Think of the US deflationary depression in 1930-1933.

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TIP OF THE WEEK - It's Official: Wall Street Firms May Legally Steal From Their Customers

It’s Official: Wall Street Firms May Legally Steal From Their Customers

Jason Brizic

November 11th, 2011

Desperate people do desperate things.  Don’t make it easy for them to fleece you.

Don’t put all your financial eggs in one basket.  You should own:

·         Your own business (to generate income even in retirement)

·         Physical precious metals (gold and silver coins from you country’s mint)

·         Rental real estate (3 bedroom, 2 bath houses in neighborhoods with good schools)

·         Currencies (US dollars in printed cash, Yen in printed cash)

·         Goods (all the commercial goods you can store that you will consume anyways)

·         High dividend stocks with earning power and strong balance sheets

Wall Street firms and commodities futures firms can legally steal from their customers.  Examine your terms and conditions that you have with your brokerage firm (e.g E*Trade, ScottTrade, etc..).  Minimize your stock holdings as a percentage of your net worth.  I’m targeting only 5%-10% of my net worth for my high dividend stock portfolio.  There are great risks that are going unnoticed by most investors in the world’s bond and equity markets.

I offer this article as proof: http://www.zerohedge.com/contributed/it%E2%80%99s-official-wall-street-firms-may-legally-steal-their-customers

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A scary chart for Keynesians on Halloween

The scariest chart ever - to a Keynesian!!
 
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TIP OF THE WEEK - Gold is a crisis hedge. Own some before the next crisis.

Gold is a crisis hedge.  Own some before the next crisis.

Jason Brizic

October 14th, 2011

Gold is a crisis hedge.  Rich people buy gold when they are fearful.

There are several good reasons for the wealthy to be fearful right now.  They own more that 80% of all stocks and bonds.  The European sovereign debt crisis is real, the USA will be bankrupted by welfare and warfare programs, and the Chinese economic bubble is going to pop.  Bonds aren’t safe, stocks aren’t safe, and interest rates are at historic lows in many economies.  Gold is a refuge from these crisis events that will not be solved through political means.

The gold price will continue to go up so long as central bankers run their printing presses.  Central bankers such as Ben Bernanke believe in Keynesian economics.  Keynesian economics can be summed up in four words: “Deficit Spending Overcomes Recessions”.  It doesn’t work, but they is what they believe and they are in charge of governments and central banks.

The Federal Reserve under Ben Bernanke has tripled the monetary base since 2008.

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Most of this money is being held by the large commercial banks as excess reserves.  It is not being loaned into the economy.

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Despite gold’s price increases it has not increased in proportion with the inflation of the monetary base.  It has not risen as much because most of the money created by the Federal Reserve has not flowed into the economy to increase the prices of everything.  The newly created money is locked away in the excess reserves of the large commercial banks.  If they were to lend it out, then prices would rise more than the 300% increase in the monetary base due to fractional reserve banking process.  Basically, one dollar added to the monetary base could become 7-10 more dollars in the M1 money supply (depending on how profligate the bankers loans are).

These are the best gold prices since the July-August 2011 timeframe.  Take this opportunity to make your first purchases of some gold coins.  Politicians will announce solutions to the sovereign debt crisis, the FED will announce better economic numbers, and the Chinese will deny they are in a bubble until it obviously pops.  Don’t believe them.  Greece will default.  They are the first domino to fall.  Nobody talks about the Medicare and Social Security unfunded liabilities.  They are too huge.  They are dozens of trillions of dollars.  The Chinese mercantilists have been inflating they currency and their economy.  When they stop their will be a severe recession in China.

Go to www.apmex.com and take a look at the one ounce gold coins from your country’s mint.  Then buy one if you have none already.  I had a good experience with American Precious Metals Exchange in the past.  I get no commissions or anything from them.

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On The Recent Gold Pullback: Observe The Fundamentals

On The Recent Gold Pullback: Observe The Fundamentals by Peter Schiff
 
He states the reasons why the recent pullback in the gold price is an opportunity to buy cheaper.  I agree with him.  Buy gold coins while worldwide stock markets tank.  Buy high dividend stocks near the bottom.
 
 
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Reasons why you should own gold in your investment assets.

Big government statists who believe in Keynesian economics hate gold.  They write articles to persuade you not to buy the metal which has severed as money for most of the past 5,000 years.  Here is an article by Yale/Harvard trained Fareed Zakaria.  Mr. Zakaria is a current contributor to the dying Times magazine.

Precious metals are a crisis hedge.  There really is a crisis that is at the boiling over point.  The government debt crisis brought on by decades of Keynesian deficit spending is happening now.  They will print more money to attempt to stop the crisis money printing caused.  Keynesian central bankers and governments are pouring gas on the fire to put it out.  Mr. Zakaria is trying to convince you that it will put the fire out.

All that's gold doesn't glitter <http://globalpublicsquare.blogs.cnn.com/2011/10/03/why-gold-might-be-a-bad-investment/>

By Fareed Zakaria, CNN

What do Hugo Chavez and Glenn Beck have in common? The socialist/populist president of Venezuela and the right-wing talk show host often have strange ideas - just not the same ones. But it turns out, they are both gold bugs.

Now, many people have been investing in gold. But Hugo Chavez wants to horde it literally, physically. The Venezuelan government controls the world's 15th largest stockpile of gold: about 365 tons. But, like most gold investors, it doesn't really have that gold. At least not physically. More than half of Venezuela's reserves are held overseas in London, New York and Zurich. If you ever visit the New York federal reserve, you can even see it in the underground vaults, neatly labelled as Venezuela's.

You are not investing in gold if you do not take physical ownership of it.  Many people are trading paper promises in gold such as the gold ETF (GLD).  I don’t like Hugo Chavez, but he’d be wise to repatriate the Venezuelan government’s gold to Venezuela.

Mr. Chavez, as you know, doesn't like the West; he doesn't like this predicament. So he's announced he wants his gold. But how do you transport 211 tons of gold across the seas? Well, by spending lots of money. You have to insure against a gold heist, like the one in The Italian Job <http://www.italianjobmovie.com/> . Experts say Mr. Chavez could spend at least 4% of the total value of his gold on insurance, with more on security and transport. Add it all up and you could get about half a billion dollars. That's serious money for any country, let alone one that has negative growth rates as does Venezuela these days.

The Venezuelan government could transport the gold in a ship across the sea.  And they could pay for it with fiat money that their central bank could print to buy insurance against a heist.  Economic growth rates measured by changes in GDP is just another Keynesian aggregated number compiled by salaried bureaucrats.  It is true that the standard of living is going down in Venezuela, but it is due to socialism’s effects.  Keynesians believe that government spending adds to an economy.  In reality, government spending must come from the money that consumers planned on spending themselves or from the investments that individuals would have made themselves.  It doesn’t add to the economy; it just redirects money into unprofitable government programs.

What in the World is Hugo Chavez thinking?

Actually: He's not alone. From the ancient times of Egypt's Tutankhamun to the Gold Rush in the mid-19th century, right through to the modern day, we've always been attracted to gold. Who can ever forget the appropriately named Auric Goldfinger, from the James Bond movie, who said, "This is gold, Mr. Bond. All my life I've admired its color, its brilliance, its divine heaviness."

Mr. Goldfinger forgot to mention its rarity, divisibility, purity, durability, and portability.  These are some of the qualities that make good mediums of exchange (money).

There are many who share Mr. Goldfinger's sentiments around the globe. especially in times of confusion and uncertainty about governments. People worry that governments are keeping interest rates too low, that will cause inflation and could weaken the dollar and other currencies.

There is a very real soverign debt crisis (read government debt crisis) at hand.  It is the result of decades of Keynesian economic policies.  Keynesians believe that government spending is productive especially in a time of recession/depression.  A free market in interest rates would be higher than they are now.  There will be massive price inflation when the commercial banks loan out their $1.7 trillion in excess reserves.  The dollar will continue to decline until the Federal Reserve stiffs the US Treasury at some point in the future.

The answer: Store Gold - something that has always been seen as a solid, substantial hedge against inflation. If everything else collapses, the theory goes, gold will hold its value. For this reason, in the last decade gold prices have risen more than 600%. Is this a rational response to legitimate fears of inflation? Or are we in the middle of a bubble?

Gold is only a crisis hedge (this includes massive price inflation like 20-30% per annum and hyperinflation).  Gold does not hedge against run of the mill FED inflation of 2-3% per annum.  There is a real crisis in the financial system and in government debt service.  There is no bubble in gold until the FED stiffs the US Treasury and causes a 1930-1933 deflation (aka the Great Depression).

There are signs that suggest a bubble. The fact is, global demand for gold in industry and jewelry has actually declined by 18% since 2004. And yet over the same period prices have surged. So it's clear that the market is flooded with speculators who see gold as an investment, not as a usable currency or product.

The decline in demand for jewelry is no surprise.  This is basic economics.  If the price of a good such as jewelry goes up, then the demand for that good goes down (all other things being equal).  The price of gold is being driven up because there is a real increase in demand at the current prices.  Some investors realize that the price will continue to go up as long as the FED keeps creating digital dollars for bailouts.  I’ll save my defense of speculators for another article.  In short, they minimize price swings through their actions.  If you can’t wait, then read Walter Block’s chapter on speculators available for free at http://mises.org/resources/3490/Defending-the-Undefendable .

What's really changed in the last few years is access. It's easier to buy gold over the internet than it is stocks or shares. In places like Abu Dhabi and some European cities, you can buy grams of gold at ATM-style dispensers. All over the world, there's a new Gold Rush. You switch on the TV and commercials warn you that the end of the world is coming and that you need to put your money in gold. Glenn Beck says that if you haven't switched your savings to gold, you're nuts. And Donald Trump is now accepting gold bars instead of wire transfers for luxury condos.

This is not true.  It is not easier to buy gold online; it is slightly harder because you usually need to use a bank wire to buy at good prices.  Buying a gold ETF like GLD is just as easy as buying stocks, but that isn’t buying gold that will be physically delivered to you.  The gold ATMs are so limited in distribution that they are just novelties at this point.  When they start showing up next to Redbox video rentals then maybe I’ll consider gold becoming a bubble.  There is a new gold rush because the crisis is going to be as bad or worse than the Great Depression.  Almost no one owns gold presently despite all the TV commercials.  It represents less than 1% of financial assets.  Donald Trump is wise to accept gold bars as payment.

I recommend that you own 20% - 30% of your net worth in precious metals that you physically posses.  If you have a net worth of $100,000, then that means you should own between $20,000 and $30,000 in precious metals.  I would keep 80% in gold and only 20% in silver.  Silver is much more volatile than gold.  Buy one ounce or tenth ounce gold coins printed by the mint of the country you reside in.  Your precious metals are not a hedge against inflation.  They are a hedge against massive inflation caused by a rapidly expanding money supply.  They are useless in a hyperinflation (which I don’t think will happen), but valuable in the aftermath to capitalize a business or to pay off debts by selling off a few ounces.

Most investment advisors will only advise 5% of your net worth at the maximum because they have no understanding of economics.  That leaves 95% in dollar denominated assets.  This is unwise.

This is bizarre. A lot of it is simply scaremongering. The truth is that for two and half decades, between 1980 and the mid 2000s - gold prices actually declined. Unlike many other commodities which actually have an end use - oil, minerals - gold is just a symbol, and as such its price rises have to do more with psychology and emotion than reason. So, when it falls out of fashion, the price could really collapse. The next time you watch Goldfinger or you hear of the antics of a Hugo Chavez or a Donald Trump, be a little wary.

The price of gold did in fact decline as price inflation rose from 1980 to the mid 2000s.  There was no perceived crisis then.  This is why it is only a crisis hedge.  Gold doesn’t hedge you against non-crisis levels of price inflation.  Gold is a commodity; it has an end use as jewelry, in electronics, and as a crisis hedge.  It is possible that it will serve as money again in the future, but even if it doesn’t it still has value and can be exchanged for other fiat monies (Yen, Dollars, Euro, Pounds, etc.).

The price of gold will go down during a deflationary depression.  When the FED ceases to buy US treasury bonds and (gasp!) sells some of its assets the money supply will fall.  A falling money supply is called deflation.  It hasn’t happened since 1933.  As the money supply shrinks many banks will collapse.  The small and medium sized banks will collapse because the FED won’t be bailing them out.  The biggest banks will probably survive because the FED protects them.  The dollar will strengthen in purchasing power and gold will fall.  Printed currency in your possession is king in a true deflationary depression.  Digital money in your savings, retirement accounts, and checking accounts will be disappearing when your bank dies.  There is no FDIC protect as this point in time (remember the FED stiffed the US treasury which funds the FDIC).  You should always have some currency at home in a safe with your precious metals.

Gold isn't a stock with real earnings. It isn't a bond with interest payments. It isn't oil. It won't help you drive a car; it won't help you light a fire. Yes, you can wear it, but you can't eat it. If doomsday really arrives, a can of baked beans might be worth a lot more than a brick of gold

We are in a bear market.  Many stocks will suffer a loss of real earnings.  Bonds are in a bubble.  Oil will decline in price until the banks begin to increase lending, then it will shoot upward with the massive price inflation.  US dollars won’t help you drive a car; they won’t help you light a fire.  Wait a minute.  US dollars might be useful for lighting a fire during a hyperinflation.  You can’t eat US dollars either.

You should buy storable goods that you will use or consume in the future now while prices are relatively cheap.  Once you have a good supply of storable goods in your basement or storage areas start consuming them and replenishing them in a rotation.  Do this before you buy gold.  Then buy gold and have some currency on hand.  Most people are in such bad financial shape that they probably shouldn’t own any gold because they haven’t taken care of their immediate needs first (such as water, food, and basic consumables).  A typical gold bar is 400 ounces.  The ultrarich might own a few bars, but no one else.  This is hyperbole.  Buy the beans now while their cheap.

Here is some of the Wikipedia entry for Fareed Zakaria who is the author of the article I just refuted.  http://en.wikipedia.org/wiki/Fareed_Zakaria  Yale and Harvard graduates are thoroughly schooled in Keynesian economics and Council on Foreign Relations one-world-government ideologies such as socialism and national socialism.  He is not an advocate of individual freedom and unfettered voluntary exchange.  He was born into the political class that has everything to lose when Keynesian policies fail.  Don’t forget this.

Early life

Zakaria was born in Mumbai (then Bombay), Maharashtra, India, to a Konkani Muslim family.[3] His father, Rafiq Zakaria, was a politician associated with the Indian National Congress and an Islamic scholar. His mother, Fatima Zakaria, was for a time the editor of the Sunday Times of India.

Zakaria attended the Cathedral and John Connon School in Mumbai. He received a Bachelor of Arts from Yale University,[1] where he was president of the Yale Political Union, editor-in-chief of the Yale Political Monthly, a member of the Scroll and Key society, and a member of the Party of the Right. He later earned a Doctor of Philosophy in political science from Harvard University in 1993,[1] where he studied under Samuel P. Huntington and Stanley Hoffmann.

Career

After directing a research project on American foreign policy at Harvard, Zakaria became managing editor of Foreign Affairs magazine in 1992. In October 2000, he was named editor of Newsweek International,[1] and wrote a weekly foreign affairs column. In August 2010 it was announced that he was moving from Newsweek to Time magazine, to serve as a contributing editor and columnist.[4]

He has written on a variety of subjects for the New York Times, the Wall Street Journal, The New Yorker, and as a wine columnist for the web magazine Slate.[5][6]

Zakaria is the author of From Wealth to Power: The Unusual Origins of America's World Role (Princeton, 1998), The Future of Freedom (Norton, 2003), and The Post-American World (2008); he has also co-edited The American Encounter: The United States and the Making of the Modern World (Basic Books).

In 2007, Foreign Policy and Prospect magazines named him one of the 100 leading public intellectuals in the world.[7]

Zakaria was a news analyst with ABC's This Week with George Stephanopoulos (2002–2007); he hosted the weekly TV news show, Foreign Exchange with Fareed Zakaria on PBS (2005–2008); his weekly show, Fareed Zakaria GPS (Global Public Square) premiered on CNN in June 2008.[1] It airs on Sundays at 10:00am and 1:00pm Eastern Daylight Time.

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