My Jaw Hit The Floor...
The Dynamic Wealth Report
October 11, 2010
Like most small business owners, I’m always out meeting new people and
looking for good business connections. It might be a new phone guy, an
IT guy, or somebody to print business cards. Because of my relentless
networking, I often find myself at - drum roll please - networking
events.
Let me tell you, some are much better than others…
Just last week, I attended a nice breakfast event in Scottsdale. Every-one was very friendly
and had great stories to tell. Later
they brought on a guest speaker from the financial industry. Of course,
he was promoting his services and looking to latch onto a few new
clients…
I started listening eagerly, only to be shocked by his commentary on the
markets.
Now I know you’ve probably sat through a number of these financial
“talks”. Some older gentleman with graying hair stands up and offers his
financial management services. He talks about retirement planning, asset
allocation, and risk versus reward.
Inevitably, he pitches some product “de jour” like annuities, private
REITs, or managed accounts.
While he may have the best of intentions, you need to realize these guys
are all salesmen.
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They get paid by selling you investment products. There is
nothing wrong with that model… as long as everyone knows which side of
the fence they stand on!
Of course, polished salesmen always have an opinion…
When our presenter was asked about gold, my ears really perked up.
After hemming and hawing about the markets, he made the decisive
statement, “Gold would only fall in value!” He recommended kicking it out
of your portfolio. He thought the true value was closer to $800 an oz.
Of course, comments like that always bring a flurry of questions. I
looked around and I counted about a dozen people shaking their head in
disagreement and rolling their eyes.
The presenter’s logic was simple.
Over the last 30 years, gold has delivered an annual rate of return of
just over 1.5%... and during those same 30 years, inflation has run about
3%. In effect, you’ve lost 1.5% of purchasing power every year you’ve
invested in gold.
Now it’s here that I almost choked on my coffee.
Suddenly, the entire room was anti-gold. Those people who rolled their
eyes at the thought of selling gold… started seriously thinking about
it! Everyone was nodding along to his diatribe on selling gold. And all
I could think was – You’ve got to be kidding me!
I’m not going to argue with his statistics… they’re probably right.
What I am going to argue against is his conclusion.
First off, having gold in your portfolio isn’t a bad idea… but like
everything, moderation is key. You don’t put 20% of your portfolio in any
one investment – even gold.
Second, the Federal Reserve and other central banks are running the
printing presses at full speed. “Easy credit” is the phrase of the year. And quantitative easing is now overheard in conversations across the
country.
When central banks flood the market with currency, it leads to
devaluation and inflation. Any novice investor knows the best investment
to make during inflation is in hard assets. And in my mind, one of
the
best hard assets to own is gold.
Now, I’m not telling you to buy gold and hold it for 30 years…
What I’m saying is over the next few months and years, gold prices will
rally as inflation becomes a concern. When will this happen?
Just wait for unemployment numbers to start falling. As more and more
people go back to work, the employment landscape changes. Fewer
unemployed people means less competition for open positions… that means
companies will need to start increasing pay. And as pay levels increase,
so will the demand for goods and the willingness to pay higher prices.
Trust me, inflation is around the corner… and investors are already
preparing for the worst. Just look at the chart…
Gold prices are up huge… and they’re continuing to rally. Keep in mind,
I’ve been telling everyone to buy gold since it was near $800 an oz. Today it’s over $1,300… that’s a gain of over $500 an oz! I don’t think
we’re anywhere near the end of this run… so hold on tight.
•
Aluminum Industry (Up 16%)
The commodities are all moving higher and aluminum is no different.
Aluminum is showing strength on the rebound in the economy. Companies
like Century Aluminum (CENX) and Alcoa
(AA) are leading the industry higher.
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