Stock Market Wealth
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GOLD STOCKS DEAD: SUPER-IMPORTANT!
First of all, gold stocks aren’t dead at all. They’re under pressure, since the markets are trading at all-time highs and the trade war is looking like it is gearing up for a truce, but they’re not toast.
Trade wars don’t last. It’s a good thing that we’re seeing progress, even if it means that we’ll suffer a short-term blow.
Gold stocks do not SOAR when the economy is falling apart, but when gold is rising due to specific fundamentals, so don’t obsess over doom predictions.
When gold and silver rally, it’s because of (1) a correction in general equities, like we saw in 2016 or on several occasions in the early 2000s, (2) when gold is rising, DUE to inflation (not the case right now), or (3) when gold is setting MULTI-YEAR highs.
The chief reason of them all is INFLATION; there’s no doubt.
On Sunday, I explained why the outrageous increase in debt and currency creation in the past 10 years hasn’t resulted in runaway inflation in the U.S., in the same way that it didn’t lead to INFLATION in Japan, when they resorted to money printing schemes.
The answer is that the wealthy and the financial elites were not incentivized to use the cheap credit they had access to in order to lend it to the general public, and CEOs were not properly incentivized to use it to invest in their own companies. Thus, the financial powerhouses did not create a TRICKLE EFFECT and did not share the spoils of the ever-growing wealth pie; they kept it mostly to themselves.
The rich engaged in wealth-generating activities, which are what they should be doing, but the government and the central bank did not impose restrictions on the cheap credit available by giving these institutions terms, if they wanted these loans. In other words, governments should have made money cheap, only if those funds were put to use in ways that create opportunities for the 90% to enjoy them. For instance, the government could have zoomed in on distressed areas and given tax breaks to corporations that create businesses there.
Bottom line, the past 10 years have shown that if you give the rich free money, they would rather own more assets than make capital expenditures that lead to a trickle effect for the real economy.
It looks like NOTHING will change their minds, even if another ten years will go by. This is an important distinction, since it clearly demonstrates that whoever has been bidding up the price of precious metals for the past four years (higher highs and higher lows, a clear bull market) is the institutional buyer, not the retail one.
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Secondly, we see from Ray Dalio, Stanley Druckenmiller, Sam Zell and Paul Tudor Jones – four legendary billionaire investors – that their reasoning for owning gold is political division, not inflationary expectations.
Russia is de-dollarizing and China is doing the same; my point is that the catalysts for owning metals are political, not economical.
Gold prices are up more than 40% in four years, but at the same time, the dollar has been SUPER-STRONG and all central banks have acknowledged that they can’t stimulate inflation.
Since 2011, the catalysts have just not been in favor of resource stocks, as a result. Between 2009 and 2011, gold prices took off, since the inflationary expectations were so high, but since then, they’ve VANISHED.
This means that we are EARLY to the game with our gold stocks positions. Early doesn’t mean WRONG, but it does mean we have to suffer through this and be PATIENT.
Early also means we’re more educated and that we’re buying cheap.
I want to share with you my most advanced ways of overcoming the holding periods, if you want to speculate now and sit on your positions, instead of waiting for a clearer trend and buying later (which could result in smaller gains, but far less heartache).
- Increasing the NON-RESOURCE Allocation in your portfolio: I love this one, since it makes perfect sense. The S&P 500 is the surest index in finance. Owning the greatest companies on the planet might not generate life-changing profits, but it does generate SAFER ones.
No matter what’s going on in the world, if I detect a world-class business trading at a fair price, I buy shares of it. This way I put about $8.5 in blue-chip stocks for every $1 I risk in small-cap businesses.
- Dollar-Cost Averaging: 99.9% of the time, the day you happen to buy won’t be the bottom for the stock, so why purchase your entire order all at once?
Decide on your total position size and then split it into 2, 3 or 4 purchases. If the shares happen to be in an uptrend, you’ll end up making a smaller gain than originally thought, but if you average the purchases down, you’ll have a lower cost, which is the most important element of setting up for huge gains.
Dollar-cost averaging could be a process that lasts a few weeks, a few months and even a few years.
On Thursday, I’ll share two additional strategies, out of a total of 11 principles I implement.
They’re all recapped HERE!
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