Gold’s New Ally, Buy Miners, Watch Your Dividends and More!

by Addison Wiggin & Ian Mathias

  • Gold buyers gain a powerful ally… his $95 billion “financial insurance” plan
  • Eric Sprott says buy miners, not bullion… one unusual chart agrees
  • Jim Nelson reveals a stealth tax on your income investments
  • Plus, readers write in on GDP’s uselessness, Vitamin D’s utility… our retorts, below

 

If you’ve invested in gold, you’re about to gain a powerful ally: pension funds.

“I think the largest institutions like our own are realizing that we barely own any [gold]” Shayne McGuire, head of the Teacher Retirement System of Texas said in an interview in Hong Kong very early this morning. “The same thing applies to most of the pension funds which manage trillions of dollars in world wealth.”

McGuire, who oversees $95 billion, just opened an internally managed gold fund for his 1.3 million public education employees, and suggests other pension funds follow suit. Owning gold is “financial insurance,” he said, sounding a lot like David Einhorn at the Value Investing Congress earlier this week. “Consider the tremendous fiscal excess that major governments have made to prevent the world economy from collapsing… I don’t think the question really is what is gold worth but what are currencies not worth.”

According to the FT, there are 2,600 public pension plans in the U.S., worth over $2 trillion.

 “If we believe we’re in a secular bear market or entering a world of hyper-inflation and debased fiat currencies,” Eric Sprott, fund chief at Sprott Hedge Fund LP, added. “There’s no better place to be than gold and precious metals. I find it quite instructive that the price of gold has gone up every year for the past nine years, since the bear market started. That’s not a coincidence, and we think the full cycle could easily reach 15-20 years.

“There is a survivalist aspect to having such a big stake in tangible assets. As long as governments show such low regard for policies that support the real value of paper financial assets, investing in precious metals is about the only way to guarantee the preservation of your wealth.”

“Sprott is our kind of guy,” notes Addison Wiggin, fresh back from the Congress himself. “His $4.2 billion hedge fund is long 30% in silver bullion, 15% in gold bullion, 30% in gold stocks, 10% in energy, 5% in miscellaneous stocks and 10% in cash. Suspicious of equities going back to the tech bust, Sprott played what we had termed ‘The Trade of the Decade’ like an impresario…”

Now, after nearly 10 years, “bargains are harder to find today,” Sprott continued, “but we’re still finding small gold miners that appear to have slipped through the market’s cracks and trade — based on what we believe are reasonable production estimates and no increase in the price of gold — at only around five times estimated 2011 earnings. When we find those, we’ll buy them all day long.”

Gold has risen back up to $1,065 this morning, just a few bucks shy of last week’s all-time high.

Addison, by the way, echoed many of these lead themes during an interview with a CNN radio affiliate in Ontario yesterday. Give a listen, here.

One more word on gold miners: If you’re a true gold believer, what’s the point in measuring the price of your gold mining stocks in dollars? Check out this funky ratio:

In other words, this is how many ounces of gold it would take to pick up one share of HUI over the last three years. When the credit crisis hit its peak in late 2008, miners were very cheap. You could get a share of HUI for less than a quarter an ounce of gold. Today, looks like the big money has been made… but there’s still lots of value left compared with the pre-crisis norm.

And even if you insist on measuring these miners in dollars, the HUI is still 14% below its all-time high.

“Most commodities are still well below their peaks,” noted Chris Mayer and Alan Knuckman in a recent MarketWatch article. “The ag commodities are especially cheap… We’ve got all kinds of constraints on producing much more — falling acreage of arable land, desertification, water issues, slowing crop yield improvement, drought, growing populations and shifting diets toward more grain-intensive foods.”

The U.S. dollar remains at near yearly lows today. The dollar index is at 75.3, just a few tenths of a point above Wednesday’s 52-week low of 74.9.

Oil is giving up its yearly high of $81 a barrel as we write. There’s the profit taking, to be expected, plus this:

The U.S. stock market looks like its going to erase yesterday’s 1.1% rally. There were big earnings surprises from Amazon and Microsoft today, plus a way-bigger-than-expected rise in existing home sales (more on that in a minute). But the market just isn’t having it… as we write, most of yesterday’s gains are gone. For the whole week, the Dow and S&P are around break-even.

“Watch for foreign nations taxing your dividend income,” warns our income investor Jim Nelson.

“Take Canada, for instance. They have historically presented us with amazing dividend yield opportunities. The country’s vast resources offer plenty of investment potential. Large trusts have been set up to collect royalties as these resources are mined and drilled, and in turn they send them out to shareholders in dividends.

“Unfortunately, Canada changed its tax law recently. Now instead of just collecting a straight dividend check, we are charged 15% before we ever see the money. The government of Canada wanted a piece of that lucrative pie. Of course, if the yield is large enough, we should still consider it. Other countries like Switzerland charge even more, upward of a 35% dividend tax.

“So which nations have no dividend withholding tax? Brazil tops the list. Rio’s newfound spotlight could help bring more focus to this great dividend-paying nation. We are constantly looking there for more opportunities.

“The U.K. is also a notable safe haven. While we aren’t necessarily bullish on the British pound, we do enjoy the tax break on many of our holdings in the Lifetime Income Report portfolio. Some other places with a 0% withholding tax we should note include Hong Kong, India and Mexico. We’ve been scouring these markets to find some income payers for you.”

Curious to see what he’s found? Check out Jim’s Lifetime Income Report right here.

Existing home sales in the U.S. registered a surprise 9.4% jump in September, the National Association of Realtors said today. This quote from NAR chief economist Lawrence Yun says it all: “Much of the momentum is from people responding to the first-time buyer tax credit, which is freeing many sellers to make a trade and buy another home. We are hopeful the tax credit will be extended and possibly expanded to more buyers, at least through the middle of next year, because the rising sales momentum needs to continue for a few additional quarters until we reach a point of a self-sustaining recovery.”

Last today, the U.K. economy just entered a whole new level of nasty. GDP fell 0.4% there in the third quarter, the Office for National Stats said this morning. Not a single economist polled by Bloomberg expected economic contraction. The consensus was anticipating 0.2% growth. (Heh, NO WAY that could happen here, right?)

That means the U.K. economy has shrunk for six quarters in a row, the longest streak since records began in 1955.

“You guys keep quoting and using U.S. and Chinese GDP figures,” a reader writes, “as if that term/concept actually meant anything. It ranks as one of the most useless of all ‘indicators’ ever created, right along with CPI.”

The 5: We think Rob Parenteau’s bit in yesterday’s 5 is an example to the contrary. To paraphrase his observation, if third-quarter U.S. GDP prints higher than expected, it’ll put more pressure on the Fed to unwind its many monetary interventions, like buying less Fannie and Freddie paper and raising interest rates. That would almost immediately affect the value of your home and your ability to refinance or purchase a new one.

While the GDP numbers are surely massaged and count things such as government spending as economic growth (heh), they do have an impact on the psychology of the market. We’re as skeptical as the next lot, but still try to wade through the crud to get to something useful. You’re free to do as you like with our observations.

“Hypervitaminosis D is uncommon,” a physician reader writes, responding to our quick coverage of vitamin D this week. “Vitamin D itself is not toxic, but that does not mean it is safe in unlimited quantities. Excess vitamin D by itself or in combination with other medications (such as diuretics), calcium supplements and undiagnosed kidney problems can lead to a buildup of calcium in your blood (hypercalcemia), causing symptoms such as:

· Nausea
· Vomiting
· Poor appetite
· Constipation
· Weakness
· Confusion
· Heart rhythm abnormalities
· Kidney stones.

“The current minimum RDA of 400u for adults and 800u for seniors is probably too low; 1,000-2,000u is probably more ideal, but I would not recommend anyone taking over 2,000u a day without checking a blood calcium level. As a healthy physician in my 50s, I take 1,000u a day. I make sure that this is D3, labeled as such on the bottle.”

In response to the reader that stated of Vitamin D, “There is no toxicity, so high doses can be taken,” another reader writes, “this is opinion and not fact. Folks need to be careful what they write, and print, without factual support. Vitamin D overdosing is controversial at this time.”

The 5: We have to admit we’re out of our comfort zone here. But the point Patrick made still rings true: Research he trusts shows that most of us don’t get enough of the stuff… upping your dosage can lead to a variety of health benefits.

Beyond that, talk to your doctor. And consider checking out of our associates at the Health Sciences Institute. But if you are looking for ways to profit from this trend — and other scientific breakthroughs that could significantly lengthen and improve your life — take a look at Patrick’s work in Breakthrough Technology Alert.

Have a nice weekend,

Ian Mathias
The 5 Min. Forecast

P.S. Do you have one dollar to spare? That’ll buy you four of Chris Mayer’s favorite natural gas plays. Seriously… just a dollar… no strings attached. Details here.  

rspertzel

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