A Silver? OpportunityThe Korelin Economics Report
A Golden Opportunity
Al Korelin
www.kereport.com
dispatched Aug 16
posted Aug 17, 2007
What a great way to start the day. At 6:45 a.m. this morning [Thursday] I turned on my computer and was faced with the following: "Credit Crunch Haunts Wall Street", "Uncertainty Fans Wall Street's Flames", "Rams Slaughtered On Refinancing Failure" and the list goes on and on.
I checked my portfolio and saw that most of my stocks were down anywhere from 25% to 50%.
Both the Dow Jones Industrial Average and the Nasdaq Composite were in negative territory as are the Canadian markets.
Gold and silver were down.
Wow, am I in the wrong business? Am I putting my family's money into the wrong investment? Am I talking about the wrong things on the radio? Am I just plain stupid?
The answer is a loud and resounding NO! Investors, including me, have a "golden opportunity" right this minute. Let me explain why.
Let's first examine the real estate crisis. Yes, it does exist. July housing starts are at a level not seen since January of 1997 and the drop in housing permits for July is at the lowest level since October of 1996. All expectations are for both new and existing home sales to continue to drop.
None of this should come as a surprise to listeners of the internationally syndicated Korelin Economics Report, www.kereport.com, because we began discussing the negative future of this sector over a year ago with Roger Wiegand of Trader Tracks. Roger had emphatically been telling listeners during that time that the real estate industry had nowhere to go but down. Surprise, surprise, he was absolutely correct. He was absolutely correct because all the fundamentals pointed in that direction.
Let's look at gold and silver. Sure, the respective prices are not skyrocketing upward as some have predicted. Why not? Well, as James Turk has said numerous times on the show, "Gold is a very liquid investment and when people get scared, they sell some of their gold to bolster their cash positions."
They sell SOME of their gold. Believe me, if people really had no faith in gold they would sell all of it. The fact is they are not. This is proven by the price trends of gold and silver. As the stock markets around the word continue to loose value, gold and silver simply waffle a bit up and down.
Now, let's look at the sub prime mortgage market because it is considered to be the culprit behind all of this. Let me quote Lawrence Raulston here. He put this situation in perspective to his readers when he wrote: "First, sub prime mortgages represent only a small portion of the overall mortgage market in the United States. Actual defaults on sub prime mortgages have been about 5% to date. So far, 85% of borrowers in that market continue to make timely payments. Inevitably, the default figures will get worse. But, remember, those loans are all backed by real estate. Undoubtedly, the value of the real estate will fall short of the loan amount in those cases where the borrowers default. To explore the potential implication, assume the delinquency rate was to soar to 25% and, as an example, suppose that in each of those cases the realized value of the collateral falls 25% short of the loan amount. Then, the overall sub prime market would lose about 7% of its value. That is hardly a catastrophic event for the world economy."
So why do we have a golden opportunity now? Because anyway you look at it, gold and silver have no way to go but up. The fundamentally sound public companies in the gold and silver industries also have nowhere to go but up. Even if the liquidity crisis continues these prices have nowhere to go but up because governments will have to continue to inject money into their respective countries to combat it. More money means higher inflation and higher inflation means higher gold and silver prices.
Throughout this crisis, gold and silver values have not depreciated to any meaningful extent. Most of the related stocks, on the other hand, are down 25% to 50%. I suggest that, at these low levels, the fundamentally sound companies are the ones that we all should be looking at. I also suggest that physical gold and physical silver are not a bad place to be because when their respective prices are as resilient as they have been, given recent market conditions, that is an indication of real strength and potential future appreciation.
I leave you with this thought; Berkshire Hathaway has recently purchased $3 billion worth of bank stocks. Are they perhaps taking advantage of what they believe is a buying opportunity?
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Al Korelin is the host of "The Korelin Economics Report". This radio program features discussions with political figures, newsletter writers, analysts, portfolio managers and company executives. None of the guests appearing on the program pay any fees and if Mr. Korelin or any of the guests own shares in any company that is discussed, that fact is clearly disclosed. Mr. Korelin's firm, A.B. Korelin and Associates, Inc., has been providing regulatory consulting services to public companies for the past twenty five years.
Aug 16, 2007
Al Korelin
email: alkorelin@comcast.net
website: www.kereport.com