Saturday, August 30, 2008
This week, we received a note from our own Matt Badiali:
Just got off the phone with Van Simmons (an executive with David Hall Rare Coins). He said there is a shortage of both Silver Eagle coins and 100-ounce bars. He can't get them. He said that, for the first time in his career, a supplier that guaranteed delivery simply couldn't make good on the promise. He also told me that platinum eagles are in serious short supply.
I guess that means someone out there is buying up the physical metal in a big way.
The U.S. mint sold 60,000 one-ounce gold coins this month, up from 47,000 in July and 13,000 in June. When gold fell from the $900s to the $700s, small buyers didn't sell, the way they usually do. They bought.
So if gold coins are dear, why are mining stocks so cheap? For one thing, cost pressures are hitting the miners. A Lehman Brothers analyst says inflation accounts for half the increase in the capital spending of mining giant Rio Tinto from 2003 to 2006.
Most people view mining stocks as inflation hedges. But at some point, it becomes illogical to view a highly capital-intensive business that way. Sure, at first, it seems like it's just too expensive to build a new mine or refinery. And that gives existing facilities an advantage.
But over time, given persistent inflation, running those existing facilities will cost more and more. The more it costs to run the existing ones, the more it seems to make sense to build new ones. And the cost increases aren't necessarily passed on. Mining companies don't have any pricing power over their goods. They sell products whose prices are set on the open market, minute by minute, at the whim of the herd.
The only real, consistent inflation beater, aside from holding gold coins, is to buy companies like Procter & Gamble, Altria, Coca-Cola, and UPS. In good times and bad, these companies are acquired by knowledgeable corporate buyers at around 30 times earnings. As were Gillette, Wrigley, and Anheuser-Busch.
These companies are the greatest franchises on Earth. They're better at beating inflation than other businesses. The products they sell don't cost much to make, nor do they cost much for customers to buy. And the brand names give customers a sense things will remain the same, that you can count on them. So when the price goes up a little here and there over time, the business doesn't suffer.
I'm telling everyone who will listen that these "world dominators" are where you should put the bulk of your money today. They're huge. They're safe. They're terrific inflation hedges. I've even created a whole section of the Extreme Value portfolio devoted to these stocks.
Right now is also an incredible time to own what I'm calling the Greatest Business in America. Get into this business, own a few world dominators, and you'll make a fortune over the next decade.
Tom Dyson recently talked shop over drinks with legendary investor Jim Rogers in Singapore. Read about it in DailyWealth.
In 2006, ExxonMobil drilled 30,000 feet into the ground... the deepest hole the world has ever seen. But back then, the price of oil barely averaged $70 per barrel. Pair this with the rising cost of drilling, and Exxon decided to pull the plug. After dropping $200 million into the famed hole, it left the project behind without any payoff.
Well, oil prices have surged since then, and Inside Strategist editor Brian Heyliger discovered a new company taking the "world's deepest hole" even deeper. The CEO thinks there may be 2 billion barrels of oil down there, and one plugged-in insider bought $9.4 million in stock this month to show his confidence. It's a long shot, but if the company finds what it's looking for, today's investors will quadruple their money overnight.
StatoilHydro discovered between 100 million and 125 million barrels of oil and 141 billion cubic feet of natural gas off the coast of Norway. So much for "peak oil."
Date Range:8/21/2008 to 8/28/2008
Date Range:8/21/2008 to 8/28/2008