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Weekend Edition

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Saturday, April 7, 2012

 Many assets suffered after this week's release of Federal Reserve minutes. But the highest profile "sufferer" is gold...  
In its latest release on Tuesday, the Federal Reserve hinted it was likely to ease its stimulus efforts to goose the economy. It's seeing enough positive signs that rock-bottom interest rates might not be needed for the next several years.
Traders saw the comments as the Fed "taking away the punchbowl." So they sold stocks, oil, and precious metals. Interest rates could rise, which hurts gold. The yellow metal dropped $30 an ounce instantly. It went down even more in overnight trading. As I write, gold is trading for $1,630 per ounce, its lowest low since early January. Just a month ago, it was $1,750.  
Gold (GLD) Sinks to January Levels
 With any short-term gold correction comes talk that the "gold bull" is dead.
Are these folks right? 
Our crystal ball here at Stansberry & Associates doesn't work any better than anyone else's... But we've been gold bulls for a decade... We got tens of thousands of our readers into gold early in the game. (I placed one-third of my net worth into gold back in 2003... and hold that stake to this day.) We've even published a book on gold... So we do have some comments that might be of use.
 First, keep in mind that most of the people who are declaring that the gold bull market is dead said the same thing in 2006, 2008, and 2010. Most of these people don't even understand the "idea" of gold.
They don't understand why gold has been used as money for thousands of years: Gold is consistent the world 'round... It is divisible, it is portable, it doesn't ruse or corrode, it has intrinsic value... And as our friend Doug Casey reminds us, gold is money that governments cannot debase. 
So... although we always like to hear both sides of a debate, we know most people – even highly respected investment pros – just don't know what they are talking about when it comes to gold. Talking with these people is as useful as talking to a goat (though more frustrating).
Gold isn't an investment the way most folks see it. A hundred shares of Coca-Cola is an investment. An income-producing rental property is an investment. Gold is "real money" and thus is a crisis hedge. We buy gold and hope we never have to use it... just like we do with auto insurance. The sooner people learn gold is not a conventional "investment," the better off they'll be. If you're late to the party in realizing this, you're not alone. The majority of brokers, financial advisors, and fund managers have no idea this is the case.
 Second, keep the "long view" of gold in mind. Gold has increased in value for 11 consecutive years. No widely traded asset or index has done that for more than 100 years. It's the most extraordinarily consistent price run we've ever seen. Gold is just flat out "due" for a break. It deserves a break.
When I discuss potential short-term trades and write trading commentaries, I often say "Markets are like runners. They can't run flat out without taking a breather." This is a useful view because you learn to anticipate natural corrections. You're not surprised or confused by them at all (unlike most market participants).
This line of thinking is also useful when viewing gold's long-term uptrend. When you know that even the strongest market moves go through corrections, you're not surprised by them. You don't freak out and go on CNBC, pronouncing the gold bull market is dead.
 So... let's take the "long view" of gold.
Below is a 12-year chart of gold. You'll see that since the gold bull market began in 2001, the metal has undergone several corrections. The biggest of these corrections was in 2008, when gold dropped 29% from its yearly high to its yearly low.
You'll also see that this time, gold could fall all the way down to $1,300 per ounce and still remain in the cozy confines of its bull market.  
Twelve-Year Chart of Gold Bull Market
 With the "gold is not an investment" idea in mind, let's ask, "What if the gold bears are right? What if it's over?" 
I believe our own Dr. David Eifrig wrote the best way to view a huge gold and silver correction (or an official end to the bull market) in a DailyWealth piece last year. "Doc" – who recommends gold and silver as crisis hedges – wrote: 
If gold and silver were to collapse 50%, it would be one heck of a sign that politicians are taking the right steps to get our economy on track. This would create a fantastic environment for owning stocks, bonds, and real estate. I wouldn’t mind losing money on my silver if the other investments are improving...
But I’m not holding my breath and waiting for politicians to become saints and geniuses. Mind you, I believe America has much brighter days ahead of it. The American system is still an incredible producer of wealth. America is still THE place to get rich. American corporations like Coke, Johnson & Johnson, and Apple are the best in the world. That’s why I still own U.S. stocks and bonds. But just like I wear my seat belt while driving, I own silver and gold – just in case. 
 It's my sincere hope that our readers will take this type of "hedged" approach with their investment portfolios.
You don't need to go 100% to gold and silver, buy a handful of assault rifles, and move to an underground shelter in Montana. But you also shouldn't ignore the debt and unfunded obligations the Western world (U.S. and Europe) faces. Consider an "in the middle" hedged approach.
As a voracious reader of newsletters, I can tell you that Doc's "common sense" approach to stocks, gold, and fixed-income securities is uncommon in our industry. Most advisors are either 100% "gloom and doom" or 100% "things are great!" 
I believe that's one of the great services Doc provides his Retirement Millionaire readers. With a subscription to his advisory (which costs less than many magazines), you regularly receive professional advice on how to structure your portfolio to handle any crash or boom the market throws at you. You'll learn the right way to build a fortress portfolio of elite, dividend-paying businesses... safe income-producing securities... closed-end funds... and precious metals.
I have to admit... We have a tremendously difficult time convincing readers to purchase this sort of "common sense" research. Constructing a fortress portfolio of stock, bonds, and alternative assets – which incurs few losses – just isn't as sexy as the next big gold stock or miracle-cure drug stock. It's basic human ignorance that causes people to flee from the best ideas.
But trust me... among our serious, educated readers, Retirement Millionaire is becoming a "cult" hit. We're extremely proud to publish it. We're proud that it received one of Porter's highest Report Card ratings out of all of our newsletters... And we're proud of how Doc has compiled one of the greatest track records in newsletter history.
 So this week... I'd like you to do something. Take advantage of us.
Take advantage of our 100% money back offer for a subscription to Retirement Millionaire. Even if you don't buy a single recommendation of Dr. Eifrig's, you'll get access to literally hundreds of dollars' worth of educational material on investing, trading, and health...  
Of course, Doc's track record of recommending great investments is the best in the industry... So that's an added bonus. But learning how to view your portfolio from the perspective of a professional investor and trader (Doc spent years as a trader for Goldman Sachs) is worth a thousand times more than any stock recommendation.
Read through Doc's materials. Take four months if you like. If you don't find an incredible amount of investment insight that only decades of experience can provide... and if you don't think you can benefit from Doc's constant string of safe, high returning investments, we'll refund 100% of your subscription. You have nothing to lose... and a lifetime of wisdom to gain. You can take us up on our offer right here, without watching a long promotional video.
Brian Hunt 

Market Watch
Symbol Price
S&P 500 1398.08 -0.1% +4.9%
Oil (USO) 39.26 +1.1% -8.9%
Gold (GLD) 158.31 +0.7% +11.5%
Silver (SLV) 30.72 +1.3% -19.9%
U.S. Dollar 80.04 +0.4% +5.3%
Euro 1.31 -0.6% -8.1%
Volatility (^VIX) 16.70 +1.7% -3.2%
Gold Stocks (^HUI) 466.69 -1.8% -16.1%
10-Year Yield 2.20 +0.5% -36.2%

World ETFs
Symbol Price
USA (SPY) 139.79 -0.1% +7.1%
Japan (EWJ) 9.83 +0.0% +0.8%
Singapore (EWS) 12.67 -0.3% -4.5%
S. Korea (EWY) 60.31 +0.7% -6.8%
S. Africa (EZA) 66.65 +0.9% -7.9%
Taiwan (EWT) 12.98 +1.0% -10.5%
Lat.America (ILF) 46.83 -0.2% -12.1%
Israel (ISL) 13.70 +0.5% -15.4%
Canada (EWC) 27.71 -0.6% -17.3%
China (FXI) 37.00 +1.0% -18.0%
India (IFN) 22.25 +0.6% -30.6%
Russia (TRF) 16.35 +0.5% -32.9%

Sector ETFs
Symbol Price
Retail (PMR) 25.71 +0.9% +24.3%
Big Tech (QQQQ) 67.72 +0.6% +19.7%
Consumer Svcs (IYC) 80.72 +0.5% +14.2%
Health Care (IYH) 78.14 +0.1% +14.2%
Big Pharma (PPH) 73.61 +0.6% +14.1%
Utilities (XLU) 34.89 -0.7% +12.6%
Real Estate (IYR) 61.51 -0.4% +7.3%
Biotech (PBE) 22.59 +0.4% +1.9%
Industrials (IYJ) 70.56 -0.4% +0.2%
Transportation (IYT) 94.16 +0.1% -1.2%
Financials (IYF) 57.77 -0.2% -1.4%
Defense (PPA) 19.85 -0.8% -1.6%
Media (PBS) 14.89 +0.1% -1.7%
Software (PSJ) 26.70 +0.4% -2.5%
Insurance (PIC) 16.25 -0.1% -3.0%
Internet (HHH) 70.21 +0.1% -3.8%
Telecom (IYZ) 22.07 -0.1% -4.8%
Construction (PKB) 13.80 -0.4% -5.0%
Water (PHO) 18.90 -0.6% -7.0%
Semis (PSI) 15.65 +0.4% -11.1%
Oil Service (OIH) 121.00 +2.4% -11.4%
Basic Mat (IYM) 69.14 -0.6% -15.4%
Nanotech (PXN) 6.39 +0.6% -33.1%
Alt. Energy (PBW) 5.24 -1.0% -49.8%

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