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What's Cheap Right Now?

By Brian Hunt, Editor in Chief, Stansberry Research
Monday, June 3, 2013

 When Stansberry & Associates analysts get together, we always end up talking about investments. We'll talk about them all night.
Many of our best recommendations – ones that have made our readers millions of dollars – have come from informal discussions about our best ideas.
We look at investments from many different angles, but the No. 1 question we ask to kick off discussions is this: What's cheap right now?
Before taking a position, any sophisticated investor or trader considers the risk involved in that position. If you focus on cutting risk to the bone, the returns take care of themselves.
The ultimate way to limit risk is to make sure you're buying assets at great prices. It's making sure what you buy is very cheap. When an investor learns how to buy cheap, he sets himself up for a lifetime of large, safe returns.
 As you may know, we held a private investment conference a few weeks ago. Dozens of very smart people got together to share their best ideas. We had many opportunities to ask the "What's cheap right now?" question.
But it's getting very tough to answer...
The stock market is up 24% since its November bottom. It's no "screaming bargain." Name-brand stocks like Bank of America, General Motors, and American Express have gained more than 40% during the same period.
Bonds and real estate have soared in the past few years. Gold has sold off since its 2011 top, but it's still hundreds of percent higher than where it was 10 years ago.
Still... our friend Rick Rule – a master resource investor – was able to offer an interesting idea...
 Rick says to consider buying platinum. He believes the precious metal is very cheap right now...
Part of Rick's case for owning platinum is the familiar case for owning gold: World governments are broke, and they're competing with each other to devalue their currencies. That's good for precious-metal prices. Rick likes platinum in particular because of the supply/demand setup...
Platinum production is falling in the world's biggest producer – South Africa. Producers in the country aren't earning enough money to cover basic expenses. This situation will curtail production... which will push up prices.
Unlike gold, there isn't a large above-ground supply of platinum. Most platinum production is consumed by industry (much of it in smog-reducing catalytic converters). Meanwhile, both developed and developing countries are putting stricter emissions standards in place... And that's increasing demand.
In the long term, Rick expects to see platinum prices reach $2,700-$3,000 an ounce. As you can see from the chart below, current prices are well below that level. And after a 24% fall from its 2011 peak, platinum is below its level of three years ago.
Platinum is Down 24% Since 2011
Some folks might want to trade this idea with platinum mining stocks... But the world of pure platinum miners is small... and full of "less than exceptional" businesses. So most investors should stick to physical platinum – or a fund that moves with the price of physical platinum.
By taking a position in physical platinum, you sidestep the typical risks that mining companies face... like worker strikes, mining accidents, political lunacy, and rising input costs.
Two ideas to consider are the ETFS Physical Platinum Shares (NYSE: PPLT) and the Sprott Physical Platinum & Palladium Trust (NYSE: SPPP).
In sum, the platinum market is vulnerable to a major supply shock. But as long as the global economy isn't busting, demand for platinum as a smog-reducer will remain strong. That's why Rick believes it makes sense to take a position in platinum right now.
In a world where investment bargains are scarce, it's an idea to consider.
– Brian Hunt

Further Reading:

True Wealth Systems analyst Brett Eversole thinks another precious metal looks like a good opportunity... almost. Read why he's watching silver closely – and what he's waiting to see before he pulls the trigger – here: Why I'll Buy Silver Soon.
When gold sold off this year, did you react like a wealthy man... or a poor man? Find the answer in this recent essay from Dr. David Eifrig: Here's What Poor People Don't Know About Gold.

In The Daily Crux
Market Notes
Big Cheap Tech keeps workingMicrosoft hits a fresh multiyear high.
Natural gas infrastructure firm KBR breaks out to a 52-week high.
Big brewers are shifting into a downtrend… Anheuser-Busch and Ambev sink to three-month lows.
A bullish sign for consumer spendingAmerican Express soars to a new multiyear high.
Market Watch
Symbol Price
S&P 500 1642.95 -0.7% +25.4%
Oil (USO) 32.70 -1.7% +0.3%
Gold (GLD) 134.46 -1.6% -11.3%
Silver (SLV) 21.46 -2.4% -20.4%
U.S. Dollar 83.39 +0.5% +0.4%
Euro 1.30 -0.4% +5.2%
Volatility (^VIX) 15.25 +5.0% -36.6%
Gold Stocks (^HUI) 272.33 -2.3% -34.6%
10-Year Yield 2.20 +3.8% +39.2%

World ETFs
Symbol Price
USA (SPY) 164.96 -0.5% +28.3%
Japan (EWJ) 10.85 -2.2% +24.6%
India (IFN) 21.03 -1.4% +24.1%
Singapore (EWS) 13.50 -2.2% +20.8%
Israel (ISL) 14.85 +1.1% +25.2%
Taiwan (EWT) 13.68 -0.8% +15.6%
Canada (EWC) 27.92 -1.3% +12.7%
China (FXI) 35.99 -2.0% +10.4%
S. Korea (EWY) 57.86 -0.9% +10.6%
Russia (TRF) 14.37 -0.9% +10.7%
Lat.America (ILF) 40.26 -2.1% +2.9%
S. Africa (EZA) 59.15 -0.8% -1.9%

Sector ETFs
Symbol Price
Construction (PKB) 20.50 -0.1% +61.4%
Media (PBS) 20.81 -0.3% +49.4%
Financials (IYF) 73.27 -0.7% +40.8%
Health Care (IYH) 102.43 -1.0% +38.1%
Biotech (PBE) 30.08 -0.1% +40.8%
Defense (PPA) 24.88 +0.1% +37.4%
Alt. Energy (PBW) 5.49 -2.0% +33.1%
Consumer Svcs (IYC) 102.97 -0.4% +32.7%
Water (PHO) 23.05 -0.6% +32.5%
Industrials (IYJ) 85.46 -0.1% +31.6%
Telecom (IYZ) 26.47 +0.2% +28.3%
Retail (PMR) 30.87 -0.4% +27.9%
Transportation (IYT) 113.20 -0.2% +25.6%
Big Tech (QQQQ) 73.72 -0.3% +20.3%
Software (PSJ) 30.29 -0.2% +20.3%
Real Estate (IYR) 69.04 -0.7% +17.1%
Insurance (PIC) 19.01 +0.1% +18.3%
Basic Mat (IYM) 72.40 -0.5% +18.1%
Nanotech (PXN) 7.01 -0.1% +15.3%
Semis (PSI) 16.24 -0.6% +14.4%
Utilities (XLU) 37.97 +0.2% +10.2%

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