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A Reply to a Friend and "Buy and Hold"?, then, BUY and HOLD it in YOUR Hands.

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October 20, 2008 – Comments (8) | RELATED TICKERS: SKF , SRS , GLD

I received a letter from a friend. I thought would share it and add some additionial comments, that occured to me later. 

HIS QUESTION

Mon, 13 Oct 2008 14:27

It's a good time to buy!!  What are you recommending these days?
 
Cliffy

MY REPLY

Monday, October 20, 2008 7:39 AM

Cliffy,

A couple of people have been asking me this lately. It is a million dollar question. The US is in uncharted waters. An inflationary or deflationary recession or depression is coming.  Japan or Germany Wiemar Republic? If you were going to buy US stocks, I recommend commodity producers with high levels of exports and low/no debt. I like the ones that have been killed lately. Buffet recently said he was buying and we may get a decent rally in the US market. It really depends on your time horizon and available capital. I am 50% short the market and 50% cash. I am acquiring physical gold and silver. I will be buying real estate at some point, as close to FREE as possible. I am looking now for ABANDON and foreclosed properties. I expect real estate to fall 50 to 80% from the peak prices. Ref the Case Shiller index.

You can look at: AUY, DIG (ETF), POT, MOS, AA, SSRI, TK, STP SE HAL, APA, ORASPN or GLD - keep a stop loss, if they get hit further. You could be holding these for years before they rebound. But the world is getting more crowded and after the slow down, the demand for oil, gold, silver etc will continue. AVOID FINANCIALs, RETAIL, BANKS and anything that depends on the American consumer. I expect hundreds of banks to go bankrupt.

It is the best time to buy in my life time, except for the risk. The risks are enormous and have never been higher in my lifetime. Investing is a risk/reward bet. If you are willing to take the risk here, the rewards can be high.  I think the  longterm picture for the US  will be dramatically different.

I recommend reading Crashproof, by Peter Schiff. ASAP. You can also watch Peter Schiff on youtube.com, watch the Peter Schiff and Marc Faber videos. But read Schiff's book. Marc Fabers book Tomorrows Gold is worth reading also, both are "gold bugs".

The US government has created a new risk: legislative. 
The ban on short selling, recently by the SEC and Treasury is something you would see from a "banana republic", dictatorship or a communist country. It was an amazing blow against the free markets here in the US. People are moving money out of the country. I recommend acquiring and holding some physical gold. The US dollar is a fiat currency. Fiat currencies collapse eventually, gold is protection from this. Gold is insurance.

The US is heading into a inflationary or deflationary recession/depression. I expect it to be longer and more severe, then most people expect. 30-40% of US employment was created from or related to the "housing bubble", which has now popped (ref Greenspan Bubble by Bill Fleckstien). What will be the next source of employment int he US? US manufacturing is not competitive to Asia.

Higher unemployment is coming. It will be a global recession or depression. The financial crisis is far more severe then anything since the Depression.
I expect there will be "free" houses in many areas where jobs are scarce.

Jim Rogers, Marc Faber and Peter Schiff recommend getting out of the US dollar(you can watch this on youtube). The US dollar is loosing the Reserve Currency status. Faber says he expect the US to go bankrupt at some point.  Schiff and Rogers has been telling  people to get out of the US dollar for years.

You can read their books and watch them on youtube.com and make your own opinion.

The main thing Americans should be doing:
1. Saving money, living frugally
2. Stay employed, expect a slow down to last for.... a decade?
3. I like physical gold and farmland, as risk hedge. If you want to short the US market after the rally. I like SKF, SRS, SCC, UDN, RWM a real gamble is DUG
4. The US is now a socialist country. It means taxes are likely going up and the size of government  and scope of government is going up.
5. Avoid all debt and unnecessary purchases. Debt is a killer in a recession or depression.

The US is looking more like the Wiemar Republic in Germany. You cannot print endless amounts of money and expect the society to prosper.

I still like www.fool.com CAPS program for stock ideas and their bloggers

MY ADDITIONIAL THOUGHTS 

"Buy and Hold"? then, BUY and HOLD it in your Hands

"that I guarantee, the US government will go bankrupt, it is only a question of time, sooner or later"

Marc Faber, 13 Oct 08 

http://www.youtube.com/watch?v=hkOD3uyPXRE 

The US GOVERNMENT will go bankrupt. There is not enough revenue from a consumption based economy to pay all the retirements, interests on the debt and social services people are expecting. At some point the government will default. Russia defaulted on a $110 billion in debt. Do you think the US will pay $10 trillion of debt back? 

Ultimately, if given the choice of having a fist full of fiat dollars or a fist full of stock certificates to commodity producers. I would choose to have a fist full of Commodity producing stocks. Those holding stocks in Russia and Zimbabwe after the defaults, usually had something more of value then the fiat currencies.

If you are a "buy and holder" type investor, my recommendation is for you to PHYSICALLY take delivery of the stock shares. Do not leave them with the investment firm. The firm may go bankrupt or you may not be able to aquire the shares if there is an emergency.

Can you get your shares or money out of LEH or BSC? What if there is something even more systemic?

Many investment banks/banks are not a safe, IMO. So why leave valuables in their poscession? Do you really trust, Mozillo, Fuld, Thain, Paulson, LEH, BSC etc.... Really?????   

When King Henry announced the ban on short selling in Sep 08 My Precious SKF, was cut in half and they stopped trading it.

This is the video of me talking about my Precious SKF after the ban:

DISCLOSURE: I do not own SKF, currently and sold my SRS today.  

 

8 Comments – Post Your Own

#1) On October 20, 2008 at 6:35 PM, TDRH (99.66) wrote:

Glad you are back.

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#2) On October 20, 2008 at 8:27 PM, kdakota630 (29.78) wrote:

One of your best blogs.

In Schiff's newest book he's suggesting that perhaps Americans should move out of the U.S. entirely.

He's recommended Canada as a place to invest/move several times, but I would love to know what he thinks will happen to our economy based on his predictions to befall the American economy.  We're very resource rich, but so tied to the U.S. as a trading partner.

Any thoughts of your own on that matter?

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#3) On October 20, 2008 at 9:44 PM, Harold71 (22.27) wrote:

I'd much prefer taking back our country as opposed to just leaving.  My family is here...this country has a lot of fundamental problems today, and I'm very bearish on most everything...but maybe it'll work out.  Just declare bankruptcy and split up the Union into various regions.  Or every state for itself.  Surely we can make something work.

Ultimately, if given the choice of having a fist full of fiat dollars or a fist full of stock certificates to commodity producers. I would choose to have a fist full of Commodity producing stocks.  

How about commodity stocks versus gold?  Maybe diversify and have a bit into both?  I like BPT and PDS for commodity related stocks, little or no debt and substantial dividend yields.  PDS actually drills oil in my area.  But they do involve putting your money in "the system."  I don't own either right now.

Loved the letter to your friend btw...and the precious SKF!  LOL

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#4) On October 20, 2008 at 11:19 PM, Tastylunch (29.39) wrote:

What did you friend Cliffy say in response? I have a feeling he didn't take your advice...

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#5) On October 21, 2008 at 2:46 AM, awallejr (79.57) wrote:

YOU are suggesting MOS after our lengthy debate, using the argument I was making?

Your suggestion on real estate, btw is a good one.  You really can buy some cheap income producers now. 

As for Schiff, sorry, he is nothing more than an alarmist now. The US isn't going away.  We proved that the world still revolves around us when Asia tanked after we fell.  Agreed too much debt, but people do adjust.  That's the resilience of this country.  We may be down, but not out. 

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#6) On October 21, 2008 at 6:53 AM, loriyacht (32.49) wrote:

Great post!  Maybe this has been covered before, but what do you recommend as the best way to buy physical gold?

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#7) On October 21, 2008 at 2:20 PM, Harold71 (22.27) wrote:

loriyacht,

I'd buy certified gold coins encapsulated by a reputable grader.  NGC and PCGS are the big boys in this...I personally prefer the NGC case.  I'd like to hear what others are doing as well.

As for Schiff, sorry, he is nothing more than an alarmist now. 

Sorry.  The market has already discredited the people that tried to discredit Peter.  I don't know exactly what he's saying now about the US, other than probably a decade recession, but he's been right all along.  Respect.

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#8) On October 21, 2008 at 5:57 PM, dwot (46.92) wrote:

Hubba, hubba, I notice you have the most points.  I don't follow it that closely to know if you've had the most on other days as well, but I noticed today.  Congrats!

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