Happy New Year to Everyone. Hopefully, we have all survived another year. Some would say the worst of this nasty recession is over. There are some positive signs in the economy. Manufacturing output is up and jobless claims are down. So far, there has been no sign of inflation. However, there are some troubling signs as well. Official unemployment rates are still hovering around 9.5 -9.8 per cent. The real estate market is still not rebounding. I am deeply concerned about the financial health of pretty much every municipality in this country. The price of oil is slowly creeping up. People always ask me, "How should I invest my hard earned money." I wish there were easy answers. I certainly don't hold myself to be a pundit with some crystal ball able to divine the markets. The problem is that most people buy too late and sell too early. Most people don't take a long term view towards investing. They are basically trying to chase returns. What is the hottest stock or sector right now. Having said all this, I believe there are some sectors that are worth taking a more serious look at. If you invested in US Large Cap Equities in the last few years, either through an S&P 500 Index Fund or through direct investments, your portfolio probably declined in value at least 10%. However, certain sectors within US Large Cap Equities did not fare as badly, namely technology and consumer retail stocks. Yes, their stock price was down but these companies still showed either stagnant or slightly increased revenue growth. You have to remember that we are either still in or just coming out the worst recession since the Great Depression. These companies were still able to generate revenues and are poised for significant growth once the economy really starts to hum again. I call it the "Bounce Back Factor." How quickly can a company "bounce back" from bad economic times when the economy turns around. Another sector that you have to look at is commodities. When you talk about commodities, you are almost required to talk about Gold. Oh, Gold, the currency of Kings. I believe that Gold is really a fear investment. There is certainly reasons to be afraid. Our Government keeps printing money, the dollar is buying less and the risk of inflation is looming in the not too distant future. However, I believe Gold should be part of your portfolio for other reasons. We are just not replacing the amount of gold consumed by the voracious appetites of India and China. There has not been any major gold discovery in the last ten years. They are discovering gold deposits in much more difficult political and environmental climates. So what do you invest in, the bullion itself. The price of gold has certainly risen substantially in the last few years. I believe that the price of gold has probably reached close to it's high. So where can you unlock value. The stock price of gold mining companies, especially the small to mid-cap companies has not risen in the same proportion as the metal itself. In fact, in some cases, it has had an inverse effect. Despite rising gold prices, some small to mid-cap gold mining companies actually went bankrupt because they weren't able to attain financing. Gold has been like a double edged sword. What do I look for in a gold mining company. I look for companies with large high quality deposits with a low cost of extraction. The formula is pretty simple. High Quality= Less Waste+ Low Cost Extraction = More Profit. I like the other metals as well such as copper, platinum, zinc, iron ore etc. Why, because they have an industrial use. When the Global Economy turns around, there will be an increased demand for these metals. However, my favorite commodity is agriculture. The World's population keeps growing. There is an ever increasing need for agricultural products, especially in the Emerging Markets. I will talk about the Emerging Markets in a minute. Again, as the Global Economy turns around, and as more people become consumers, the need for large scale agricultural products will grow thus causing price appreciation. Finally, in our insatiable quest for investment returns, we have to talk about the Emerging Markets, namely Brazil, India, Russia and China. What is our infatuation with these countries. The answer is quite simple. It is where the growth is. These countries will experience between 5-12% annual growth in the next few years. The populations of India and China together are almost 10 times the size of the population of the United States. All the BRIC countries are consuming resources, buying goods etc. No matter what business you are in, you would be foolish not to look at these countries as new markets. How long can this last, 5 years, 10 years. I don't think anyone really knows for sure. Who will be the next BRIC countries. If you really have an appetite for risk and a strong stomach, then start dreaming of far away places where there are still riches to be made. I wish everyone a Healthy and Prosperous New Year and we will see if anything I said now makes sense in the coming year.
Signing Off
