David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Email of the day - on gold and asset allocation

    It has been a couple of years since I last submitted a question, however the following has been niggling at me for some time and your Big Picture video this week was the final catalyst I need to put fingers to the keyboard. 

    Traditional guidelines for asset allocation usually vary somewhat depending on the advisor and the client’s age, financial means etc, however they follow a general model of diversifying investable assets into property/shares/international shares/government bonds/corporate bonds/cash, etc in various percentages.  Gold, if recommended at all, gets relegated to the 1% - 2% category.

    But as you have been pointing out in your audios/videos for some time now, in the current environment of unprecedented fiscal and monetary stimulus, dollar debasement, a looming sovereign debt crisis,  geopolitical tensions etc, etc, I feel perhaps the traditional allocation percentages can be detrimental to new wealth creation, and that a more skewed approach, with a much higher conviction to certain asset classes should be considered. 

    Fortunately, from a personal position, I started moving to overweight shares in gold, silver and other precious metal miners about 3 years ago, starting initially with gold, and then into silver and silver miners about a year ago.  Although perhaps a bit early in some instances, I now find these positions in 15 different mining companies and 4 ETF’s in Australia, USA, Canada & the UK are all up between 30% - 300%, and now constitute about 60% of my investible assets.  I realise by traditional gauges most financial advisors would say I’m crazy (which is why I haven’t used any for about 20 years), and that I’m too heavily invested in one asset class.  But I have always taken a high conviction approach to my investment initiatives. In addition, a good lesson learned during the GFC was to keep 2-3 years cash available to get through any downturn, so in case my timing is wrong or I’m just plain wrong, I will have adequate funds to support myself & family without compromising our lifestyle.

    But as you indicate, we are in a different environment, so my takeaway is that a different approach needs to be taken. Consequently, my question/quandary is what to do with the remaining 40% of my investments?  Most of these have been invested in the Platinum Asia Fund, which has basically gone nowhere over the past 4 years, and to a lesser extent Platinum Japan, with a similarly dismal performance.  Your recent audios/videos paint a rather gloomy outlook for China and correctly highlight the country’s investment risks.  Since the Platinum Asia Fund is predominantly China focused, I am feeling more at risk than optimistic for future returns, and am now thinking of selling my entire holding in this fund to take advantage of investment opportunities in other areas.

    But outside of the gold, silver & base metal miners, I find little or nothing that inspires me at present. I would never think about putting these funds into Tesla, FAANG or other high-flying technology stocks, and with economic growth looking so precarious in most countries around the world due to Covid-19, I have little appetite to initiate investment in Europe or the USA (other than mining companies).  I am already well established in various segments of the market relating to battery technology and perhaps I’ll hang onto the Japan Fund for now.  But regardless of where else I look, I keep coming back to gold,  silver & base metal miners as representing the best opportunity over the next 2-3 years, especially when one considers that we are only at the beginning of a major secular bull market in gold/silver/platinum, with the miners usually high beta the metal at this stage in the cycle.

    The ramification is that my entire investment portfolio would then be even more highly skewed to about 80% gold, silver and other metal miners. At some stage I will obviously need to keep a sharp eye on the charts to look for acceleration and over extension because if my timing is wrong and I sell too late, this happy scenario can quickly turn into a disaster as getting out of 15 - 20  companies quickly, especially in some of the small-mid caps where I am a major shareholder, could be a challenge!   

    So, considering my age which is now late 60’s, is this crazy & irresponsible?  Or should one seize this moment and take full advantage of what can be perceived as a once in a generation opportunity to profit from the unfolding crisis?  Over recent days I have begun to see gold & silver mentioned on mainstream media such as CNBC, Bloomberg, the Australian Financial Review etc, and Wall Street firms are starting to take note and provide an outlook on the sector.  If metals and miners were not just beginning to break out from their long-term ranges, one could interpret this as a contrarian indicator. But what encourages me is that so far the mainstream media doesn’t seem to fully grasp the reasons behind the recent rise in gold/silver prices, (e.g. one expert telling people to now sell gold as it had reached its peak and was all downhill from here), advisors are still not recommending gold shares in the media or on Q & A sessions, pension funds and private investors are still underweight gold/gold shares or have no holdings at all, and everyone still seems to be in denial or at least not very concerned or vociferous about the debasement of the dollar and other fiat currencies and the wide-ranging impact it will have on all sectors of the market.

    Anyway, your comment and insight would be greatly appreciated. 

    Eoin, I have enjoyed and benefitted from your service since the late 1980’s, when I had zero funds to invest, but still anxiously awaited each edition of the old hardcopy reports!  These formed the basis of my acquiring an understanding of the markets and guiding me through my first steps in investing once I eventually had some funds to invest in around 1990! The service has gone from strength to strength, through the addition of the Chart Library, the daily audio and now video where charts can be analysed as you explain them. I continue to learn every day and am grateful to you and the service for facilitating this. 

    And

    Further to my earlier email, I omitted mentioning an important point so add it below as a PS.

    P.S. I’m not proposing to jump in now and chase the market for additional Gold/Silver shares, but want to have funds available to take advantage of any pullback. In addition, if/when the gold/silver shares take another leg up from here, my plan is to take some profits off the table in anticipation of a consolidation and build up further reserves for the next buying opportunity.

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    Everything You Need to Know About Ethereum 2.0

    This article by Christine Kim for CoinDesk may be of interest to subscribers. Here is a section:

    The culmination of over five years of research and development, Ethereum 2.0 is a highly ambitious upgrade.

    Never before has the cryptocurrency industry seen a blockchain of the same size and value as Ethereum attempt to transition all users, as well as assets, to an entirely new decentralized network while keeping all operations on the old network active and running. 

    It will likely take many years for the Ethereum 2.0 upgrade – in all its complexity – to be complete. However, developer commentary featured in this report suggests the biggest hurdle (and perhaps most important milestone) in the Ethereum 2.0 roadmap is its initial launch.

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    Three Gorges Dam deformed but safe, say operators

    This article by Frank Chen for AsiaTimes.com may be of interest to subscribers. Here is a section:

    The deformation occurred last Saturday when the flood from western provinces including Sichuan and Chongqing along the upper reaches of the Yangtze River peaked at a record-setting 61,000 cubic meters per second, according to China Three Gorges Corporation, a state-owned enterprise that manages the dam and the sprawling power plant underneath it.

    The company noted that parts of the dam had “deformed slightly,” displacing some external structures, and seepage into the main outlet walls had also been reported throughout the 18 hours on Saturday and Sunday when water was discharged though its outlets.

    But the problem of water seeping out did not last long, as the dam reportedly deployed floodgates to hold as much water as possible in its 39.3 billion-cubic-meter reservoir to shield the cities downstream from the biggest Yangtze deluge so far this year.

    And

    Meanwhile, Wang Hao, a member of the Chinese Academy of Engineering and an authority on hydraulics who sits on the Ministry of Water Resources’ Yangtze River Administration Commission, has also assured that the dam is sound enough to withstand the impact from floods twice the mass flow rate recorded on Saturday.

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    Panic Selling Grips Chinese Stocks After U.S. Tensions Worsen

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    The escalation in tensions comes at a particularly volatile time for China’s stocks, with the government taking steps to manage a debt-fueled frenzy that had pushed equities to their highest since 2015. Bullish traders have pushed leverage to an almost five-year high.

    “Worries over China-U.S. relations will dominate the market,” said Raymond Chen, a portfolio manager with Keywise Capital Management (HK) Ltd. “People will be closely watching how the U.S. reacts to the closure of Chengdu consulate. I expect more panic selling in the near term.”

    China’s yuan fell as much as 0.28% to 7.0238 versus the greenback, the weakest since July 8. China’s government bonds extended gains, with futures contracts on 10-year notes climbing as much as 0.36% to the highest since July 3. The yield on debt due in a decade dropped 5 basis points to 2.86%, the lowest since July 1.

    Overseas investors sold 16.4 billion yuan of China stocks Friday, the most since a record 17.4 billion yuan was dumped on July 14. Turnover rose to 1.3 trillion yuan, the 17th session over the 1 trillion yuan mark.

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    Email of the day - on cryptocurrencies

    Please refresh my memory about your stance on Bitcoin & Crypto Currencies. Regarding Bitcoin, one of the best hedge fund managers, Mark Yusko loves it an suggests it likely reaches $100K within the next 12-18 months, and much higher going forward. AVI GILBURT, the Elliott Waver says if you want to be safe, wait until it breaks out above 10,000. Warm Regards

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    Intel Plunges as It Weighs Exit From Manufacturing Chips

    This article by Ian King for Bloomberg may be of interest to subscribers. Here is a section:

    Outsourcing is the norm in the $400 billion industry nowadays, but for 50 years Intel has combined chip design with in-house production. And until recently, Intel was even planning to churn out processors for others.

    “To the extent that we need to use somebody else’s process technology and we call those contingency plans, we will be prepared to do that,” Swan told analysts on a conference call, after the company warned of another delayed production process.

    “That gives us much more optionality and flexibility. So in the event there is a process slip, we can try something rather than make it all ourselves.”

    Pursuing this option would represent a huge shift in the industry and the end of Intel’s biggest differentiator, Cowen & Co. analyst Matt Ramsay said.

    Design can only do so much for semiconductor performance. The manufacturing step is crucial to ensuring these components can store more data, process information faster and use less
    energy. Combining the two helped Intel improve both sides of its operation for decades.

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    Tech's Perfect Profit Record Fails to Impress Spoiled Bulls

    This article by Sarah Ponczek for Bloomberg may be of interest to subscribers. Here is a section: 

    For a view of just how high the bar is set for technology stocks, consider this: Every single one of their earnings reports this season has topped forecasts. Yet the sector has recently gone from being 2020’s best performer to one of its biggest laggards.

    Not that beloved tech companies have crumbled. Since the reporting season began July 14, the S&P 500 technology sector is up 0.7% while the Nasdaq 100 is virtually unchanged. But both have trailed the broader S&P 500 over the period, and tech’s performance is the second-worst of S&P’s 11 main sector groups.

    That’s a change from earlier in 2020 -- a year in which megacaps and tech firms have been viewed as coronavirus havens because of their strong balance sheets, healthy profit pictures and the fact that some have actually benefited from the stay-at-home economy. Still, with the tech-heavy Nasdaq 100 up 22% this year, investors want proof that those stocks are worth the high prices they’re fetching.

    “On the positive side, there are so many reasons why tech should be okay,” said Gene Goldman, chief investment officer at Cetera Financial Group. “But on the negative side, it’s just valuations and earnings. It’s a high bar that companies are going to have to beat.”

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