The Korelin Economics Report
A Golden Opportunity
Al Korelin
www.kereport.com
dispatched Aug 16
posted Aug 17, 2007
What a great way to start the
day. At 6:45 a.m. this morning [Thursday]
I turned on my computer and was faced with the following: "Credit
Crunch Haunts Wall Street", "Uncertainty Fans Wall
Street's Flames", "Rams Slaughtered On Refinancing
Failure" and the list goes on and on.
I checked my portfolio and
saw that most of my stocks were down anywhere from 25% to 50%.
Both the Dow Jones Industrial
Average and the Nasdaq Composite were in negative territory as
are the Canadian markets.
Gold and silver were down.
Wow, am I in the wrong business?
Am I putting my family's money into the wrong investment? Am
I talking about the wrong things on the radio? Am I just plain
stupid?
The answer is a loud and resounding
NO! Investors, including me, have a "golden opportunity"
right this minute. Let me explain why.
Let's first examine the real
estate crisis. Yes, it does exist. July housing starts are at
a level not seen since January of 1997 and the drop in housing
permits for July is at the lowest level since October of 1996.
All expectations are for both new and existing home sales to
continue to drop.
None of this should come as
a surprise to listeners of the internationally syndicated Korelin
Economics Report, www.kereport.com,
because we began discussing the negative future of this sector
over a year ago with Roger Wiegand of Trader Tracks. Roger had
emphatically been telling listeners during that time that the
real estate industry had nowhere to go but down. Surprise, surprise,
he was absolutely correct. He was absolutely correct because
all the fundamentals pointed in that direction.
Let's look at gold and silver.
Sure, the respective prices are not skyrocketing upward as some
have predicted. Why not? Well, as James Turk has said numerous
times on the show, "Gold is a very liquid investment and
when people get scared, they sell some of their gold to bolster
their cash positions."
They sell SOME of their gold.
Believe me, if people really had no faith in gold they would
sell all of it. The fact is they are not. This is proven by the
price trends of gold and silver. As the stock markets around
the word continue to loose value, gold and silver simply waffle
a bit up and down.
Now, let's look at the sub
prime mortgage market because it is considered to be the culprit
behind all of this. Let me quote Lawrence Raulston here. He put
this situation in perspective to his readers when he wrote: "First,
sub prime mortgages represent only a small portion of the overall
mortgage market in the United States. Actual defaults on sub
prime mortgages have been about 5% to date. So far, 85% of borrowers
in that market continue to make timely payments. Inevitably,
the default figures will get worse. But, remember, those loans
are all backed by real estate. Undoubtedly, the value of the
real estate will fall short of the loan amount in those cases
where the borrowers default. To explore the potential implication,
assume the delinquency rate was to soar to 25% and, as an example,
suppose that in each of those cases the realized value of the
collateral falls 25% short of the loan amount. Then, the overall
sub prime market would lose about 7% of its value. That is hardly
a catastrophic event for the world economy."
So why do we have a golden
opportunity now? Because anyway you look at it, gold and silver
have no way to go but up. The fundamentally sound public companies
in the gold and silver industries also have nowhere to go but
up. Even if the liquidity crisis continues these prices have
nowhere to go but up because governments will have to continue
to inject money into their respective countries to combat it.
More money means higher inflation and higher inflation means
higher gold and silver prices.
Throughout this crisis, gold
and silver values have not depreciated to any meaningful extent.
Most of the related stocks, on the other hand, are down 25% to
50%. I suggest that, at these low levels, the fundamentally sound
companies are the ones that we all should be looking at. I also
suggest that physical gold and physical silver are not a bad
place to be because when their respective prices are as resilient
as they have been, given recent market conditions, that is an
indication of real strength and potential future appreciation.
I leave you with this thought;
Berkshire Hathaway has recently purchased $3 billion worth of
bank stocks. Are they perhaps taking advantage of what they believe
is a buying opportunity?
* * *
Al Korelin
is the host of "The Korelin Economics Report". This
radio program features discussions with political figures, newsletter
writers, analysts, portfolio managers and company executives.
None of the guests appearing on the program pay any fees and
if Mr. Korelin or any of the guests own shares in any company
that is discussed, that fact is clearly disclosed. Mr. Korelin's
firm, A.B. Korelin and Associates, Inc., has been providing regulatory
consulting services to public companies for the past twenty five
years.
Aug 16, 2007
Al Korelin
email: alkorelin@comcast.net
website: www.kereport.com
321gold Ltd
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