The Case of Gold vs. Mr. Warren Buffett

Posted On Sep 9, 2016 By

  • Who says gold doesn’t offer a yield? And a healthy one, at that
  • Volatility returns to the market with a vengeance
  • The wireless power revolution is just getting started
  • Is Tesla’s fancy $3,000 battery already obsolete?
  • Australia is becoming a nanny state
  • Readers weigh in on the IMF and its SDR

Warren Buffett’s wrong about gold.

The Sage of Omaha gives gold the cold shoulder because it just sits there like so many bumps on a log. No yield, no cash flow, no nothing — a sawdust asset: “If you own one ounce of gold for an eternity, you will still own one ounce at its end.”

Much better, says Mr. Buffett, to ship your money off on productive journeys with American Express… Coca-Cola… or IBM: “It’s a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage.”

Perhaps it is. And one year does not a pattern make. But the goose that just sits there has outperformed the Sage’s supposedly more fecund geese over the past year:

A Tale of 2 Geese

Regardless, it is indeed possible to generate yield with gold and other precious metals, pace Warren Buffett. You just have to know how. Our resident income guru Zach Scheidt does. And two days ago, subscribers to his service, Income on Demand, had the opportunity to collect $300 of instant income with a gold play.

Here’s the deal, according to Zach:

“During August, gold and silver stocks pulled back. This was mostly because investors were worried about the Fed hiking interest rates. Higher interest rates in the U.S., naturally, make the dollar stronger. And when the dollar is strong, it takes fewer dollars to buy an ounce of gold. So gold stocks were lower because investors expected a lower price of gold and lower profits for gold mining companies.

“But all of that is shifting now,” says Zach: “Friday’s jobs report showed less growth than investors were expecting. This caused investors to believe that the Fed will be less likely to raise rates. What this means to us is that gold stocks are now ready to rebound. And I think this rebound will last for a long time — regardless of what the Fed does with interest rates later this year.

“More importantly,” Zach concludes, “investors want to protect their wealth during this uncertain time. And one of the best ways to do this is to buy gold.”

Checking in on the Midas metal, we see it’s off a few bucks this morning, $1,338.20 at writing. The U.S. dollar index got a boost this morning after some hawkish comments by the Dallas and Boston Fed presidents, hinting at a possible rate hike later this month. Fed talk is notoriously cheap, and markets still are still giving a September rate hike long odds at less than 25%.

Also, some investors are taking profits after an impressive three-week run. But gold is still on track to finish the week higher for the second consecutive week.

Poor man’s gold, silver, is also down 20 cents this morning, as you may expect.

So how were Zach’s readers able to collect an instant $300 cash payment from the yieldless yellow metal?

It’s all part of Zach’s “perpetual income strategy” he picked up toiling for an Atlanta hedge fund. It’s how his boss made serious bucks for the fund’s heavy-hitter clients, no matter how markets behaved — good, bad or indifferent.

If you missed out on Wednesday’s chance to snatch up a quick $300, worry not. Zach’s always on the prowl for new opportunities, and he has more on the way. Last year, his readers had the chance to pocket over 35 grand using his “perpetual income strategy,” as the following chart proves. (Full disclosure: These returns are based on a portfolio of a given size and may not be for everyone.)

The Perpetual Income Strategy

But this year, through the end of August, Zach’s subscribers could have almost eclipsed that number already. They could have already potentially received up to $34,069 this year. And there are still over three months to go.

The perpetual income strategy is easy as pie to use. Our publisher Joe Schriefer is so high on this strategy — he uses it in his personal portfolio — that recently he recently visited a bowling alley and grabbed some human guinea pigs at random. Just to prove how easy it is.

He even got a 13-year-old who didn’t know a stock from Adam to try it. How’d he do?

Click here for an eye-opening demonstration…

Time to drop in on the markets.

Wow, would you look at that — the Dow’s down 239 points as we go to the presses. The S&P’s off 32, and the Nasdaq’s coughed up 82 points. So much for that boring market with nary a hint of volatility in sight. Why the big drop?

We touched on it with the gold price. Fed Boston Fed President Eric Rosengren said this morning that low interest rates could overheat the U.S. economy and that a rate hike this month is still in play.

North Korea also claimed it’s tested a miniaturized nuclear warhead today, sending jitters throughout Asian markets. Obama said the test would be met with “serious consequences,” whatever that means.

Add in that German exports fell sharply in July for the fourth consecutive month, indicating weakness in the eurozone’s largest economy, and there’s the end of the August snooze.

Crude’s down $1.28, to $46.34.

Apple unveiled its brand-spanking-new gadget Wednesday, the iPhone 7.

And the reaction? Meh. Color our technology and wealth maven Ray Blanco unimpressed. “In this year’s product refresh,” says Ray, “there was nothing big and unique coming out of Cupertino. It was the most boring Apple unveil ever. It wasn’t like some past Apple events. Steve Jobs is probably rolling over in his grave.”

Well, maybe Mr. Jobs is rolling in his grave. But it’s hard to build a better mousetrap every time.

“I don’t think these new products are going to do much for stagnating iPhone sales or flagging Watch sales. It won’t be remembered for the date of the release of a groundbreaking new product,” concludes Ray.

But that doesn’t mean the event was completely uneventful.

Ray again: “Instead, Wednesday will be remembered as the day Apple took the headphone jack away from the iPhone 7 and iPhone 7 Plus.” Apple instead is offering wireless earphones called AirPods (catchy, no?) for $159.

So the real significance of the launch, according to Ray, is that the disappearance of the headphone jack “might just be the sneak preview for the eventual disappearance of a power jack.”

Wireless power will revolutionize electronics. It means no more bothersome cords to plug in.

Ray is a major believer in the potential of wireless power: “Wireless, at-a-distance charging will be a revolutionary technology. For the first time, our devices will truly be able to go untethered. Billions of smart devices are expected to go online over the next five years, and they too will be able to take advantage of wireless power.”

Ray’s tracking a company that’s in the vanguard of wireless power, located just 20 minutes away from Apple HQ in Cupertino.

That company is working on a unique wireless charging technology. And the FCC has already approved a miniature version of its wireless power system, expected to ship late this year or early next year. Ray says the company is working on more powerful versions with longer range. He also says it’s working on putting together deals with dozens of companies. Furthermore, the company’s potential was greatly validated recently by the insider purchase of millions of dollars worth of shares.

This latest Apple rollout was a borefest. But Ray has heard whispers that Apple is saving the “good stuff” for the next version of its iPhone… and the company Ray’s tracking has a large, undisclosed partner mysteriously lurking in the background. Eventually, we’ll find out who that is.

He’ll be following this story for you as it develops. We’ll keep you updated as needed.

While we’re on the subject of power, remember Powerwall?

We first brought it to your attention last May. If you’re new around here, or it somehow slips your memory, Powerwall is a battery made by Tesla.

“Powerwall is a home battery,” says the Tesla website, “that charges using electricity generated from solar panels, or when utility rates are low, and powers your home in the evening. It also fortifies your home against power outages by providing a backup electricity supply. Automated, compact and simple to install, Powerwall offers independence from the utility grid and the security of an emergency backup.”

“On the surface,” we wrote at the time, “it seems appealing. If you’re on the electric grid and the juice goes out, you won’t skip a beat. And if you want to ditch the electric grid, you have battery storage for your solar panels and/or wind turbine that doesn’t look like a dozen truck batteries wired together.”

Powerwall, mounted on a wall next to a Tesla car. Imagine that.

But is Tesla’s Powerwall already obsolete?

Our other science guru, Stephen Petranek, wonders that very question. Batteries like Powerwall that use lithium-ion technology, just don’t last very long. “If you used it every night, it would be pretty much kaput after a year and a half,” according to Stephan. And at $3,000 a pop, well that’s just not a lot of bang for the buck.

But entering the market is an interesting new kind of battery called a flow battery. We’ll spare you the technical mumbo jumbo, but it apparently lasts a deuce of a lot longer than lithium-ion technology.

They could last at least 20 years, says Stephen. And they won’t degrade noticeably in that time. Or at least that’s what flow battery developers say. No one can be certain a new product like this will live up to its hype until it meets reality and time. The batteries are warranted for 10 years, just like Tesla’s Powerwall.

“The point is that lithium-ion battery systems are probably yesterday’s news,” according to Stephen, “and batteries are about to become a disruptive new technology. I’m guessing that no one can predict how all this will come out, only that there will be more and more battery companies entering the fray in the next few years with lots of surprises.”

You thought the nanny state was bad here. But how about in Australia?

For the first time, those jelly-bellied Aussies are now imposing speed limits in its desolate Northern Territory (NT).

A major highway in the Northern Territory between Alice Springs and Tennant Creek allows drivers to go as fast as their cars will take them. But the new chief minister of the territory plans to change the unrestricted speed zones by the end of 2016, according to the Australian Broadcasting Corp.

That prompted Porsche, which apparently uses roads in the Northern Territory to test cars and film ads, to accuse the NT of being a “nanny state.”

It added that the decision would “deter international car companies from coming to Australia and investing in the local economy.”

Those wusses. Speed limits. In the middle of nowhere. Angels and ministers of grace defend us. Why couldn’t they be more like us freedom-loving Americans?

Description: Image result for speed sign on desert highway

Not that anyone in our government has the b***s to do it…” says one reader as we dip into the mailbag, referring to the Chinese yuan’s incorporation into the IMF’s special drawing right this month.

“But what if we withdrew from the IMF tomorrow. Pull the rug out from under them. The Chinese would then be buying their own bonds, which they already know does not work, and then the demand for M-SDRs would be pretty sparse. Who wants bonds backed up by euros and yuan? I bet there’s not much market for that.”

The 5: The IMF has pretty much been an American show from jump street. A withdrawal is certainly not in the cards. And who will bail us out when the market crashes? The central banks are out of powder, and the IMF will be the only institution with a healthy balance sheet.

I have read a lot and seen your advertisements from Agora all over the place,” adds another reader.

“Is it possible that nothing happens in the first three months? It sounds like a shift in the balancing mechanism is coming, but sometimes it takes a year for things to shift enough so something is seen. Just saying that Sept. 30 may not be the drop-dead date.”

The 5: Maybe. Maybe not. Markets are notoriously unpredictable. Jim Rickards has said the dollar won’t lose reserve status overnight, nor would you see hyperinflation overnight. But the writing could very well be on the wall for the old greenback.

Have a good weekend,

Brian Maher
for The 5 Min. Forecast

P.S. Have you seen Jim Rickards’ 63-second video about gold?

Something very important is happening in the gold market. And it could be very good news for you — if you know what to do.

Please click here to view it now.


Other Articles In 5 Min. Forecast