Resources, Naturally ...

10/01/2004 12:00 am EST

Focus:

Martin Weiss

Chairman, Weiss Research, Inc.

Although he remains bearish on the general market, Martin Weiss sees significant opportunity in the energy sector and precious metals. Here, he discusses his market outlook and some of his favorite stocks in the natural resources arena.

"Since June, short-term interest rates have been going up, the federal deficit has continued to balloon in size, and most commodity prices have been surging. So you'd think long-term interest rates, which are normally sensitive to each of these three forces, would also be moving higher. Instead, the opposite is true: The yield on 10-year Treasury notes has declined from a peak of 4.87% in June to 4.10% currently. Mortgage rates and other long-term interest rates have also come down. Why? Because the economy has been weaker than expected, and Wall Street still subscribes to the mistaken belief that a weaker economy will automatically drive inflation and interest rates lower. In today's environment, nothing could be further from the truth. The reasons:

  • Short-term interest rates have been so ridiculously low, the Fed needs to raise them just to restore a semblance of normalcy in the financial markets.
  • Thousands of institutions and speculators have been financing their long-term bond holdings with cheap, short-term borrowings. Once the cost of that financing rises, they will be forced to unload the bonds, driving prices down and yields higher. 
  • Energy and commodity prices are being driven higher by huge demand and supply shortages overseas. So even if the U.S. domestic economy weakens, that imbalance is bound to persist, continuing to drive prices higher.

"No matter what, the yield on your Treasury bills is bound to continue rising, so keep slightly more than half of your conservative portfolio in 3-month Treasury bills or a money fund that buys only short-term Treasury securities. In addition, we see no end to the bull market in your energy and gold-related investments. Here are some of the positions we currently recommend:

"Investors should hold a position in Prudent Global Income Fund (PSAFX). The mixed interest rate situation created by the Fed isn't taking away from your global holdings. They're holding their own while you collect interest and cash in on the dollar's decline. We also suggest 3-month Australian CDs. Investors can earn a 4.50% yield on these this Australian CDs, which should be rolled over into new 3-month CDs when they mature. If the U.S. dollar continues to fall as I expect, you should be able to capture some extra gains. (For those interested in buying Australian CDs, we suggest contacting Everbank at 800-926-4922). Investors should also own Enerplus (ERF NYSE). This oil and gas royalty trust is a great investment to hold while energy prices soar. If you don't own it yet, buy on any dips to $28 or lower.

"We also recommend a position in U.S. Global Natural Resources Fund (PSPFX). Natural resources are on the move again - higher. Steel is up 16% in the past month alone, silver is up 8%, and gold is up 7%. If not yet on board, buy at the market. We also suggest Plum Creek Timber (PCL NYSE). Trading just below its all-time high of $36, PCL is up smartly as lumber prices inch up to 9-year highs. It's one of the largest private timberland owners in the U.S., and it recently more than doubled its timber holdings from 3 million acres to 8 million acres. Timber makes a great alternative asset for a portfolio defending against weak stock prices.

"We also suggest that investors hold a position in individual gold stocks and mutual funds. Here are some of our favorite gold positions. Goldcorp (GG NYSE) remains one of my favorite mining companies because it never hedges its gold production and it has no debt. Plus, its Red Lake Mine is the richest gold mine in the world! GG is up nearly 15% since its July 26 bottom. Newmont Mining (NEM NYSE), a blue chip mining company, is a must hold in my view for any long-term gold portfolio. Agnico Eagle Mining (AEM NYSE) has been basing for a big move up. Now, it appears to have completed its basing pattern and is on its way to higher levels.
Cambior (CBJ AMEX) is really a penny stock, but I love this company's prospects. It's now on pace to mine approximately 705,000 of its 3.8 million ounces of proven reserves by the end of the year. The higher gold goes, the better the chance this stock will surge. Among funds, we suggest USGI World Precious Minerals Fund (UNWPX). A Morningstar study just ranked this fund number 1 among 4,145 funds it studied for the three-year period ending June 30, 2004. That's because it holds some of the best US and foreign natural resource stocks in the world."

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