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Investor’s View Magazine
Swanson Likes Warren Buffett's Big Bet
October 2006
Hedge fund manager and newsletter writer Mike Swanson sees a return of the gold bull market by the end of the year. "I just took some short positions in the dollar today and am going to start to build a long position in gold stocks over the next few weeks. Gold tends to trade opposite to the dollar and with the Fed's current monetary policies the dollar is about to resume its long-term decline," he said.
Swanson, has an uncanny track record when it comes to gold stocks. In his newsletter, WallStreetWindow, he first recommended that people buy them in the Spring of 2002 when gold was under $300 an ounce. He then sold them in the following summer and told his subscribers to buy them back in April of 2003. Incredibly, he put out a sell recommendation one day before gold peaked in December of 2003. "We had an incredible ride in gold last year too and I made a fortune when I got out," he said. Swanson thinks that gold investors are going to experience similar rewards this year and told his subscribers to buy back in back in June when gold was around $550 an ounce.
He sees the gold bull market continuing through the end of this decade with periodic corrections to provide entry points for value investors. Swanson thinks gold is a part of a broader inflationary trend linked to the falling dollar. He thinks oil may even go to over $100 a barrel, a level that is hard to believe.
He isn't the only one bullish on precious metals. Billionaire George Soros publicly disclosed that he had built a massive short position against the US dollar.
In October of 2003, Warren Buffett, the most famous investor in America, announced that he had bought a basket of foreign currencies to profit from a coming decline in the dollar. Although he didn’t disclose the size of his position he called it “massive” and noted that it was the first time he ever bought a single foreign currency. Over the past 5 years he has bought up more than 25% of the world's silver. Buffett has an uncanny habit of making money in the stock market. In May of 2002 he bought $600 million dollars worth of puts on the S&P 500 that exploded in value when the stock market tanked later that summer.
He is now warning of an impending dollar crisis that could last for years. “Our country’s net worth so to speak, is now being transferred abroad at an alarming rate,” he said. “In effect,” he warned, “our country has been behaving like an extraordinary rich family that possesses an immense farm. In order to consume 4% more than we produce – that’s the trade deficit – we have day by day, been both selling pieces of the farm and increase the mortgage on what we still own.”
According to Mike Swanson, "the accumulation of debt in the United States cannot continue much longer. In the last century the ratio of debt to GDP hovered between 120% and 160%. In 1929 debt rose to 260%. Now the ratio of debt to GDP is at a mad 300% and has been growing over the past year. Something has to give."
Economist Mark Thornton, author of Tariffs, Blockades, and Inflation, agrees. He thinks investors need to pay attention to gold. "There is always a bull market somewhere in the economy. It could be junk bonds, real estate, a particular currency, tech stocks, foreign markets, land, blue chips, or small caps, " he says, "Today we are in a bull market in gold and commodities. Oil and gas are at all-time highs while metals such as silver are up more than 25%."
There are a lot of doubters. Gold, once seen as a safe haven in the inflationary 1970's has fallen out of favor with mainstream investment advisors. CNBC commentator James Cramer likens "gold bugs" to people who believe the world is flat.
Swanson welcomes such skepticism. "Warren Buffett made his billions by buying investments when they are out of favor. You buy low and sell high. When everyone is negative like they are on gold and silver right now then you need to consider buying. I think I'm in good company on this one. I'd rather know that Warren Buffett is in agreement with me than Cramer or Kudlow ," he says.
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