3 Ways To Still Make Money In This Over-Heated Market

The second cause for hand-wringing is the belief that Millennials don’t want to own their own home (or car, for that matter; it’s the sharing economy, dude.) After all. one in three are quite happy living with mom and dad. Others don’t mind sharing a place in town with roommates so they can take public transportation everywhere and be close to the good bars and restaurants. I disagree with this opinion, taken as gospel by most analysts.

I don’t think Millennials are any different than those who came before. They’re just doing everything every generation has done, but later. I left home at 17 to work my way through school. That was then. Today that survival pressure isn’t as manifest. In many cases, mom and dad actually want you to stay home longer; after all, they’re your best friends, not just your parents.

And going to college can be either a time to expand your horizons—even with work and school, this was a magnificent and fondly-remembered time of my life. But for some, I imagine it effectively prolongs for four years their extended childhood. So they want to party and be social after even after school is finis. Who wouldn’t?

But when they find true love, marry and start a family? With kids they themselves dote on? Is it still so cool to be able to bike to work if the nursery or day care is 5 miles away? Can Uber or Lyft retain their luster when you are a soccer mom with your own full-time career and a husband who travels for his own job? I don’t think so.

I believe instead that the real estate (and auto-buying) trough of today will just as likely become the bonanza of tomorrow.

In a market that has begun moving up from a decline all the way until that market reaches the point where, historically, it begins to tire (based upon length of time, an unusual event, black swan or valuation parameters like PE, PB and PS ratios) stocks and bonds of non-commodity producers make the most sense.

I remain 100% bullish on America long term. But there comes a time when secular bull markets pause for awhile or even lay down for a rest. I believe those advocating a fully-invested position 100% of the time might find themselves crushed when the old fella decides to get off his legs and roll over.

We have begun the process, in concert with the steps taken in the previous section, of also adding some hard assets now, in order to protect the wealth we’ve accumulated by owning stocks that rise with the market. When most people consider investing in hard assets, they typically think about silver or gold coins or bullion, physical real estate or mattresses with secret security pockets in them.

That’s unnecessary. Today we have securitized hard assets so we can own tangibles like silver or land via common stocks, mutual funds, ETFs and REITs. (There will always be those who believe the government will confiscate everything not held in their own personal home, vault or apocalypse shelter. I won’t try to disagree; we all have our tinfoil hat moments and they may be proven right. But if they are we have problems far more immense than owning a gold bar or two will solve!)

When I determine hard assets are appropriate, I look to buy stocks of or funds (open-, closed- and exchange-traded) comprised of companies in the agricultural, energy, basic materials, chemicals, metals and precious metals, and real estate sectors.

I apply the same rigorous standards to each of these that we would to buying any stock in any sector or industry. If they are too expensive we stay in cash. But I don’t think they are too expensive right now. Even gold and silver, which have had quite a run, may have some companies that are cheap if history is our guide. For instance, Goldcorp (NYSE:GG) is up only about a third as much as many of its peers. So what’s the problem here?

The knock against Goldcorp is that they have grown by acquisition and, favoring North American reserves, they have often had to pay up to outbid other firms to add mines in what we consider relatively safe areas geopolitically. And because of planned-in-advance maintenance at one of their biggest properties, their 12-week earnings were lower than a year ago. Also, they cut their dividend at the beginning of the year.

I don’t see any of these as deal-killers. Most gold miners don’t pay any dividend so even the current paltry .05% yield is something. And I’d rather, personally, pay up for safety so Goldcorp’s decision to avoid Ghana, Nigeria, China, et al makes sense to me. Some 40% of GG’s production comes from the US and Canada with another 30% from Mexico and only 30% from Argentina, Guatemala and the Dominican Republic.

The result is that Goldcorp has paid up for better quality, lower-operating-cost mines. Its all-in sustaining cost (AISC) to produce an ounce of gold is consistently under $900. In the current environment, that translates to strong free cash flow. Since they also produce silver, zinc and lead as by-products of the gold-mining business, their actual cost is even lower.

Does gold lose its luster if interest rates rise and investors begin getting better interest payouts on bonds and such? Sort of… Precious metals are usually bought for an inflation hedge, a panic hedge or a metal in demand for jewelry and hi-tech applications. There is a demographic trend that argues for increasing gold usage in jewelry and hi-tech. Additionally, both India and China, with 37% of the total world population between them, have a strong preference for gold jewelry. Barring war or pandemic, their population growth is unlikely to abate.

In short, I think most analysts have viewed Goldcorp’s short-term issues as the beginning of some sort of negative trend. Scratching below the surface, I disagree. This is a senior producer with 3-4 million ounces of production (ex the by-products) and 41 million ounces of gold reserves, higher than most better-known names. We are buying shares as both a hedge and a potential gain.

If investing in what I consider a quality senior miner seems scary, you might want to take a look at the ASA Gold and Precious Metals closed-end fund (NYSE:ASA) for greater diversification. We are buying it for more conservative clients. The fund’s top 10 holdings are: