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Gold Mining Stocks Ready for Rally?

Sometimes I ask myself a question. If I suddenly inherited a pot of money, and was required to keep it as an investment portfolio, what's the first thing I would do with it?

Right now, I'd devote a decent portion to gold mining stocks. And I'd buy the ones I've held for well over a year now -- Newmont Mining (NEM), Goldcorp (GG), Agnico-Eagles Mines (AEM) and the Market Vectors Gold Miners ETF (GDX).

Why? Because the mining stocks have underperformed the bullion, and offer value.

Of course, this is based on my conviction the gold bull remains intact. The price of gold could (and will probably) suffer a decent-sized correction at some point. I'm surprised we haven't really had on over the past year.

Peter Brimelow's MarketWatch column today discusses gold mining stocks -- and their chances for making up lost ground. You'll want to read it if you're a fellow traveler in this sector.

John Dizard on Greece

Anyone with access to FT.com, and a contrarian bent, will want to read John Dizard's latest Financial Times column.

Especially the last two paragraphs.

Update on Barron's Mid-Year Roundtable

I see it's available via RealClearMarkets.com. So you don't need to subscribe to Barrons Online to access it.

Fred Hickey, Meryl Witmer, Marc Faber, Felix Zulauf, Bill Gross, Oscar Schafer and more. Highly recommended.

Jean-Marie Eveillard on King World News

Legendary value investor Jean-Marie Eveillard was interviewed by King World News over the weekend. He's spoken with King several times before, and his appearances make KWN stand out from the crowd.

Eveillard strikes a chord with me for three reasons. He's a value guy, he sees gold as money and a form of insurance, and he appreciates the Austrian school of economics.

You can listen to this interview (and previous ones with KWN) by going here.

Fred Hickey on Microsoft, Ballmer and More

This week's Barron's features the mid-year Roundtable, where participants in the magazine's annual Roundtable published in January offer some new picks and views on the general financial scene.

As always, lots of good stuff and I'm still digesting it.

But I'll note Fred Hickey, editor of The High-Tech Strategist, still likes Microsoft (MSFT). He's covered tech for a long time, and he avoided getting creamed in the Internet boom. So his views carry a lot of weight with me.

He's not recommending buying MSFT here because he thinks the tech sector is in for some tough times. Yet he hasn't sold any of his stake.

Moreover, Hickey doesn't think CEO Steve Ballmer should go, and he thinks the Skype deal could actually work out quite well. Skype capability could give its Windows 7 phone business "a big leg up." And MSFT will embed Skype's video conferencing in nearly all of its products.

He adds that MSFT has been beating estimates quarter after quarter, but investors just don't seem to care. Why? "There is this perception that Microsoft is tied to old businesses like Windows and Office and that the personal-computer market is dying."

On a different note, he still likes gold, and gold mining stocks. One of his mid-year picks is Goldcorp (GG), which I own.

The entire Roundtable -- with Meryl Witmer, Felix Zulauf, Scott Black, Marc Faber and several others -- is well worth any investor's time.

Peter Munk

Peter Munk is the 83-year-old founder and chairman of Barrick Gold. I don't own the stock directly, but it does make up a significant portion of the Market Vectors Gold Miner ETF (GDX), which I do hold.

Margaret Wente pens an op-ed in The Globe and Mail, saying that Canada needs more like him. I'd say every country could use many Peter Munks.

From the article:

From the day he landed in Toronto from war-torn Europe, he has loved this country with a passion. “I arrived in this place not speaking the language, not knowing a dog,” he says. He was 18 – an alien, a foreigner, a Jew in a funny-looking suit. In Europe, people were living in the ruins, like rats.

The young refugee presented himself at Lawrence Park Collegiate, where nobody had seen a foreigner before. He expected to be shunned. Instead, the principal took him to a sun-filled classroom, where, unbelievably, boys and girls studied together. At lunchtime, everybody streamed into the cafeteria, where a trestle table groaned with meat, bread and milk. “The amount of food in that place could have fed any city in Europe for a whole day,” he recalls. Kids began asking him home, where their parents invited him to raid the fridge.

For Mr. Munk, this generosity became a metaphor for Canada. “People here don’t ask about your origins,” he says, “only about your destiny.”

You can read the entire thing here.

John Hathaway on the Chances of You-Know-What Hitting Five Digits

Remember the good old days when Controlled Greed spent most of its time on the editor's adventures in investing his portfolio in value stocks?

Well, stuff happens.

Moreover, with the US government (read: taxpayers) on the hook for trillions in debt -- and lots more than the $13 or $14 trillion number thrown around -- that lead me to putting some of my moolah in gold and gold mining stocks.

I may be wrong, but that's what happened.

I haven't abandoned stocks -- most of the portfolio consists of non-gold-related stocks after all.

But I've put money in CEF, GTU, NEM, GG, AEM and GDX and, as such, have posted a bunch about the precious metals. And I've come across a blog post from King World News on the site's upcoming interview with John Hathaway. Who's no stranger to regular readers here.

A bit:

...You know here’s the problem, we have negative interest rates today, negative real rates of around two percent, two and a half percent...If we did have a Volcker moment when you had somebody at the head of the Fed who said, ‘We are going to restore integrity to the currency’, you would have to raise real rates to something like three percent to make it easy.  So negative three (percent) to positive three means six percent nominal times $14 trillion in debt which is $700 or $800 billion, on top of the federal deficit that is already $1.6 trillion.  I mean those are the numbers that tell you that we’re basically bankrupt.

You can read the entire thing on the King World News blog.

Fortune Profiles Bob Rodriguez

Excellent Fortune magazine article by Mina Kimes on Bob Rodriguez of First Pacific Advisors (HT: RealClearMarkets.com). He saw the Internet and real estate bubbles coming and -- unlike many mutual fund managers, who seek always to be fully invested -- took the contrarian steps necessary to largely avoid the carnage.

Another thing setting him and FPA apart from others in the mutual fund industry is this: he's willing to close his fund to new investors when bargains are few. Even though he could take in more and more assets, which would boost his management fee income.

The article gives lots of biographical information that makes for interesting reading.

And it also tells us what he thinks about the market now:

FPA Capital now has 30% of its portfolio in cash and 38% in energy stocks because he believes the world's oil supply is declining. Still, even in that sector, he doesn't see many opportunities. (Forget other sectors.) He refuses to buy most bonds or long-term government debt. His restraint has rankled some investors: FPA New Income has begun to shrink again, and a few FPA Capital clients are grumbling.

Read the entire thing.

Brian Lamb Interviews Jim Grant on C-SPAN

Jim Grant sits down for an hour-length interview with Brian Lamb for C-SPAN's "Q & A" program. The subject is Grant's new book, Mr. Speaker!: The Life and Times of Thomas B. Reed The Man Who Broke the Filibuster.

They keep to the book for the majority of the time. Lamb does ask about, as he does with all authors I've seen him chat with, Grant's background, both personal and professional. And Grant's views on the Fed and gold standard do come up, but largely within the context of camparing monetary issues with Reed's time and our own.

Good interview. The C-SPAN link above has the video up, and a transcript will be available later.

Portfolio Structure

I list the portfolio's positions in the "Current Holdings" menu on the right hand side of this blog.

But I've been holding more cash than usual for some time now, so here's another way of looking at the portfolio's structure (as of the market close Friday):

Equities (non-gold related) 37.5%
Cash 30.0%
Golding Mining Stocks 18.6%
Gold & Silver Bullion 11.9%
VXX 2%

My intuition tells me this is a good place to be. Whether that's the case or not only time will tell.