There’s no shortage of good material from you folks. The comment boards are lighting up, and no surprise given the explosive reports I’ve filed for you in the past week on the European banking crisis, the Deutsche Bank bomb, and an official Super Crash warning. Feel free to join in and leave your comments and questions at SureMoneyInvestor.com or follow me on Facebook or Twitter.
In particular, I’m getting a lot of questions right now about big-name equities like Apple, Chipotle, Starbucks, Alcoa, and more – as well as the all-important precious metals and currencies.
I hope these answers help you make good decisions as you get your portfolio ready for the Super Crash.
Here’s what you need to know.
Q: How do you see the value of [Apple Inc.] AAPL in 2016 especially with ApplePay being launched? ~ Carl M.
A: AAPL is not an expensive stock but it has run into the problem that all huge companies ultimately face – how to keep growing from an enormous revenue and profit base. AAPL will almost certainly remain among the most profitable companies in the world, but at its current size it is going to be extremely difficult for it to grow at a high enough rate to gain a high earnings multiple. New initiatives like ApplePay just won’t move the needle on the stock. In a bear market, it is going to be difficult for AAPL to do better than the market.
Q: [Alcoa Inc.] AA is more tied to economic growth than any other company in this world. How can this be a long given your outlook? ~ Max K.
A: To be honest, I had a hard time finding ANY stocks to recommend to buy this year. I believe we are already in a bear market and it is going to get worse. But AA is a very cheap stock with limited downside and the potential for decent gains as a break-up candidate. It has attracted the attention of one of the most astute value and activist investors in the world, Elliot Management, which tells me that has good potential for gains.
Q: Your analysis of [Chipotle Mexican Grill Inc.] CMG is suspect, have you actually visited any location? They are still packed, maybe not the across the block long lines as before, but I think they will post a much smaller SSS loss than the Street expects… ~ Dan J.
A: I am a big fan of Chipotle’s food. But no restaurant company should trade at a price earnings ratio 60x, which was where CMG was trading before its food poisoning scare. That scare seriously damaged its brand but even before that it was a severely overvalued stock. Like AAPL there are limits to growth in every business, and CMG was priced as though there would be a restaurant on every corner, which was unrealistic. In a bear market, this stock will suffer more than stocks trading at lower multiples; with the food scare, it could crash.
Q: Michael, why are you short [Starbucks Inc.] (SBUX)? ~ Pat J.
A: SBUX was one of a select group of stocks that kept the market indices aloft in 2015 while the average stock fell into bear market territory. Even after dropping $10 from its 52-week high of $64 per share, the stock is trading at a price/earnings ratio of 33x, more than twice the market multiple. It is overvalued and will decline further in a bull market.
Q: What is your outlook on all the cloud software companies with no real earnings? Workday Inc. (WDAY), ServiceNow Inc. (NOW), etc. ~ Jim Z.
A: All the iCloud stocks are in a bubble and will crash along with the FANGs.
Now let’s move on to precious metals and currencies.
Q: What would you suggest as far as a good ratio of how much gold to silver to hold in one’s portfolio? If you wanted to have a 10% position in PM in your over-all portfolio, how much of that 10% should be gold vs. silver? Also, how much would you suggest in terms of having an actual physical holding of each of these metals? ~ Samuel P.
A: Gold should be 15-20% of your portfolio; your precious metals position should always be heavily weighted towards gold. There is no set ratio but I favor gold over silver because gold is more of a currency than silver and the premise for buying precious metals is that they are hedges against the destruction of paper currencies by incompetent and arrogant central bankers.
The main reason for that is that silver really is “poor man’s gold.” The major difference is that gold is a currency while silver remains a metal. Silver has a lot more industrial uses than gold, and is also more volatile, more dependent on the state of the industrial economy (which isn’t very good right now), and very beaten down right now. The strong dollar, China’s implosion, and a variety of other factors have all hurt the price of silver.
Overall, gold is a much better long-term investment than silver because it’s a currency rather than a metal.
My preferred way to own gold or silver is in physical form: coins or bars. Whenever possible, I opt for actual gold instead of ETFs or miners (though those can certainly be a valid choice, and I’ve discussed several of my favorites in the Gold Briefing). As a general rule, if you want to invest in gold, invest in gold.
Q: What about using inverse ETFs USD/Yuan or USD/Emerging Market Currencies? ~ Mike S.
A: Inverse ETFs are dangerous. They do not work as advertised. They have to be reset on a daily basis. They are for speculators and day traders. I would avoid them.
Q: Since we are in a commodity “bubble” and this bubble will burst – it would lead one to assume that gold and particularly silver (which are commodities – traded on the commodity exchanges) will also burst and go down and not up! In deflation, is Au and Ag really a “good investment” or just a hedge against catastrophe? ~ Cynthia F.
A: In the first place, we’re not in a gold “bubble” – gold has had a very rough few years.
In the second place, gold is not a “commodity” – even though it’s traded on commodity exchanges – and the same rules don’t apply.
Gold should actually be considered a currency, not a metal or commodity, in today’s world. Unlike other currencies (with the exception of digital currencies such as bitcoin), it is the anti‐fiat currency. It is a hedge against dollar and other paper currency depreciation. It should not be treated like a commodity, since it will not respond like one.
In a world where the Federal Reserve has made no secret of its desire to increase inflation as its official policy, the dollar will unquestionably decline against the value of gold and other tangible assets over the long run. The explosion in financial asset prices since the financial crisis is a manifestation of the destruction of the value of all fiat currencies including the dollar.
It is no accident that the wealthiest people in the world are shifting money out of paper currencies into high end real estate, collectibles, art, and other tangible assets. Eventually gold and other precious metals will appreciate sharply along with these beneficiaries of dollar depreciation.
Do you have a question I didn’t cover? Please feel free to ask me in the comments – as we get closer to the Super Crash, I’ll be actively reading and answering. Keep in mind that I can’t provide personalized investment guidance, but I’m eager to help however I can.
Stay safe out there.