WEBVTT NOTE Where in the World? Best Places for Your Money for 2005 1 00:00:00.000 --> 00:00:05.000 And now for something completely different, as I used to say on a British television program 30 years ago. 2 00:00:05.000 --> 00:00:13.000 I'm very honored to be in this august company of academics and thinkers, economists and thinkers. 3 00:00:13.000 --> 00:00:18.000 I'm not an economist, although I have been known to think from time to time. 4 00:00:18.000 --> 00:00:24.000 What I'm going to do this afternoon is look around the world at different asset classes, different markets, 5 00:00:24.000 --> 00:00:30.000 and see which sectors look good to us right now in terms of value. 6 00:00:30.000 --> 00:00:35.000 I am, as was discussed earlier, not surprisingly, a value investor 7 00:00:35.000 --> 00:00:40.000 and I believe in absolute value. I don't believe in looking for relative value. 8 00:00:40.000 --> 00:00:45.000 One can always, of course, find some things that are comparatively less expensive than others. 9 00:00:45.000 --> 00:00:52.000 The trick and the key to successful investing is to find things that represent absolute value. 10 00:00:52.000 --> 00:00:57.400 and I have to say that right now from my perspective I don't see an awful lot 11 00:00:57.400 --> 00:01:03.040 anywhere in the world in any sector that represents a good value certainly not on 12 00:01:03.040 --> 00:01:11.640 a broad on a broad basis. Let's start by taking a very quick look at how I see 13 00:01:11.640 --> 00:01:15.280 global economies and I'm not an economist so I'm just going to skim 14 00:01:15.280 --> 00:01:19.560 over this but it's pretty clear that over the last few years we had a 15 00:01:19.560 --> 00:01:23.720 had a coordinated economic recovery around the world where pretty much every part of 16 00:01:23.720 --> 00:01:29.920 the world was in some kind of economic up move. 17 00:01:29.920 --> 00:01:33.560 But these recoveries have started to lose momentum recently. 18 00:01:33.560 --> 00:01:38.160 We've seen that with the leading economic indicators, not just in the US, but global 19 00:01:38.160 --> 00:01:44.920 leading economic indicators are all showing a decline in momentum. 20 00:01:44.920 --> 00:01:50.920 In the US, of course, the consumer remains very strong, but largely, in my view, based on credit. 21 00:01:51.920 --> 00:01:56.920 Europe, in continental Europe, when I talk about Europe, I'm not talking about England, of course. 22 00:01:57.920 --> 00:02:03.920 Continental Europe, we're seeing the recovery stall in many parts, particularly in Germany. 23 00:02:04.920 --> 00:02:08.920 And then Japan, of course, has now entered its fourth recession in the last ten years. 24 00:02:08.920 --> 00:02:15.520 so the economic outlook does not look particularly positive certainly not 25 00:02:15.520 --> 00:02:19.040 compared with the last couple of years and at the same time there are some 26 00:02:19.040 --> 00:02:24.800 significant risks so we're going to touch on later the risk of a hard landing 27 00:02:24.800 --> 00:02:33.040 in China and of course the risk to Saudi Arabia at the same time there's another 28 00:02:33.040 --> 00:02:37.160 factor I won't call it a risk there's another factor and that is the US dollar 29 00:02:37.160 --> 00:03:07.160 We've had some comments already on the dollar, we had an excellent talk from Dr. Mueller on the dollar, I agree with everything he said, and I think we're all familiar with the basic problem, the deficits, the twin deficits in the US now represent almost 6% of GDP, which is considered by most economists a danger point and a crisis point, if it weren't for the fact that the US economy, in my view, if it weren't for the fact that the US economy was in fact the leading economy, 30 00:03:07.160 --> 00:03:12.520 economy in the world and the dollar the reserve currency in effect it's clear 31 00:03:12.520 --> 00:03:17.480 that the dollar would already be a lot a lot cheaper than it is and of course the 32 00:03:17.480 --> 00:03:20.800 other factor that we know about is the tremendous foreign buying and foreign 33 00:03:20.800 --> 00:03:26.120 holding of dollars that we've seen over the last 10-15 years I've got lots of 34 00:03:26.120 --> 00:03:30.500 lots of the graphs and tables on this in the handout I hope you all have the 35 00:03:30.500 --> 00:03:35.800 handout you can look at these at your leisure later but I would just like to 36 00:03:35.800 --> 00:03:38.800 I'd like to point out to one of them, which is on the top of page 3. 37 00:03:38.800 --> 00:03:45.800 And this is the one that shows the US required share of net export world capital. 38 00:03:45.800 --> 00:03:51.800 The point was made earlier and I think is a very, very important point. 39 00:03:51.800 --> 00:03:59.800 Foreigners do not need to sell a single US dollar for the US dollar to go down. 40 00:03:59.800 --> 00:04:09.640 All that is needed at this point is for foreigners to stop putting quite so much of their new money into the US economy, into dollars. 41 00:04:09.640 --> 00:04:11.840 They don't need to sell at all. 42 00:04:11.840 --> 00:04:17.120 Right now, the US is taking up almost 80% of net export world capital. 43 00:04:17.120 --> 00:04:20.960 That is clearly, clearly unsustainable. 44 00:04:20.960 --> 00:04:28.680 So that all we need going forward is for foreign investors, foreign banks, foreign private investors at the margin 45 00:04:28.680 --> 00:04:32.320 to put less of their new money to work in the U.S. 46 00:04:32.320 --> 00:04:37.920 And in fact, we saw that last year with both Russia and China. 47 00:04:37.920 --> 00:04:41.720 China was, the amount of new money that China was putting into the U.S. 48 00:04:41.720 --> 00:04:44.520 economy last year fell dramatically. 49 00:04:44.520 --> 00:04:49.760 And that's one of the reasons that the dollar was so weak last year. 50 00:04:49.760 --> 00:04:56.760 Now, I manage money for a living, and so I'm concerned not just with, 51 00:04:56.760 --> 00:05:06.760 I'm concerned not just with the long term, but I'm also, I have to be concerned with a fairly shorter term horizon as well when I'm placing money. 52 00:05:06.760 --> 00:05:11.760 And it seems to me that the dollar, as we know, the dollar has had a rally in recent months. 53 00:05:11.760 --> 00:05:15.760 I think it's a short term rally based primarily on market factors. 54 00:05:15.760 --> 00:05:21.760 Sentiment was overwhelmingly negative, the dollar, and it was well above its trend line. 55 00:05:21.760 --> 00:05:29.760 And when you see this, it's not unexpected that you should get a counter-trend rally and that I think is what we've seen. 56 00:05:29.760 --> 00:05:36.760 Going forward, whether the dollar rally has finished or not is unclear and nobody knows, of course. 57 00:05:36.760 --> 00:05:41.760 But going forward, it seems to me that with new money that we put into foreign currencies, 58 00:05:41.760 --> 00:05:51.760 We want to emphasize the euro a little less, and we want to emphasize Asia and Asian currencies a little more. 59 00:05:51.760 --> 00:05:57.760 But there is a risk in the near term, it seems to me, particularly if the dollar continues to rally, 60 00:05:57.760 --> 00:06:02.760 and particularly if China does have a slowdown, I'm going to touch on this a little bit later, 61 00:06:02.760 --> 00:06:09.760 because both of those factors combined would have a significant impact in the short term on gold and other commodities. 62 00:06:09.760 --> 00:06:16.260 Let's just sum up before I get to markets by looking at the global economic environment. 63 00:06:16.260 --> 00:06:23.260 Clearly we still have economic growth around the world, albeit growth whose rate of improvement is slowing. 64 00:06:23.260 --> 00:06:28.760 We have low interest rates around the world, albeit rates that in many parts of the world are moving up, 65 00:06:28.760 --> 00:06:34.260 but on a historical basis as we all know, interest rates are at very, very low levels right now. 66 00:06:34.260 --> 00:06:38.760 We have an inflation risk again, albeit inflation is low. 67 00:06:38.760 --> 00:06:46.560 We have a very vulnerable dollar in the long term and of course we have geopolitical risk as well. 68 00:06:46.560 --> 00:06:54.880 This kind of environment is obviously weak for the US dollar, it's weak for bonds, not just US bonds but global bonds 69 00:06:54.880 --> 00:07:05.320 and it's weak for many stocks and stock markets and stock sectors but it's positive for commodities, real assets and particularly emerging markets, 70 00:07:05.320 --> 00:07:11.480 It's particularly emerging markets in Asia and we'll talk about that a little bit later. 71 00:07:11.480 --> 00:07:15.480 What I'd like to do is look at some of the main sectors and markets around the world 72 00:07:15.480 --> 00:07:19.040 and just see where the value is or is not. 73 00:07:19.040 --> 00:07:23.080 If we look at the U.S. stock market first of all, the U.S. stock market of course being 74 00:07:23.080 --> 00:07:30.120 the largest stock market in the world by far, the U.S. market right now is selling at valuations 75 00:07:30.120 --> 00:07:36.120 And those that are above their averages, it's more expensive than it is cheap. 76 00:07:36.120 --> 00:07:41.120 And it seems to me the continued earnings growth is already priced in. 77 00:07:41.120 --> 00:07:47.120 Now we had very strong earnings growth last year, but a lot of that earnings growth was based on lower interest rates, 78 00:07:47.120 --> 00:07:51.120 reducing the net interest cost of many corporations. 79 00:07:51.120 --> 00:07:58.120 If you take that out, then the earnings growth in U.S. corporate sector was actually very, very modest last year. 80 00:07:58.120 --> 00:08:03.400 but the market is already priced in continued earnings growth which I don't 81 00:08:03.400 --> 00:08:10.800 think we're going to see. As an investor I look at risk and potential. Every 82 00:08:10.800 --> 00:08:14.620 investment you ever make has some kind of potential, some kind of risk and it's 83 00:08:14.620 --> 00:08:20.080 their job to look at both and to try to balance the risk with the potential. So 84 00:08:20.080 --> 00:08:24.820 one of the things I always do is look at what the risk in the US market is. This is 85 00:08:24.820 --> 00:08:37.820 This is a very, very simplistic table. I'll warrant all of the things that are wrong with it, but it's a very simple measure of what the risk in the market is. 86 00:08:37.820 --> 00:08:43.820 All I do is look at what the today's multiples, fundamental multiples in the market are today. 87 00:08:43.820 --> 00:08:53.820 Then I look at the long-term historical average multiples, and then I simply calculate how far would the market have to fall or rise, in this case fall, 88 00:08:53.820 --> 00:08:58.460 in order for the market to be trading at those long-term historic average multiples. 89 00:08:58.460 --> 00:09:03.660 It assumes, of course, a static economy, which we all know is not so. 90 00:09:03.660 --> 00:09:10.260 And what you see here is that on an earnings basis, the market would have to fall 13%, not a lot. 91 00:09:10.260 --> 00:09:15.180 But on a price-to-book and on a dividend basis, it would have to fall 30% to over 40%. 92 00:09:15.180 --> 00:09:17.260 That is a lot. 93 00:09:17.260 --> 00:09:22.860 So from a risk-reward basis, it seems to me whatever kind of potential is in the market right now, 94 00:09:22.860 --> 00:09:31.460 depending on a lower oil price, a stronger U.S. economy, continued corporate earnings growth, a calm geopolitical situation. 95 00:09:31.460 --> 00:09:39.460 All of those things could happen, but in my view they're unlikely to happen, at the same time there's significant risk in the market. 96 00:09:39.460 --> 00:09:50.260 If we look at global economies, we see much the same thing, most markets around the world, indeed I would say all markets around the world 97 00:09:50.260 --> 00:09:54.860 are expensive based on their own historical parameters. 98 00:09:54.860 --> 00:09:56.060 And what do I mean by that? 99 00:09:56.060 --> 00:09:57.740 When you look at Hong Kong, for example, 100 00:09:57.740 --> 00:10:01.340 Hong Kong at 18 times earnings yielding a little over 3% 101 00:10:01.340 --> 00:10:03.660 is relative value, perhaps. 102 00:10:03.660 --> 00:10:06.980 But it is not relative to the rest of the world. 103 00:10:06.980 --> 00:10:09.340 But it is by no means absolute value, 104 00:10:09.340 --> 00:10:13.180 and it is by no means good value compared with the Hong Kong 105 00:10:13.180 --> 00:10:15.740 market's own historical parameters. 106 00:10:15.740 --> 00:10:18.940 It's traditionally yielded around 4.5% to even 5% 107 00:10:18.940 --> 00:10:21.340 and traded around 12 times earnings multiple. 108 00:10:21.340 --> 00:10:28.540 So I don't see a lot of value in global stock markets around the world and not cheap by historical standards. 109 00:10:28.540 --> 00:10:36.940 Earnings momentum is slowing and then of course the potential for a big decline in the dollar is very real. 110 00:10:36.940 --> 00:10:42.940 I do see some values though. I think one can look for value in global blue chips. 111 00:10:42.940 --> 00:10:47.340 I'll mention a couple of names in a second. Global blue chips are good prices. 112 00:10:47.340 --> 00:10:54.580 companies, high-yielding companies with sustainable yields, European stocks are traded at discount. 113 00:10:54.580 --> 00:10:58.740 These are often holding companies or family-controlled companies. 114 00:10:58.740 --> 00:11:03.440 As a value investor, if I can buy a dollar's worth of assets for 50 cents, I generally 115 00:11:03.440 --> 00:11:06.500 don't mind how long I have to wait to realize the full value. 116 00:11:06.500 --> 00:11:10.820 So I don't mind if it's controlled by a family because typically over time, these values 117 00:11:10.820 --> 00:11:13.380 do get realized. 118 00:11:13.380 --> 00:11:19.780 Asian emerging markets have value, but obviously it's a little more speculative for many investors. 119 00:11:19.780 --> 00:11:23.940 And lastly, commodities, particularly oils and the metals. 120 00:11:23.940 --> 00:11:27.980 But most markets have been bid up over the last 6-12 months. 121 00:11:27.980 --> 00:11:36.900 And again, I don't think you need to be particularly aggressive in buying because we're not seeing overwhelming value at the moment. 122 00:11:36.900 --> 00:11:40.980 We're simply seeing some good value, some reasonable value. 123 00:11:40.980 --> 00:11:45.540 Here are some stocks that I think are good buys, but they're by no means great buys. 124 00:11:45.540 --> 00:11:51.420 Hong Kong Bank, for example, trading at about 17 times earnings, yielding a little over 3%. 125 00:11:51.420 --> 00:11:58.020 It is a great company in my mind. It's a great kind of company, but you want to own and you want to own it almost permanently. 126 00:11:58.020 --> 00:12:06.180 It's the very first stock I ever bought in 1978, but it is not, by its own historical parameters, inexpensive. 127 00:12:06.180 --> 00:12:12.020 So I think it's the kind of thing you want to look for, look for a correction and move into slowly. 128 00:12:12.020 --> 00:12:18.540 And we could go through all of these with the same kind of discussion. 129 00:12:18.540 --> 00:12:24.940 Commodities are attractive to me right now, although again, I don't think one needs to be overly aggressive. 130 00:12:24.940 --> 00:12:30.620 But painting with a very broad brush, we've seen a lack of new projects in many of the commodities. 131 00:12:30.620 --> 00:12:34.140 and we're seeing, that's been true for many years of course, 132 00:12:34.140 --> 00:12:38.900 supply has not kept up with demand for a long time 133 00:12:38.900 --> 00:12:42.500 but there's been high inventories in many of these commodities for many years. 134 00:12:42.500 --> 00:12:45.740 Those inventories have generally, and again painting with a broad brush, 135 00:12:45.740 --> 00:12:49.820 been run down over the last couple of years which is why prices have moved up. 136 00:12:49.820 --> 00:12:53.500 The macroeconomic climate is also positive for commodities. 137 00:12:53.500 --> 00:12:56.620 The big question in the near term perhaps is China. 138 00:12:56.620 --> 00:13:00.100 Seems to me that, you know, six months ago or a year ago 139 00:13:00.100 --> 00:13:30.100 A year ago, I thought China was almost certain to have a hard landing of some type or at least a significant slowdown but it seems to be that conditions have got a lot stronger in China recently, we see this in inventories being run down in China, we see that in the shipping rates, the Baltic shipping index on Europe to Asia, the US to Asia, prices moving up, so that's all a sign of a stronger economy. I think there's still some risk in China though 140 00:13:30.100 --> 00:13:32.100 is still an open question we have to watch. 141 00:13:32.100 --> 00:13:35.780 The risk is not so much at the government level or even at the corporate level. 142 00:13:35.780 --> 00:13:38.260 The risk is now at the consumer level. 143 00:13:38.260 --> 00:13:45.100 A lot of bad consumer credit, the banking system, as we know, is in pretty bad shape 144 00:13:45.100 --> 00:13:48.740 and largely because of this bad consumer credit. 145 00:13:48.740 --> 00:13:51.820 So I think it's still an open question in the near term 146 00:13:51.820 --> 00:13:54.740 whether China is going to escape a hard landing. 147 00:13:54.740 --> 00:13:57.660 Certainly in the longer term, and we don't have time to go into it now, 148 00:13:57.660 --> 00:14:03.260 Now, but certainly in the longer term, I'm very, very bullish on China, in longer terms, 10, 15, 20 years, 149 00:14:03.260 --> 00:14:10.760 but even in the next five years or so, when Beijing is holding the next Olympics, there'll be a lot of infrastructure building. 150 00:14:10.760 --> 00:14:15.260 I think that's going to be very good for China and very good for the commodities. 151 00:14:15.260 --> 00:14:21.160 The ones I would stick with would be oil and gas and gold primarily. 152 00:14:21.160 --> 00:14:24.660 How long do I have, Mark? 153 00:14:24.660 --> 00:14:27.660 Seven minutes. Okay, wonderful. 154 00:14:29.660 --> 00:14:33.260 If we look at oil, I think a lot of us will know the story, 155 00:14:33.260 --> 00:14:35.860 but it's important to look at the long-term fundamentals. 156 00:14:35.860 --> 00:14:39.460 Long-term, the big major fields around the world, 157 00:14:39.460 --> 00:14:43.460 which contributed to the growth in oil demand over the last half century, 158 00:14:43.460 --> 00:14:47.460 have all peaked and are all mature and are all in decline. 159 00:14:47.460 --> 00:14:50.260 Now, I'm not a doomsday saying the world's running out of oil. 160 00:14:50.260 --> 00:14:51.660 We're not running out of oil. 161 00:14:51.660 --> 00:14:54.060 It's a matter of the price it takes to get it out. 162 00:14:54.060 --> 00:15:01.500 But it is true that the big fields that contributed to the growth in the oil supply have all peaked and are all mature and are all on the way down. 163 00:15:01.500 --> 00:15:07.660 I'm talking about the North Sea, the Alaska slopes, continental U.S. before that, of course. 164 00:15:07.660 --> 00:15:22.220 And what we're seeing instead is a lot of smaller fields in much more unstable situations like Nigeria, offshore West Africa, Indonesia, the Stans, Russia. 165 00:15:22.220 --> 00:15:24.820 I think our next speaker may have something to say about Russia. 166 00:15:24.820 --> 00:15:28.140 But clearly these are more unstable. 167 00:15:28.140 --> 00:15:32.740 And despite this, we're only seeing 75% reserve replacement 168 00:15:32.740 --> 00:15:34.420 by the major companies. 169 00:15:34.420 --> 00:15:38.060 So we have a very, very delicate supply demand situation 170 00:15:38.060 --> 00:15:40.300 in oil at the moment, and the oil market 171 00:15:40.300 --> 00:15:44.180 is always vulnerable to a supply disruption. 172 00:15:44.180 --> 00:15:46.220 That's why there's a geopolitical premium 173 00:15:46.220 --> 00:15:47.580 in the price of oil right now. 174 00:15:47.580 --> 00:15:51.020 But in my mind, a justifiable geopolitical premium, 175 00:15:51.020 --> 00:16:05.820 Because that risk of disruption is very, very real and given the precarious balance between supply and demand with low inventories, then a disruption has an immediate impact on price. 176 00:16:05.820 --> 00:16:13.380 If we look at gas, the situation is much the same, although, of course, it's confined to one geographic area. 177 00:16:13.380 --> 00:16:21.660 Supply is declining, the big, big, mature fields, I mean the big fields in North America are mature fields. 178 00:16:21.660 --> 00:16:27.780 And exploration success, and this is a key point, exploration success has been very, very limited. 179 00:16:27.780 --> 00:16:34.420 Despite the huge increase in the price of gas over the last few years and the enormous pickup in drilling activity, 180 00:16:34.420 --> 00:16:39.620 both in the US and in Canada, to the point where we now have record drill activity in Canada, 181 00:16:39.620 --> 00:16:45.620 Almost record-drill activity in the continental United States, as you would expect when the price goes up. 182 00:16:45.620 --> 00:16:50.620 The plain fact is that we are not replacing the gas that we are consuming. 183 00:16:50.620 --> 00:16:58.320 What we are finding, despite all this activity, we're finding very short-lived fields with high decline rates. 184 00:16:58.320 --> 00:17:03.920 High decline rates means the first year might have a lot of gas, but then it drops off very quickly. 185 00:17:03.920 --> 00:17:07.320 One of the things a lot of people have thought is that over the next couple of years, 186 00:17:07.320 --> 00:17:12.320 Liquid Liquefied Natural Gas will come to the rescue of the North American market. 187 00:17:12.320 --> 00:17:21.320 First of all, LNG is at least four or five years away from having any significant impact on the North American market. 188 00:17:21.320 --> 00:17:25.320 But more significantly than that, and we heard about this earlier from one of the speakers, 189 00:17:25.320 --> 00:17:31.320 is that a lot of the Asian countries, China, Korea, Taiwan, India now, 190 00:17:31.320 --> 00:17:40.320 are making long-term contracts with suppliers in Mexico, Venezuela, Nigeria, even Trinidad 191 00:17:40.320 --> 00:17:45.920 to lock up the LNG that we previously thought was coming to the North American market. 192 00:17:45.920 --> 00:17:48.700 So I don't think LNG is going to be a solution. 193 00:17:48.700 --> 00:17:52.880 If you look at the next two tables, graphs are on the top of page seven, they're on page 194 00:17:52.880 --> 00:17:54.540 seven on your handout. 195 00:17:54.540 --> 00:17:57.120 This shows U.S. natural gas production. 196 00:17:57.120 --> 00:18:00.280 We now have 11 quarters, there's one missing from the graph. 197 00:18:00.280 --> 00:18:06.280 The latest quarter was down. We have 11 consecutive quarters of declining production. 198 00:18:06.280 --> 00:18:13.280 That is phenomenally significant and is staggering when you consider what the price of gas has done. 199 00:18:13.280 --> 00:18:17.280 And the activity, looking for gas, 11 consecutive quarters. 200 00:18:17.280 --> 00:18:22.280 This shows you Western Canada. Western Canada, of course, is the biggest part of Canada for gas. 201 00:18:22.280 --> 00:18:29.280 Record drilling activity. So here are some oil and gas stocks. I'd be happy to talk about them later. 202 00:18:29.280 --> 00:18:43.280 And then lastly, gold, I know we've got a speaker tomorrow on gold, so I'm just going to touch very, very quickly on this, I think it's a very positive macroeconomic environment, it's also a very positive industry environment. 203 00:18:43.280 --> 00:18:58.280 Same sort of factors in gold that we've seen in other commodities, a lack of exploration, and even though anybody who follows the gold market is constantly hearing about new discoveries, what you don't hear about are, A, the number of discoveries that ever actually produce gold. 204 00:18:58.280 --> 00:19:03.280 The number of the produced gold is a lot less than the discoveries that are made. 205 00:19:03.280 --> 00:19:09.280 And the other thing you don't hear a lot about, of course, are the older mines that go out of business or produce less than they used to. 206 00:19:09.280 --> 00:19:16.280 So, in aggregate, we saw a decline of 5% in gold production last year, 207 00:19:16.280 --> 00:19:20.280 which again, given the price of gold, is pretty amazing when you think about it. 208 00:19:20.280 --> 00:19:27.280 And that follows about four or five years of either stagnant or slight declines in global production of gold. 209 00:19:27.280 --> 00:19:32.320 of Gold. Most recently of course gold has moved in inverse relationship to the 210 00:19:32.320 --> 00:19:37.560 dollar. It's been an almost entirely anti-dollar move and when the dollar 211 00:19:37.560 --> 00:19:40.800 rallied at the end of last year beginning of this year gold fell from 212 00:19:40.800 --> 00:19:47.000 455 down to 412 or something and that was also compounded by this new threat 213 00:19:47.000 --> 00:19:53.560 of sales of gold by the IMF. It's quite interesting that every time gold hits a 214 00:19:53.560 --> 00:19:56.800 peak and starts to come off there's always some government somewhere that 215 00:19:56.800 --> 00:20:03.080 announces they're going to sell off all their gold just to spook holders. 216 00:20:03.080 --> 00:20:06.560 That IMF threat of selling gold seems to have retreated. 217 00:20:06.560 --> 00:20:08.000 I don't think it would pass Congress. 218 00:20:08.000 --> 00:20:10.880 I'd be interested in what Dr. Paul has to say tomorrow. 219 00:20:10.880 --> 00:20:16.560 But I think that threat has retreated, and gold has rallied a little bit. 220 00:20:16.560 --> 00:20:21.000 So now we're looking basically at the dollar. 221 00:20:21.000 --> 00:20:23.800 The other question people ask is after the huge increase 222 00:20:23.800 --> 00:20:28.500 in the price of the gold and gold stocks in the last year, are the gold stocks expensive? 223 00:20:28.500 --> 00:20:33.800 Well, from a purely fundamental value point of view, yes, the gold stocks are expensive today, 224 00:20:33.800 --> 00:20:35.900 but then they are always expensive. 225 00:20:35.900 --> 00:20:43.700 I challenge anybody to ever tell me a time when gold stocks have been value stocks, except in retrospect. 226 00:20:43.700 --> 00:20:50.900 I think the important point is that gold stocks carry a premium and they carry a premium for very valid reasons. 227 00:20:50.900 --> 00:21:07.700 So when we look at the valuations of the gold stocks today, we see in fact that they are trading at below average valuations on a historical basis relative to reserves, production, price earnings, yes some gold stocks do actually have earnings and cash flow. 228 00:21:07.700 --> 00:21:17.700 So if gold goes up today, if gold rallies today, the gold stocks are cheap enough that they also have a significant potential to move up. 229 00:21:17.700 --> 00:21:23.300 This is just two examples of that, and the charts are on page 10 of your handout. 230 00:21:23.300 --> 00:21:29.600 These are graphs of valuations of the North American producers over a 20-year period. 231 00:21:29.600 --> 00:21:35.500 And as you can see, they are not at all-time historical lows in terms of valuation at this point. 232 00:21:35.500 --> 00:21:42.100 But they're not far off, particularly in terms of price earnings, and then this is the NAV. 233 00:21:42.100 --> 00:21:47.860 So in conclusion, I think this is a time for cautious investors, for conservative investors, 234 00:21:47.860 --> 00:21:51.300 for investors to be pretty cautious and conservative. 235 00:21:51.300 --> 00:21:54.260 I think you want to hold a lot in cash right now. 236 00:21:54.260 --> 00:21:57.300 And when I say cash, I'm including foreign currencies. 237 00:21:57.300 --> 00:22:02.420 I don't think there's any rush or any urgency to be aggressive at investing your money. 238 00:22:03.460 --> 00:22:08.180 But you certainly want to be holding a position in gold and good quality gold stocks. 239 00:22:08.180 --> 00:22:11.220 In oil and gas, you need to be looking for global blue chips. 240 00:22:11.220 --> 00:22:16.900 and then also I think is a good time to be in good quality dividend paying stocks 241 00:22:16.900 --> 00:22:20.940 as long as those dividends are sustainable and with that thank you very much.