Opportunities (Updated - 60 Minutes News Story)

Late last night I got together with some friends for a pre-Christmas coffee.

Invariably the conversation turned to the topics of Silver and Real Estate, triggering an update of sorts.

During the summer, 'S' had asked my opinion about real estate.

Aware of my strident stand on the issue from friends, he wanted to hear first hand my thoughts on becoming a first-time buyer with his girlfriend.

You know my answer.

And I laid out the full case: buying real estate now was a poor decision, interest rates had no where to go but up, and the looming spectres of QE2/US debt problems/and the PIIGS meant that there were far greater investment opportunities out there with which he could benefit from in the short term.

My advice: instead of buying real estate, invest any downpayment he had set aside and by the end of the year he would be way ahead of where he would have been if he bought a condo.

My recommended investment of choice?

Silver. I specifically recommended a silver mining stock known as First Majestic (FR), a stock I have referred to several times before on this blog.

[For the sake of disclosure - at the time I owned some of the stock, I have since sold all that stock and currently I do not own any of it.]

If you read this blog regularly, you know my position on this. I do not consider myself a Gold/Silver 'bug'. I am firmly of the belief that Gold & Silver is not money, nor is it a hedge against inflation (it performs that role very poorly).

Gold/Silver is a hedge, however, against the mismanagement of the state; which at this time and place is the United States with it's world's reserve currency status.

In the summer I told 'S' that it was almost a certainty that the United States would be forced to continue Quantitative Easing on a massive scale. Because of this, I opined, it seemed clear to me that a large segment of the world would be moving into the mediums of Gold & Silver on a scale that hasn't occurred in over 100 years.

At the time of our discussion, that silver mining stock (FR) hovered at the $5.80 mark.

'S' contrasted my viewpoint with the experience of a mutual friend/coworker. He had just sold his condo for $805,000 (bought 10 years ago for $300,000). With no outstanding mortgage, it was all bubblicious profit.

What did the coworker do? He bought half a Vancouver duplex for $920,000 (a property which still required $80,000 - $100,000 of renovations) confident that real estate was the best place for his funds.

I told him our co-worker was crazy. I believe he was throwing away the opportunity of a lifetime to invest that money, realize a massive return and rent in the interim.

Fast forward to the end of the year and we had a chance to review.

So what's happened since August?

Physical silver has gone up by almost 70% and the mining stock First Majestic has gone from $5.80 to a close last Friday of $13.21.

Had our mutual co-worker invested the $805,000 in that stock, he would be sitting on over $1,833,000 today; a profit of over $1 million in just four months!

I re-iterated my point.

Real Estate right now is a tremendously poor investment choice.

There are far greater opportunities for huge returns that completely dwarf real estate.

Even if real estate in Vancouver goes up the estimated 10% next year, it won't compare to what I believe you will see if you invest in Silver.

First time buyers? Same advice. Take you downpayment and invest it.

That was my advice in August and that's my advice now.

Gold & Silver still have a tremendous upside. I can see Silver easily moving to $35-$38 an ounce by spring, hitting at 10-30% correction, and then taking off again.

Why?

The economy is stalling. QE2 is not generating the desired results, Europe is in shambles with huge debt issues still to be addressed in Greece, Portugal and Spain. And looming in the background with it's own debt catastrophe is the U.K.

Meanwhile there is the United States.

The next looming crisis will be the mounting debts of the individual States in America.

Many State and local governments have so much debt — several trillion dollars’ worth, with much of it off the books and largely hidden from view — that it could overwhelm them in the next few years with the problems starting to come to a head in 2011.

If you thought the Wall Street bailouts were massive, they are nothing compared to what is going to be needed for the individual US States. And the American government, along with the Federal Reserve, are not going to allow those States to go bankrupt.

QE 3, 4 and 5 are all but assured.

Canada?

Word is starting to spread that our nation's Real Estate Bubble is making our Banks look anything but sound.

Combine that with a looming credit downgrade for the Province of New Brunswick as well as for other provinces such as Ontario and Quebec and suddenly critics are saying our provincial balance sheets and economies bear a resemblance to the troubled states of Europe than a country that should be considered an oasis in the Western quagmire.

Gold & Silver are hedges against the mismanagement of the state. With what's going on in Europe, the USA, and our country, I can't envision any scenario that doesn't have massive amounts of money pouring into precious metals.

'S' was curious if my advice had changed since summer?

Not a chance.

[As always, please read disclaimer at bottom of this blog]

CBS 60 Minutes Update

Interestingly, the lead story on 60 Minutes tonight is State Budgets: Day of Reckoning. From the introduction...

• By now, just about everyone in the country is aware of the federal deficit problem, but you should know that there is another financial crisis looming involving state and local governments.
  
  It has gotten much less attention because each state has a slightly different story. But in the two years, since the "great recession" wrecked their economies and shriveled their income, the states have collectively spent nearly a half a trillion dollars more than they collected in taxes. There is also a trillion dollar hole in their public pension funds.
  
  The states have been getting by on billions of dollars in federal stimulus funds, but the day of reckoning is at hand. The debt crisis is already making Wall Street nervous, and some believe that it could derail the recovery, cost a million public employees their jobs and require another big bailout package that no one in Washington wants to talk about.

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