Bridgewater's Take on Gold, Equities

Longtime readers will know that I am a big fan of the work put out by Bridgewater Associates. In fact, the subtitle of the blog, "Engineering Targeted Returns and Risk", is lifted from one of their research pieces on optimal beta portfolios. Dalio had an interested interview in Barron’s in which he talked about the "D-process". Interestingly enough he advocated a position in gold which was up $30 or so Wednesday to $940:

Are you a fan of gold?

Yes.

Have you always been?

No. Gold is horrible sometimes and great other times. But like any other asset class, everybody always should have a piece of it in their portfolio.

What is your view on stocks?

Buying equities and taking on those risks in late 2009, or more likely 2010, will be a great move because equities will be much cheaper than now. It is going to be a buying opportunity of the century.

Comments

[oldman:]

What should a retirement portfolio look like that should be 75% fixed income 25% equity?

Feb 12 10:47 AM

[Doc 224899:]

IVN Ivanhoe Mines just got notification (Feb 12, 2009) from the Mongolian Government that the government will accept a 34% stake in Oyu Tolgoi mining resources, which finally (finally !!) means they can go ahead and mine the potentially richest gold-copper resource area in the world with an agreement that will permit profitable production. They've been stalled on this project since 2006, as have other miners like BHP and RTP.

Just days ago (Feb 10, 2009) SouthGobi Energy Resources, a majority-owned subsidiary of IVN (IVN owns 80.2% of the stock), made a stunning announcement that Alexander Molyneux has been appointed as President of SouthGobi, effective April 29, 2009. Molyneux leaves his position as Citigroup’s head of Metals and Mining Investment Banking, having worked with Asia-based clients since 2002, having raised over $20B in capital for clients in the region and having managed numerous mergers and acquisitions in the Asian metals and mining sector. It seems obvious that Ivanhoe and SouthGobi intend to use Molyneux’s prominence and success in the region to advance the Mongolian SouthGobi project, which involves about over 150,000,000 tons of coal.

As a parent corporation, Ivanhoe has intertwined itself with two subsidiaries in the enormous and rich Mongolian exploration, development, and production project: SouthGobi Energy Resources and Entrée Gold (EGI). Specialists within Ivanhoe have been appointed and moved around between the three corporations so as to achieve maximum results, while resource leases and licenses have also been re-positioned for optimal results and minimal risk. Mega-miners like RTP and BHP have partnered up with Ivanhoe in Mongolia, and they’ve all been waiting for the fledging Mongolian government to get focused and complete the requisite formal agreements for almost 3 years. Most of the mineral riches produced will be shipped by rail to China, which is just 30 – 50 miles away from the resource districts under development. The core rail lines have already been built, either by the Chinese, or with the cooperation of the Chinese, though more roads and rails will follow.

Altogether, this explains the timing of the surge in Ivanhoe stock prices over the last couple of days (low of $3.15 on Feb 10, high of $4.20 on Feb 12). A quick chart analysis indicates that there is no resistance between the current IVN stock price around $4 and the next resistance level of $8. 18 months ago the projected price for IVN was ~ $19. All of that was lost due to hold-ups by the Mongolian government, superimposed on fluctuations in the broad market and in the prices of gold and base metals and non-metallic minerals. Expect EGI Entrée Gold prices to jump, too, as will SouthGobi stock (OTC: SGQ in the US).

As a gold miner, IVN’s share prices have been suppressed by the Mongolian government’s tardiness, resulting in a dramatic underperformance, but that logjam appears to finally be breaking up, and we may see IVN share prices play catch-up in a dramatic fashion over the next few weeks.

Feb 12 01:49 PM

[Stone Fox C...:]

At this point, its impossible to suggest that the end of 09 or start of 10 is the time to invest in equities. Heck, as the S&P500 hits 800 its the time to be investing with the thought that you'll get out if it breaks below. Nobody knows when the markets will go up, but they currently suggest that they'll either break up or down. Anybody on the sidelines will miss a breakup. Anybody in the market and just holding could get swept by a breakdown if they don't have an exit strategy. But waiting until a random time in the future doesn't seem like a startegy at all.

Feb 12 04:45 PM