Congress is at it again. It's Gloom and Doom Government Shutdown season again. I know... we have heard the threats before: that they absolutely mean it this time. On October 1st the U.S. government will be shut down. Don't get me started on the politics of how cutting off Social Security and Medicare for the elderly, and abolishing pay to servicemen that risk their lives everyday for us will be a benefit to the U.S. economy. Because it won't. But the sheer threat of a shutdown sends some investors into cash, and metals such as Gold (GLD) and Silver (SLV), and/ or mining stocks such as Freeport-McMoRan Copper & Gold (FCX). However as this past year has shown, commodities can be extremely volatile. The three major indices have beat GLD and SLV by 40-50%.
Last year I did a comparison between the market, gold, silver and Apple (AAPL) stock over the last five years. At that time Apple won by a landslide. And even with its ups and downs it will continue to win. Why? Our values are changing. For instance how much gold would you take to turn in your iPhone or other smart device? Probably what it is worth, so you could go out and replace it. But how much would you take to never have a smartphone or device again? Most people would put a pretty high value on their device at that point. Our society has placed tremendous value on getting information immediately. As the holidays roll around many consumers are requesting electronic gifts instead of trinkets made from precious metals.
Here is the five year comparison chart today:
In spite of all of its recent troubles with share price, Apple still comes out ahead. Granted electronic devices use a lot of metals in production. And as I found out after researching Freeport-McMoRan for an article last week, copper is also extremely important in the manufacturing of many products. Although it has not gotten the same press coverage that Gold and Silver have received, its investors are still very bullish, and many left lots of remarks about copper in the comments section of my article. In another copper article, Christopher F. Davis writes:
Copper has many unique properties, which make it a prime choice of industrial applications, such as:
- Being an excellent electrical and thermal conductor, second only to the more expensive silver.
- Being resistant to corrosion and oxidation (rust).
- Being non-magnetic.
- Being recyclable.
- Being ductile and easy to combine with other metals.
- Possessing anti-bacterial properties allowing for use in medical devices.
- Ability to be easily joined by soldering or brazing.
Copper and other metals rallied on Thursday as newly released upbeat Chinese trade data sparked hopes for higher demand. This sent FCX higher, as Gold also jumped on inflation worries, helping a broad commodities index rise for a second consecutive day. However on Friday, one analyst thinks the Chinese data is weak and suggested taking profits while FCX is up.
As gold drops today, the fear of a market correction continues. While some analysts are saying to sell everything and take profits, others recommend some type of a hedge. The dollar is not necessarily safe, and could dip with all of the current Congressional "games" that are being played in Washington. And as we have seen, metals can be volatile. I think that FCX is a good compromise. Looking at its chart over the last year it has followed gold downward compared to the rest of the market:
But the company has expanded its assets in oil and gas, and now four insiders have bought over $70 million worth of the stock in the last several days, fueling rumors that there may have been positive soil tests in some of the deepest oil wells that the company just purchased. This is pure speculation. As I mentioned in my last FCX article (link above) the company announced that it is planning to sell some of the newly acquired oil and gas properties while the price of oil is high.
Insider and founder James R. Moffett was one of the members of the board that just purchased a million shares of FCX. Moffett serves as Chairman of Freeport-McMoRan Copper & Gold.
Transaction Details For Insider Trading at Freeport-McMoRan
|08/02||FORD GERALD J||Purchases||$8.77 M||300,000||29.2267||1,000,000|
|08/01||FORD GERALD J||Purchases||$20.41 M||700,000||29.1536||700,000|
|08/01||LACKEY BOBBY LEE||Purchases||$52.36 K||1,800||29.0865||1,800|
|07/30||MOFFETT JAMES R||Purchases||$5.47 M||192,800||28.3746||4,066,880|
|07/29||MOFFETT JAMES R||Purchases||$23.06 M||807,200||28.5666||3,874,080|
|07/26||FLORES JAMES C||Purchases||$14.32 M||500,000||28.6445||886,041|
|07/26||WHARTON J TAYLOR||Options Exercised||$269.75 K||20,000||13.4875||86,856|
|07/26||WHARTON J TAYLOR||Options Exercised||$176.85 K||13,112||13.4875||99,968|
|07/26||WHARTON J TAYLOR||Sale||$269.41 K||9,416||28.6117||90,552|
|07/26||WHARTON J TAYLOR||Options Exercised||$0.00||20,000||--||--|
Keep in mind that all stocks are a gamble. And it can also be dangerous to have all of your money in cash or commodities. However betting with insiders on Freeport makes it less of a gamble and more of an educated guess. This stock gives a portfolio a lot of diversity in several different commodities. I really like it as a hedge.