With gold up approximately 3% the day after the U.S federal government raised the debt ceiling, financial news broadcaster CNBC hosted Euro Pacific Capital's Peter Schiff for commentary. Schiff is well-known for his bullish long-term stance on gold and is globally recognized as one of the only economists or investment leaders to call a housing bubble in the mid-2000s well before the global financial crisis occurred.
Upon market close, the SPDR Gold Shares (GLD), which represents physical gold and tracks the price of gold, closed up 3.14% to 127.42.
With a quick rally on gold underway, Schiff shared his insights on CNBC which can be read about here. The following is Schiff's general market view, commentary highlights and stock picks that would likely benefit upon the manifestations of his mentioned views.
Peter Schiff General Market View
- Bearish on the U.S. dollar
- Bullish on several commodities, including gold
- Gold would be in a crisis if the U.S. debt ceiling was not raised, due to new fiscal responsibility, no new deficits and cuts in government spending.
- Gold is up as raising the U.S debt ceiling means more government, debt and inflation.
- Gold is in the beginning of a much bigger rally.
- Markets frowned on gold over the last two years by assuming a legitimate economic recovery and taper.
- Gold will make new highs above $2,000.
- "We are in a major, historic gold bull market."
- Schiff is personally long silver and platinum, however is more bullish on silver versus platinum.
- Bullish on agriculture and oil.
- Bearish on the U.S. dollar, which will see new lows versus the Euro. We are on the road to $1.50 dollar per Euro.
- Janet Yellen will continue to buy bonds to lower interest rates, which will be bearish for the U.S. dollar and bullish for gold.
Schiff Quick Picks
By understanding Peter Schiff's stance on the markets in today's commentary, one can make bets alongside him. Here are a few options per category:
Buy the SPDR Select Gold ETF which is backed by physical gold and is designed to track the price of gold minus the fund's expense ratio of 0.40%. The fund holdings are approximately $38.62 billion and trades over 9 million shares per day.
Buy the iShares Gold Trust ETF (IAU) which, also backed by physical gold, only charges an expense ratio of 0.25%. This fund trades over 4 million shares a day and holds assets of $7.58 billion.
Buy the ETFS Physical Gold Shares ETF (SGOL). This fund copies the GLD/IAU strategy, has an expense ratio of 0.39%, has assets of $1.26 billion and has liquidity of nearly 43k shares traded per day. This fund trades at no cost to Schwab clients.
Buy the iShares Silver Trust ETF (SLV) which is backed by physical silver and is designed to track the price of silver minus the fund's expense ratio of 0.50%. The fund holdings are approximately $7.41 billion and average volume is over 10 million shares per day.
Buy the ETFS Physical Silver Shares ETF (SIVR). This fund copies the SLV strategy, has an expense ratio of 0.30% and although smaller at $389 million, the fund has ample liquidity of over 116k shares per day and in line with SGOL, trades at no cost to Schwab clients.
Buy the ETFS Physical Platinum Shares ETF (PPLT). This fund has an expense ratio of 0.60% with assets of nearly $780 million. The fund has experienced below-average liquidity of just over 32k shares per day. Also, this fund trades at no cost to Schwab clients.
Buy one of the oil majors that will showcase minimal risk and a dividend above 3%. Houston's ConocoPhllips (COP) pays a dividend of nearly 4%, has a market capitalization of nearly $90 billion and is owned by the likely incoming Fed chair Janet Yellen.
Norway's Statoil ASA (STO) also yields nearly 4% and has a market capitalization of over $73 billion. The catch with STO is that dividends are paid only once per year.
The UK's BP PLC (BP) pays quarterly dividends, yields over 5% and has a market capitalization of over $135 billion.
Rather than buying futures of agricultural commodities, pick up a company that pays a dividend derived from agricultural profits. Certain companies will rise with agriculture prices as the demand for their products or services increase.
Deere & Company (DE) is valued at over $32 billion, has a name brand and produces top-of-the-line equipment for farmers all over the world. The company yields approximately 2.5% and trades at a forward P/E of 10.43.
Monsanto Company (MON) is valued at over $56 billion and provides seeds, genomics and pesticides to farmers all over the world. The 1.63% dividend yield and forward P/E of 20 is supported with a 13.63% 5-year growth rate (analyst consensus).
- Bearish Dollar
The bearish dollar or any currency trade is much more advanced than the average investor cares to handle. In the short-term and long-term, bearish dollar views can be easily bet on using foreign stocks, as earnings translated into dollars increase with dollar weakness.
One stalwart is the UK's Diageo (DEO), the largest spirits and alcoholic beverage company in the world. The company own brands such as Captain Morgan's rum, Guinness, Seagram's, Smirnoff, Bailey's, Bushmills and Crown Royal, among many others.
DEO yields 2.3% and pays distributions bi-annually. The company is valued at nearly $80 billion and trades at a forward P/E of 18.11 for 2014 (fiscal year ending June 2014). Also, the growth rate is projected to be 7.9% over the next five years.
The bearish dollar view can also be supported by companies that earn a high amount of revenue abroad, however research into hedging strategy used to mitigate such risk on the downside would showcase what foreign exposure exists on a per-company basis.
In light of the recent earnings report of The Coca-Cola Company (KO), I am inclined to believe they have global currency risk. As one Seeking Alpha contributor noted regarding KO's recent earnings highlights:
Overall, Coca-Cola's quarterly results were in line with estimates, with EPS missing by a penny and revenues missing by around $40M, both small sums for a company the size of Coca-Cola. Currency was a major drag on Coca-Cola's earnings. The strong dollar frankly crushes international revenues for companies like Coca-Cola. When adjusting currencies, we can see that Coca-Cola's results were pretty solid.
In this regard, perhaps KO is another solid anti-U.S. dollar bet.
While Schiff is known for his long-term bullish stance and anti-U.S. dollar, perhaps he is on to something. Those who sold their homes when he warned about the housing asset bubble surly made off like bandits. It has paid dividends listening to Schiff in the past and may just do the same moving forward.