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Oct 24/03 - NBR Market Monitor - Bullish on Gold

Streaming Video (Until next Friday)
http://www.nightlybusiness.org/videoc.html

Here is transcript:

10/24/03: "Market Monitor"-Michael O'Higgins, President of O'Higgins Asset Management

PAUL KANGAS: My guest market monitor this week is Michael O'Higgins, President of O'Higgins Asset Management. And welcome back to NIGHTLY BUSINESS REPORT, Michael.

MICHAEL O'HIGGINS, PRES O'HIGGINS ASSET MANAGEMENT: Thank you, Paul. Nice to be here.

KANGAS: Great to see you. You know, for some time, you have been one of the most vocal bears on the stock market. Has the strong recent rally of recent months changed your mind at all?

O'HIGGINS: No. On the contrary. It's made me more bearish than ever.

KANGAS: Why? Because it's getting far more overvalued than you thought it was last time?

O'HIGGINS: The higher it goes, the more overvalued it becomes.

KANGAS: But look at what you've missed. You know, the last time you were with us in March, the Dow was around 8,500. Now it's testing the 10,000 range. And the NASDAQ Composite was way down at 1,400. Now it's 1,800. You missed some big moves there.

O'HIGGINS: Yes, but my gold stocks are up even more than that.

KANGAS: Well, that's true. That was the next thing I would mention. You gave us four gold stocks and, boy, they were winners. Let's have a look in review. We see Newmont Mining (NEM), which is the granddaddy of them all. It was then $24 back in March and now $42. That's up 73 percent. And then, of course, Gold Corp. has had a rise of about 60 percent. Then you had two other recommendations, Anglo Gold (AU) at $28 is now bordering $40. That's at 39 or almost 40 percent gain. And Gold Fields (GFI) was then $965. It's now $1,503. And that's a 50 percent gain. A lot better than the average did. So I compliment you on those fine recommendations.

O'HIGGINS: Thank you.

KANGAS: Do you still own the golds or have you taken some profits?

O'HIGGINS: No, I've stayed with them. Gold is still very cheap on a longer term basis. People forget that gold did very poorly for almost 20 years. And so it's just started to come back up after the last couple of years.

KANGAS: Why is it attractive to you?

O'HIGGINS: Well, for one thing, it's real money. And when you have the government threatening to print all the money it can to reflate the economy, you've got to -- and you have something that traditionally has had about a 10 to one relationship with the Dow -- in other words, the Dow has traded about 10 times gold -- right now as we speak the Dow is 26 times gold so.

KANGAS: So that's another reason. All right, now, so you think that the gold has a -- I mean, do you have a target price in mind over a certain time frame?

O'HIGGINS: Well, I think it depends on what -- actually, to tell you the truth, I think gold and the Dow could trade at the same price, which they did in 1980.

KANGAS: Good point.

O'HIGGINS: The Dow was 850 and gold was $850 an ounce. But, conservatively, I think that it could go to a long-term median average, which is 10 to one, which at today's price would put gold at, what, $970 or something like that, $960.

KANGAS: You know, there's something about gold that the major brokerages don't seem to like. You see very few of them recommending any gold stocks. One of the few market monitors that's on this program, Jim Dines, he's been a gold bug now for over a year and a half, two years.

O'HIGGINS: Right.

KANGAS: How come nobody wants to recommend gold except a few of you people out there in the wilderness?

O'HIGGINS: Well, for one thing, that makes me very happy. When people agree with me, that's when I get nervous.

KANGAS: I see.

O'HIGGINS: Especially the Wall Street firms. But gold is a -- it's a very narrow market. It's not a huge large capitalization and it's kind of a negative thing. Wall Street wants to be always optimistic.

KANGAS: A very good point.

O'HIGGINS: And in bad times they're kind of, you know, betting the wrong way. But that's how it is.

KANGAS: So, you still own the four that you recommended last time. Do you have any new suggestions?

O'HIGGINS: Well, I think the, these are -- some of these major stocks have moved so much that the real value is in the more smaller capitalization. But they're harder to buy. So I think people would be better off buying a good no load gold fund.

KANGAS: OK. We just have a minute left so let's have one of these recommendations.

O'HIGGINS: Well, Tocqueville Gold Fund (TGLDX) is one that I own personally. I also own Newmont personally in my own account.

KANGAS: OK. Tocqueville has had quite a rise, as most of the gold stocks. How about another one?

O'HIGGINS: And to short the market I'd use the Rydex Octos Fund, which goes up proportionately with the NASDAQ 100. As it goes down, this fund goes up.

KANGAS: OK.

O'HIGGINS: And then there's a -- bonds are cheap at the moment, so I'd use a Rydex Bond Fund and then I'd have 40 percent in cash, money market or Treasury bills.

KANGAS: And with these funds, of course, you're getting the advantage of a lot of diversification rather than just four stocks?

O'HIGGINS: Exactly. And no commissions, really so.

KANGAS: OK. So there you go. He still likes the gold and you own everything that we've mentioned.

O'HIGGINS: Yes, I do.

KANGAS: Well, I'm afraid our time is up. But we'll look in next time and see how you've done, about six months from now. Thanks very much, Michael.

O'HIGGINS: Thank you, Paul.

KANGAS: My guest market monitor this week was Michael O'Higgins, President of O'Higgins Asset Management.