REITs: Bargain
Hunter Specials

Melbourne, Australia
Tuesday, 23 March 2021
Callum Newman, Editor
Twitter: @CallumRN

[3 min read]

Dear Reader,

Yesterday I left you with the notion to buy producing gold stocks. The sector put in an OK day too.

Here’s a taste: Evolution Mining rose 3.6%, Northern Star 1.44%, and Newcrest Mining 2%.

Not big numbers, to be sure. But there is a clear rally going on in the gold names. Whether it can hold is the question.

There are plenty of sceptics…including those in our virtual office.

We had our editorial meeting yesterday. This is where we chew the fat on what’s happening in the market.

I made my case for buying gold stocks now. I am. I got crickets in response. No enthusiasm whatsoever!

Not even our hard rock insider Shae Russell is convinced gold doesn’t have one more leg down before it resumes its long-term march higher against fiat currencies.

We’ll see who is right soon enough.

More than anything I love the risk versus reward in gold stocks right now.

They’ve already been hammered. That means I can position for a rally.

If the gold price tanks, or the rally fizzles out, I can cut the positions without too much of a hit.

But if gold rips up? Then the big producers are going to look like massive bargains. That’s because their cash flows are already so strong.

It is somewhat strange for me to be excited about the gold sector.

I was way too dismissive of it over 2018–19. But it did keep me (and my subscribers) out of trouble after the peak mid last year.

Now, I’m not saying these stocks are going to take off tomorrow.

There are a lot of people who’ve been burnt in the last eight months and won’t be keen to rush back in. Scepticism around gold will keep people on the sidelines too.

But buyers will slowly be drawn back should the gold price, and, just as importantly, margins hold for the gold producers.

And here’s the other thing…

Gold at least gives you a chance of something happening.

The ASX is moving like a snail right now. There is very little momentum across the board. Money is staying on the sidelines.

I can back that up more than anecdotally. One of the algorithms we have at Fat Tail Media has been switching between cash and a modest long position in the market for months.

It cannot find a trend because the market itself is not clear in what direction it wants to go.

Why so tentative? It could be worry over the outlook for earnings, China — US trade relations or rising yields…a rising US dollar…or something none of us are watching.

Your guess is as good as mine. Here’s how I cope with this dynamic. I keep my ‘trades’ very short in terms of time frame.

Or I hold companies I’m happy to own two years from now. Whatever is bugging the market right now will be resolved by then, come what may.

What am I confident about over a two-year time frame? One thing is that Australian land values will be higher than they are now.

This makes a perfect time to go bargain hunting in the property sector.

And yes, even with the mainstream press bleating about a property boom all the time, there are still cheap stocks out there hitched to this wagon.

This should be of high interest if you’re looking for income too. The banks and REITs (Real Estate Investment Trust) still offer decent yields in Life at Zero.

Another thing I like about the REIT sector currently is these are big, slow, and less susceptible to lots of volatility should the market decide it wants to tank sometime soon.

You can position now if you’re a patient investor with an eye to the long term. You can bank the dividends as you go along.

REITs also make a hedge against rising inflation should it become apparent. REITs naturally own physical buildings and land — hard assets.

Gold, bitcoin, land, art, buildings…anything that can’t be created in a printing press should revalue against crumbling currencies.

See here for more ideas on Life at Zero.

Best wishes,

Callum Newman,
Editor, The Daily Reckoning Australia