Gold does not necessarily need a big correction to keep climbing...
NEW YORK money managers Jeff Mosseri and Doug Loud, at Greystone Asset Management, LLC, specialize in the highly competitive junior resource sector.
Doug Loud joined Greystone at its founding in 2005 and has been executive director of Axiom Capital Management Inc. since 2009. Doug Loud has more than 35 years of investment management and securities industry experience
Jeffrey N. Mosseri established Greystone Asset Management in 2005 and joined Axiom Capital Management Inc. in 2009. He worked as a stockbroker and investment manager at Goldsmith & Harris for 20 years. He also developed the gold mining research and investment department for Carnegie Capital, the investment advisory division of Prescott Ball & Turben, where he ran the international arbitrage division.
In this interview with The Gold Report, Jeff Mosseri and Doug Loud reveal what they believe makes a good Gold Mining stock...
The Gold Report: Since you last spoke with The Gold Report in September 2010, there's been a lot of economic and political upheaval. As money managers, what has this done to your thinking?
Doug Loud: It's basically confirmed what we were already doing.
Jeff Mosseri: Absolutely. There are a lot of question marks out there. What's going on in North Africa? Will China actually grow at the rate everyone is expecting it to grow?
But within the overall political and economic base, I think what Doug said is absolutely true. So, from our point of view, one of the principal reasons we continue to like the metals is because they're the last safe place.
TGR: So basically, all these political and economic concerns are going to have their fallout on the metals' and commodities markets — and everyday life for everybody ultimately.
Doug Loud: Oh, yes!
TGR: How have things changed in your short-term outlook versus nine months ago, if at all?
Doug Loud: Well, you always have to worry about the summer doldrums in the metals, which have a historical base. Jeffrey has the better opinion of the short-term market.
Jeff Mosseri: Well, as far as I'm concerned it all revolves around the Dollar and gasoline. It would hurt any administration to have a $5 gasoline price at election time. So, after some short-term stabilization and maybe some strength in the Dollar, we think it will reverse again later this year and remain weak for another year.
Doug Loud: Which makes oil, gold and, sadly, food prices go up. Washington's financial maneuvers haven't created many new jobs. The key, in the end, is going to be small businesses. Small business incentives could turn things around.
Jeff Mosseri: Uncertainty is the biggest enemy of businesses and the stock market. The next-biggest is taxation. If those problems can be handled, small business will start reinvesting.
TGR: So how do the metals and resource stocks fit into the picture?
Doug Loud: In simple terms, if you want to be in the metals, you're going to have to own the stocks and/or the bullion. The bullion doesn't get bigger, whereas most of the miners are in the business of producing, but they also have to find more. If they do find more, then they get to be worth more.
TGR: Have you changed your investment criteria at all since last year?
Doug Loud: We've raised the quality level a bit. We've decided if we're going to invest in a pure explorer it's going to be a company that employs a team that has done it before with great success. We want management that knows what they're doing and can prove they've done it before.
TGR: With the thousands of companies out there and multi-thousands of properties, a lot of money gets spent on exploration, but few make it to production.
Doug Loud: That's one of the reasons for sticking with jockeys who know how to ride the horses. You need good properties, but you also, first, need a management team that knows what they're doing.
Jeff Mosseri: Last year, anyone could have obtained financing for a project. This year, it's much more discerning. That's why more companies will either bite the dust or be taken over, because they won't be able to get the financing they need.
TGR: What are your thoughts about what is going to happen with the base metals?
Doug Loud: Well, we joke that some afternoon nickel is going to show up and tap us on the shoulder and say, "remember me." That doesn't mean gold and silver go down, but they might sort of calm down a little, and those other metals will come along as we rebuild things using steel, nickel, molybdenum, and metals like that.
Fixing infrastructure would be a great way to boost the economy. Copper, I think, will keep going because there are a lot of people who need copper other than the Chinese. People forget about India.
Jeff Mosseri: So, as long as the Dollar continues to weaken and all these commodities are denominated in Dollars, we feel you're going to make money in all of these things, particularly if they're miners that will go out and find more.
TGR: So generally, the outlook is still bright for both precious and base metals. It's just a matter of seeing how all these different political and economic events unwind.
Jeff Mosseri: Yes, that's the way we feel.
Doug Loud: You could almost say, "UNFORTUNATELY, the outlook is bright," because of these other bad things that are going on, and are worse now than they were a year ago.
From that point of view, if you've been asleep at the wheel and think you ought to go do something, you better go do it. We joke about the day all the portfolio managers, who aren't in the metals, decide maybe 5% of all their portfolios should be in gold and silver stocks.
That could have an explosive effect on the market for those stocks. A lot of people haven't done anything about the metals because they don't really know how.
Jeff Mosseri: It's difficult to give advice to investors in general and the individual investor may not be prepared for the volatility that comes with the territory. At the same time, the need to own these things is not any less for the individual than the institutional investor.
TGR: It seems that we don't have quite as much retail action in these junior companies as we have had in past cycles.
Doug Loud: I think you're right. People are so afraid of the market they're not in it, but they'll decide they're missing out and then they'll come in.
Jeff Mosseri: You know the general view is that gold has just recently gone from $800/oz. to $1,500/oz. and we need a serious correction before we can go any higher. Nothing could be further from the truth. We may have a correction, but it looks as if gold could just build and build on these numbers and go much higher over time.
TGR: So, with that positive outlook, we can just leave things on a high note. Thanks for taking the time to share your valuable insights, gentlemen.
Jeff Mosseri: Thank you very much.
Doug Loud: Thanks.
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