Gold Is Likely to Keep Rallying

Steve McDonald
by Steve McDonald, Bond Strategist, The Oxford Club

If you have followed me for any amount of time, you know I am all over anything that has to do with food: seed, fertilizers, chemicals, processors. You name it, I like it.

The newest name in this absolutely essential worldwide business is FMC Corp. (NYSE: FMC). They are about to split their company into two segments. The new company will be made up of their fast growing agricultural side. The remaining business will be the more cyclical lithium and soda ash operations.

And analysts are calling for a much higher valuation after the break up, but even without it, FMC looks very attractive.

FMC has raised its dividend three years in a row, has been actively buying back stocks and divesting itself of non-core businesses. They have had double digit earnings growth since 2009, and are trading at a slight discount to the market.

Credit Suisse analysts are calling the split a solid strategic move and have a post-split target of $97, up from the current price of about $80.

Here’s a company that has a five year average annual growth factor of 12%, earnings growth next year of 21% and revenue growth of 11.9% in 2015. It is isolating the highest performing segment from its more cyclical parts. And, yes, current shareholders will receive the new company stock when it’s issued.

FMC is a must hold.

Riding the Gold Rally

The current strength in gold should not come as a surprise to any regular viewer of this segment. I did three features about gold and an impending rally last fall and earlier this year.

So now what?

Gold is where people put money when they don’t know, are scared or think there is a big boom coming. That explains a lot about why the Chinese have been buying gold all last year and this year at a rate greater than the US was during our own financial crisis. Add the uncertainty about the Crimea to the mix and you have two powerful reasons gold could see big, short term, near-panic buying.

The GLD in just the past month has run up almost 5%. That’s a huge move for anything, and the geopolitical situation worldwide is only worsening and could add to the buying.

During a recent visit to Indonesia, a business man from Singapore said to me; if China goes down all of Asia and parts of the developed world go with it. He was truly concerned. Everyone seems to be concerned about China.

If we see further weakening in China’s numbers and the rest of Asia follows suit, which it usually does, gold could become the biggest play of the decade. If it doesn’t, then you hold the yellow stone until the next global crisis. That’s about what it adds up to.

It is the most sought-after substance in the world and it isn’t going anywhere. Take a look at gold miners, too. Lots of upside there.

The Slap in the Face Award: Retirement Style

Here are some numbers about retirement that really made me chuckle. These come from a recent Market Watch article by Anisha Sikar.

Only about half of Americans will be able to cover their essential expenses in retirement: food, medical care and housing. And, the generation behind us is even further behind the curve; less than 35% make the grade there.

And, retiring increases the probability of suffering from depression by 40%.

It reduces the chances of self-reported good to excellent health by 40%.

It increases the possibility of a diagnosed medical condition by 60%.

And, retirement increases the chances of being required to take a drug by 60%.

In a recent Harvard study, only 29% of those surveyed said retirement was better than working, and 24% said it was worse. Forty-four percent said it was the same.

Why are we rushing to poorer health, lower incomes, more mental health issues and all in what appears to be for most of us, a situation that is no better than working?

The answer is, do something that you love and do it for as long as your bodies and minds will allow you to do it.

Get used to looking at me here. I’m 61 this year and I don’t plan on going anywhere for a long time. Besides, waiting to retire to at least age 70 increases your income from Social Security by 30%.

That works for me!

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