How to Apportion a Larger Portfolio

My brother called a couple of days ago. His wife has $100,000 to invest and he wanted to know where I thought I should put it. I’ve made recommendations in the past and they’ve always made money; which I feel puts a bit of pressure on me because each time I feel I’ve got to live up to my own record.

It’s also tough because the investment market is so screwed up with the recent actions of the Federal Reserve. In the 1800s, investing was pretty simple, you just put your money in bonds and forgot about it. Since consumer prices went down for most of the 1800s (with the notable exception being the war-time inflation of the Greenback fueled Civil War) the return you received on bonds would be in addition to the additional purchasing power the money itself possessed. Few people invested in the stock market in those days; it was seen as a shady place where individuals like Jay Gould, Cornelius Vanderbilt, and Nathan Rothschild could use their deep pockets and insider information to force a stock price to be whatever suited them at the time. A stock exchange was more casino than sober investment house. Bonds were where the common man should put his money.

Of course, the advent of the Federal Reserve changed all that. Continue reading How to Apportion a Larger Portfolio

12 Days of Christmas Inflation Index

I’ve been saying for a couple of years now that the talk of deflation was going to go the way of the dodo. This year it really seems to have hit home. The only people I see talking about inflation are the bankers at the Fed, who are getting chastized by the international bankers for just using it as a ruse to print money- which is exaclty true.

The Fed points to the Consumer Price Inflation Index as proof that inflation is not happening, but as I pointed out in my book, that index has been tortured to the point where it will confess to anything. I really enjoyed this video entitled Quantitive Easing Explained, for many reasons. Primarily it’s both funny and accurate, but I also love the way it goes over so many items that are more expensive than they were a year ago.

Clearly, comumer prices are going up. The latest story to discuss the rise in consumer prices is the Christmas Index or the price of all the items mentioned in the 12 Days of Christmas. According to the most recent calculation, the Christmas Index is up 10.8% over last year. A 10.8% rise in a basket of goods in a single year is pretty astounding, and I’d venture to guess that it may have something to do with all the money the Fed is printing- call me crazy.

In the 1970s, inflation close to 11% was an unstabalizing force in society and the economy as people began raising prices and demanding more interest in anticipation of future inflation. You know what they say about history and those doomed to repeat it. What can I say, predicting the future is really pretty easy if you know where to look.

Gold Breaks the $1300 Mark

Well the COMEX price of gold per ounce has been flirting with $1300 for almost the whole month now. Today it finally crossed over. The greatly boosted the price of my Barrick Gold stock (ticker symbol ABX). Gold stocks have strangely not done quite as well over the same 30 day period. Market pundits would say that this reflects market sentiment that Gold is going to fall back once it hits the $1300 mark. So people bought gold stocks in anticipation of gold hitting $1300 and sold them off as the price of gold got closer- a classic case of buy the rumor, sell the news.

From my experience watching this market, gold will in all likelihood retreat from it’s new high, but I’m thinking it’s new high might be a bit higher than $1300. $1325 to $1350 seems like where it might stop and fall back. Of course, when that happens, people will say that gold is finally starting to collapse and return to where it was ten years ago. These people will be proven wrong when gold hits yet another high another six months down the road. Gold is in a long term bull market and will continue to be for some time. It’s hard to say when, but I don’t see the price of gold coming down anytime soon with the US government running trillion dollar a year deficits and the Federal Reserve undertaking quantitative easing (AKA printing money) in order to stimulate the economy.

A Special Request for Kevin

My blog reader Kevin wrote,

Preston,

Stop muttering about that role-playing stuff and check this out:

http://robertreich.org/post/894152905/why-we-really-shouldnt-keep-the-bush-tax-cut-for-the

I would LOVE to see you take the time to deconstruct this article, one line at a time. It’d be a real eye-opener for all the commie pinko VTES players out there.

-Kevin

Well, as long as we’re going after commie pinko VTES players, count me in! Well I read Dr. Reich’s blog entry, and, sure enough, it’s dreadful beyond belief. Not it that typically way a politicians ideas are all hot air kind of dreadful, but in that much more pernicious way thinking that only macroeconomists seems to think.

Continue reading A Special Request for Kevin

Taking Stock of the Stock Market

With the major indexes down so this year, it seems a good time to talk about the stock market. I’ve mentioned previously, that I do expect there to be a major stock market decline this year. My predictions doing pretty good so far, but it’s still early in the game.

The question in raised then, where is a good place to put your money. I’ve long been a fan of Barrick, but today it’s trading in the $35 range which I consider an absolute screaming by for this stock. How much of a buy you ask? Well, let’s just say that my brother (who’s profited from my stock advice in prior years) and I are taking investing in some call options on the stock. To best explain why, let’s look at a chart of Barrick versus the price of gold.

See how the share price of Barrick gold has been sharply declining despite the continued strength in the price of gold? Continue reading Taking Stock of the Stock Market

Reviewing my Predictions from Last Year

So here it is, another year. “Another year over, and a new one just begun,” as John Lennon said before Yoko added her cacophonic voice. I just it’s time to look over last year and see look at some of the predictions I made. Specifically at the start of the year and in May, I said:

  • That we would see the end of all of this deflation talk. In terms of the major media, we more or less have. It don’t see anyone talking about deflation in the mainstream media today, but I expect that to change. I think we’ll see a resurgence of deflationary talk as the stock market loses ground. Deflationary talk seems to follow stock market collapses the way flies swarm to carrion, and this stock market seems prone for another leg down. When it does, get ready for more talk of deflation.
  • I also said that long-term government bonds were not a good place to park your money last year. Well, let’s look at the benchmark of Hoisington Long Term US Treasury fund. It opened last year at around $19.50 and went straight down the whole year to end at around $14. OUCH. Of course, this hasn’t stopped Dr. Lacy Hunt from yammering about what a great investment government bonds are, but it’s not everyday you can lose a third of your investment on government bonds. Way to go, Van Hoisongton investors.
  • I said that Barrick Gold was a good place to put your money, and I made a good a good 30% or so off of trading that stock on the way up. Look ma, no doctorate in Ecnomics!

Well, I’m feeling pretty smug about last year. As for this year, I’m thinking Barrick should hit $50 a share or so on the next 90 days, which will make me a fair amount of money. I’m also thinking that we’ll see another significant stock market decline, so hold onto your hats stock investors. This years going to be really hairy.

Hats off to Barrick

I don’t believe in the health of the stock market at large. It has further to fall in my opinion. Nationally it seems we are being feed the idea that the worst is behind us in terms of this financial crisis, and that reassuring message seems to have gotten people back into the stock market. It’s a classic suckers rally that is only going to end badly for investors. Paradoxically, the modern investment mantra of “stocks for the long haul” and using diversity as a means of protection is just going to guarantee that the average investor will feel the full weight of this next leg downward. Gold, on the other hand, has a bright future.

I’ve made a great deal of money trading shares of Barrick Gold (ticker symbol ABX) over the past twelve months. It’s a company I follow quite closely. I feel its one of the few great investments available in the stock market as it allows for you to gain leveraged exposure to the rising gold price while at the same time holding a stock that is paying you dividends. While the oblivious investors of the world are foolishly plowing their money into stock market index funds without the slightest clue as to the fundamentals of their underlying investment, I believe, as Henry Ford did (and Warren Buffet does) that its perfectly alright to put all your eggs in one basket provided that you “watch that basket.” Barrick is my egg basket and I watch it quite closely.

Earlier in the year, I took apart their financial projections and put it into an Excel spreadsheet. My own estimate as to what the company would earn was Continue reading Hats off to Barrick

Signs of the Times

Here’s some interesting news that has hit the wire in the last couple of days:

  • A new hedge fund dedicated to hyper-inflation is being created. Personally, if you really believe hyper inflation is coming, wouldn’t you just buy gold? Why on Earth invest in a hedge fund that can go broke on its big leveraged bets?
  • Speaking of leveraged bets, Obama is speaking of giving the Federal Reserve yet more authority in order to regulate the financial system to make sure that the kinds of crashes don’t happen again. Let’s review folks. It wasn’t until the Federal Reserve was founded in 1913 that we had depressions in the first place. Up until then, we had plenty of downturns and panics, but never a depression. Since the founding of the Fed, we’ve had the Great Depression and, now, this. Clearly, the solution is to just keep giving more authority over to the private banking consortium known as the Federal Reserve and hope that they clear up things. That ought to work great.
  • The people who followed Dr. Lacy Hunt’s advice and bought long term US Treasuries are down quite a bit. Holders of the 30-year Treasury are down roughly 25% since the start of the year. That’s gotta hurt.

The world has been going on it’s merry way the last few months. The dollars been gradually decreasing month after month much to the chagrin of the those predicting continued deflation. Gold’s been near its high and the stock market has just meandered about. Nothing truly Earth shattering has been occurring of late, just a lot of what was expected, including the State of California going broke. It’s projected that June is the last month for California’s budget. After that, that state’s out of money.

I find it bizarre that the state with one of the most onerous tax burden’s in the one going broke first. The state has a 10% income tax tacked onto a 9.25% sales tax. In addition, the state taxes corporations that do business in its state a minimum of $700 even if they didn’t declare a profit. How did these guys go broke again? Oh, yea, excessive government spending. That’s the funny thing about budgets, they expand to fill whatever money is available for them. The state ended up spending too much on things like prisons as it the three strikes law caused more people to spend their lives in jail and their “Health and Human Services Department” (which chews up 28% of the budget. What exactly does the Health and Human Services Department do, you might ask? I’m not sure, let’s check.

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To Whom Can China Sell It’s Bonds?

There are die hard fans, then then there’s my ever loyal reader Kevin who wrote in comment to my recent blog:

KevinM :

I think you’re wrong about China, Preston. After all, to whom can they *sell* their U.S. holdings? I think that China came (back) to a world power too late, and they chose (or could not see properly) short-term profit via their economic alliance with the U.S. over long-term stability. It would seem now that their only choice is to hold on tight to their Little Red Books and hope that everything doesn’t come crashing down around *their* heads, as it surely must around ours. (Although I still maintain that we are headed to war, since that will be the only way out of this mess…)

China can attempt to sell it’s bonds to whomever wants them, and when it turns out that China has far more US bonds to sell than there are buyers for them, then the value of US Treasuries will plummet. At that point, the US would see its currency fall precipitously and it would be unable to see any more US Treasuries to fund its ongoing deficits. From that point forward, the US would have to fund the operation of its government through taxation or cut back its spending.

Many argue that China would never do this because why would China seek to devalue its own investment. That’s a separate matter. I was merely pointing out in my last blog that if China were interested in creating chaos and destroying the value of the dollar, as did the diabolical villains in Goldfinger, then all it would have to do is sell its bonds. Now, I’d like to point out that an investment that is valueless if you go to sell it is really valueless period. Suppose I sold you a piece of art that I said was worth millions. Come to find out, you could never sell it and recoup even a fraction of that. You could carry it on your personal financial statement as an asset (as many banks are now doing) but the truth is that you got a bad deal and will have to take the loss sooner or later.

China is in the same position. They got a bad deal in buying are bonds and, now that they have them, there’s no way they are going to be able to avoid taking a loss. The longer they carry them, the more the US will use the opportunity to sell even more bonds to the world market and inflate away the value of what the bonds are worth. The sooner China moves to sell them, the more it could hope to profit. That’s why I feel a collapse of the dollar is inevitable. Andrew Gause and other conspiracy theorists see the invisible hand of the illuminati behind it all and he assures us that the dollar will not collapse because it is currently the preferred currency of the Illuminati.

Personally, I’m not much of a conspiracy theorist. So I don’t put much stock into the idea that the Illuminati who control the Fed also control the Chinese and will continue to prop up the dollar so that they can use it keep us in slavery. But I suppose we should take some comfort in knowing that, if the Illuminati are out there, that they want to keep the dollar valuable. Now, failing that, you’re left with the nations of the world holding a lot of bonds that are worth far less than they paid for them and will lose even more value if any one of them should come out and liquidate them on the open market. That’s scenario where the first party to take a lose will lose far less than the last person who tries to cash out- an unstable situation that is bound to collapse at some point.

Goldfinger’s Evil Plot


I was raised by a single mom who had to care for three children. As the youngest of three brothers, I was put in their care a lot of the time, and that meant I watched whatever they watched. Which meant, instead of watching cartoons, I was raised on John Wayne Westerns and James Bond. It was an unusual childhood full of sex, violence, and Sean Connery.

Many people say he was the best Bond there ever was. Personally, I really like Daniel Craig, but it’s hard to compare the two. In hindsight, it’s interesting to note the similarities I have between the fiction I was exposed to as a child and who I became as an adult:

  • My favorite bond movie as a child was the Japanese centered You Only Live Twice
    and I took up Judo as a teenager and was strongly influenced by Sensei Vince Tamura during my formative high-school years.
  • Peter Parker (a chemist) was the fictional character with whom I identified the most, and I later got a degree in Chemistry.
  • Neither John Wayne nor James Bond showed any fear in the face of gunplay, and, as it turns out from a real life incident, neither do I. Continue reading Goldfinger’s Evil Plot