THIS IS NOT INVESTMENT OR TAX ADVICE. IT IS A PERSONAL REFLECTION ON INVESTING. RELY ON NOTHING STATED HEREIN
"Oh, accursed hunger of gold, to what dost thou not compel human hearts."---Virgil (Roman poet)
"But in truth, should I meet with gold and spices in great quantity, I shall remain til I collect as much as possible, and for this purpose, I am proceeding solely in quest of them"---Christopher Columbus
"Brusha, brusha, brusha, Get the new Ipana
Its dandy for your teeth"---Bucky Beaver
Many of our subscribers see no value in allocating any portion of a portfolio to gold. They assert that it has no real value. I appreciate the view, but my response is simple---I am not smarter than the market. And the market values gold.
From the beginning of civilization, gold has captured men's fascination. As reported in previous posts, 52% of all gold is used in jewelry, 16% is held by individual investors, 12% is used by industry and 18% is held by central banks as foreign exchange reserves. The largest reserve is held by the United States which owns 8,133 tons. Central banks continue to purchase gold, as do the increasingly jewelry conscious middle classes of India and China. This week the Financial Times reported that Greeks are hoarding gold as a hedge against financial collapse and that the Chinese mint is releasing many more of its gold "Panda" coins which the Chinese hold as a hedge against inflation.
As long as the market values gold (just like it values yoga outfits, Iphones, expensive coffee and social media), I will too. I own it as a hedge--selling it before I take a loss and buying when it starts to appreciate. Gold is up 24% since I first bought it in August, 2010. PS Cramer thinks that one should hold a 10% gold position at all times.
Oil took a hit Thursday with the news of the release of reserves by the US and others. This is a political move aimed at OPEC's decision to not increase production as reported previously. I don't see this having any long term impact. If anything, it presents a buying opportunity.
I bought the preferred shares of two Bermudan insurers this week. Series E Preferred RE and Series B Endurance Holdings both pay above 7.5%, trade just below the call price of $25, are not redeemable until 2016 and are issued by A rated insurers. To me this is just marginally riskier than a T-bill with more stability and one heck of lot more return. I now hold similar positions in the preferred stock of 5 such companies-these two, Aspen Insurance, Axis and Montpelier RE.
As phase 2 of quantitative easing ("QE2"- during which the Federal Reserve purchased over $600 million of Treasury securities) ends this month, the interest rates on 10 year Treasuries continue at historic lows--hovering at 2.9%. On Wednesday, the Fed announced that it would keep another interest rate factor-the discount rate- at 0.25%. In addition, international financiers (although not the Chinese) continue to buy treasury securities. The US dollar is still winning the battle of uglies against the Euro thanks to the financial crisis in Greece. What does this mean to me? Well, if rates continue to be low into July, I am going to buy a new position in Annaly Capital (NLY), my favorite "agency" real estate investment trust. As you may recall, NLY purchases mortgages, that are guaranteed by Fannie and Freddie, with short term borrowed funds, making money on the spread between the guaranteed mortgage rate and the short term funds rate. In times of low interest rates on short term funds (like now), NLY makes significant profit and as a real estate investment trust, it pays very hefty dividends (currently over 13%). I made a ton on NLY, but dropped it several weeks ago believing interest rates would spike at the end of QE2 causing a pinch in NLY's profits. It looks like I was wrong--low interest rates persist and NLY reached a 52 week high last week with the announcement that it was increasing its dividend. YIKES! NLY here I come.
Krisenfest---German adjective for "crisis-proof".
My daily study over the past year has helped me build a stable portfolio. I learn a great deal each time the market rollercoasters like it has recently. Very few of my holdings have even approached my 8% loss limit which has given me a sense confidence and peace of mind. Indeed, I have been involved in an intense jury trial for much of this month. Last year I would have been "freaked" by the market's recent volatility. Yet, during the trial, I did not give a thought to my holdings until I checked them late at night. No portfolio is Krisenfest. But, maybe I am approaching that state; thanks again, to my daily study.
After all, Bucky, how can you be frustrated with the world of investments, if you spend less time on it each day than you do brushing your teeth?
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