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Investment advice for Ron Paul
Rocky never provides investment advice. But for once he’ll violate this rule and offer some advice to Congressman Ron Paul.
Members of Congress must file financial disclosure forms which show all of their assets and investments. Rocky studied Rep. Paul’s portfolio from 2003 to the present. http://www.legistorm.com/memberdisclosure/413/Rep_Ron_Paul_TX.html
Ron Paul’s portfolio violates every principle of sound money management. It is not prudent. It is not sensible. It is volatile. It is speculative. And it may give a window into Ron Paul’s perspective on the economy and free enterprise.
From 2003 to the present, Ron Paul’s stock portfolio owned only gold stocks. He owned some real estate. He had some cash. And he owned mutual funds that make money ONLY WHEN the stock market declines. He did not own any gold bullion. And more recently, he purchased more gold mining stocks and added to his bearish bets on the stock market using leveraged bearish funds.
In 2003, the value of his portfolio was between $860,000 and $2,300,00. (The disclosure form only provides a range of values.) In 2010, his portfolio grew to $2.4 million and $5.5 million. (Gold stocks have declined between 15% and 30% in 2011, so his portfolio has declined commensurately. He will declare that loss next year.)
So, over an an 8-year period his portfolio has appreciated by about 12%/year. (And after this year’s losses for gold mining stocks, it will be a bit less than that.)
Not so bad, eh?
Nope!
If, instead of being such a wiseguy, he had instead just purchased gold bullion, his return would have been 55% better — returning an impressive 18.5% per year! (It’s very strange that Ron Paul doesn’t own any bullion. And a skeptic might wonder whether he owns bullion, but failed to disclose it.)
[Disclosure: If one extrapolates the profile of his portfolio, one must conclude that he either nailed the bottom of the gold market, or he has really lousy long term performance. Remember that (even after this 10 year old rally) gold has appreciated at only about 5% for the past 30 years, while stocks have returned about 11%, and long bonds have returned high single digits. More troubling, however, is the notion that a President of the United States would personally profit from a DECLINING stock market and a declining economy! Even Barack Obama's assets include some S&P Index Funds....]
What to do with an old computer?
An old Dell computer has sat in the corner of Rocky’s home library for months. Rocky promised Trophy Wife that this unsightly dust magnet would eventually “disappear,” yet even Rocky’s trusted Computer Guru won’t carry the box away. The Computer Guru explained that no charity would want such a relic.
What to do? Rocky lists some possible uses for the “low profile” desktop computer:
1. It weighs about 15 pounds. Perhaps it can be used as a “medicine ball” … to be tossed back-and-forth in the gym?
2. In lieu of bricks, it could be placed in the trunk of a car…providing added traction for winter driving.
3. It can be donated to Habitat For Humanity and used as a substitute concrete block for new construction.
4. It can serve as a step stool to reach the top shelf in the pantry.
5. It can be used as a space heater to warm up the bathroom floor on cold mornings.
6. It can serve as a standing platform for meditation and yoga. Alternatively, smashed with a sledge hammer, it can provide a more effective release for life’s frustrations.
7. It could be buried in the backyard as a time capsule for future generations to find.
Rocky’s (latest) view on gold
Knowing that he’s been a gold bull for years, Rocky’s friends keep asking: “What you do think of gold, NOW?” (These people actually think that Rocky and certain other TV commentators can predict the future.)
Rocky’s answer: “I have no idea, and have NEVER had any idea about what the price of gold will do tomorrow.”
But does he still own gold?
“Yes, and I also own some stocks. And I own some real estate. And I own some bonds. And I own a copy of last week’s People Magazine. And I have no idea what the price of these will do tomorrow either. My experience has been that pundits who claim perfect knowledge of the future are generally either liars or idiots. (Whoopi Goldberg is the exception to this rule.) What I’m doing is called diversification.”
But when will he sell gold?
“The PRICE of gold is irrelevant. As I’ve written on this blog, I will sell gold when the gold story (or more accurately, the market’s perception of the gold story) changes! Gold’s ascent is a confluence of negative real interest rates; undisciplined central bank behavior; a growing loss of confidence in government policies and financial systems; loss of Swiss bank secrecy; an accumulation of economic wealth by individuals in parts of the world without stable property rights and rule of law. Can gold drop $100 tomorrow? Sure it can! Can gold drop $300 next week? Sure it can! Can gold drop $1000 next year? Sure it can! But so long as these FUNDAMENTAL factors remain in place, the underpinnings and demand for hard assets that are beyond the reach of governments will remain.”
“Almost all of my really smart friends are very bearish right now. They all think this move is idiotic. Many think this is a bubble. And eventually they will be right. But eventually could be a really really long time. And it could include a trip to unimaginably higher prices first. Their skepticism is not predictive of anything. And importantly, they are not betting that gold will decline either. All it tells you is that they aren’t long gold and missed this move. I’ll admit that I get nervous when prices rise quickly. And historically, buying after a sharp rally isn’t a good idea. But why should any of this market chatter affect my long-term porfolio construction/diversification? After all, I’m not afraid to admit that I have absolutely no idea what prices will do tomorrow.”
[Disclosure: Rocky NEVER gives investment advice. He's owned gold for a long time. And he owns some hedges that will protect him if gold drops sharply while he's asleep. And some day, he will sell his gold. But whether it's at $2,000/oz or $10,000/oz is out of his control. It's in the control of millions of other investors around the world, and how they react to the policies of their central banks and governments.]
Lady Marmalade
Skinflint. Miser. Penny-pincher. Frugal. Tightwad.
All of these adjectives describe Rocky in most matters. However, Rocky throws open his wallet and spares no expense for three important purchase categories: automobile tires, bath towels, and orange marmalade.
During her recent two-day trip to London, Trophy Wife’s marching orders were clear: find a jar of Fortnum & Mason’s finest Orange Marmalade, and carry it home for Rocky’s (discount) crackers and crumpets.
Trophy Wife scored a bottle of “Wake-Up Marmalade” early in the day, and all was well until Heathrow Airport Security seized the jar from her luggage as a “security threat.” Horrified, humiliated, and fearing the “Wrath of Rocky,” she ran to the Airport’s Duty-Free Shop, where she fortuitously found the marmalade section next to the Cuban cigars and over-priced single malt scotch. Unfortunately, the Duty-Free Shop’s marmalade selection was sparse, and she selected a jar of Sir Nigel’s Orange Marmalade. (Fortnum & Mason produces more than 40 marmalade varieties.)
From the marmalade bottle: “Noted 1920′s actor-manager, Sir Nigel Playfair was used to getting what he wanted – like the thick-cut, tough-guy marmalade remembered from his childhood rather than the effete flapper versions fashionable at the time.”
After sampling the marvelous marmalade on generic Stop&Shop water biscuits, Rocky agreed that he would no longer consume “effete” American marmalade . A tough guy like Rocky deserves a tough-guy marmalade. But in a show of tenderness, Rocky thanked Trophy Wife profusely for her valiant efforts, and gave her a sticky peck on the cheek.
[Disclosure: Terrorists should note that airport security will detect explosives dissolved in blood orange marmalade . ]
CPI shows women & children first?
The Captain of the Titanic supposedly said, “Women and children first!” when directing his passengers to the lifeboats.
Rocky, (hardly a chivalrous fellow), thinks recent Consumer Price Index data demonstrate “Women and Children LAST!”
He notes that women’s and children’s apparel prices are declining at a noticeably faster rate than men’s apparel prices. (See the bottom three lines of the chart above.) Although Rocky continues to wear the same ragged grey sweater and chinos, Trophy Wife may find this data to be an impetus for a visit to the shopping mall.
Rocky theorizes that women can wear men’s clothes (which support the price of shirts and pants), whereas most men wouldn’t be caught dead wearing a dress or skirt. However, if this trend continues, Rocky’s miserly nature will prevail, and he’ll try on a kilt or two.
Efficient markets meet efficient yogurts
At the behest of his daughter, Rocky sampled his first “Pinkberry” frozen yogurt in New York City’s Greenwich Village on Sunday. Pinkberry has a cult following, and it was time for Rocky to audition for the cult.
The small cup of plain with two toppings cost $6.25 — and while Rocky found the concoction uninspiring — he found the profit potential intriguing.
An unscientific 10 minute demographic survey revealed all of the customers in the store were ultra-skinny women under the age of 30 and just one skinny man (whose attire and makeup were sexually ambiguous.) Judging from their fluency in Pinkberry nomenclature, all were regular customers. The tiny store was grossing over $300/hour — on a cold, rainy March afternoon!
Rocky started salivating. Not from the yogurt. From the profit potential!
But before he could grow lascivious about live cultures, Rocky looked out the window and noticed two stores across the street with “Opening Soon” banners in their window. Red Mango and “YourGurt” had Pinkberry’s prodigious profits in their sights. A frozen yogurt war would soon commence – and monopoly yogurt profits would undoubtedly become the first casualty….
[Disclosure: All that glitters isn't gold, and all that shines isn't Pinkberry pomegranate with strawberries. But the jingle is worth a listen: click here. ]
Rocky’s coif makes the Financial Times
The bald facts
Blended whiskey meets blended crude
American v. London Crude Price
An interesting oil trade reminds Rocky of the song “America” from West Side Story (the Broadway show): “I like to be in America! OK by me in America!, Everthing free in America! For a small fee in America!”
Rocky notes the price of WTI crude oil in America is at a record discount ($15/barrel) to London’s “Brent” Crude Oil — even though the London oil is worth slightly less to refiners. Oil’s not yet “free in America,” but 17% is a remarkable discount.
Some production problems in the North Sea and an inventory overhang in Cushing, Oklahoma explain this discrepancy. Since America imports crude oil, Rocky believes it’s just a matter of time before cargos get diverted from the USA to Europe, and this price spread collapses. Hence, Rocky is slowly buying crude oil futures in America, and shorting crude oil futures in London.
If the spread doesn’t collapse in the next few months, Rocky’s Plan B is to fill his many empty Scotch Whiskey bottles with crude oil and “deliver” the recycled bottles to London…(which will also force the aribitrage to close.) Of course he’ll have to convince airport security screeners that the duty-free bottles of crude oil don’t pose an in-flight threat, and will explain that instead of a blended whiskey, it’s the ”Brent blend.” He’s also prepared to hear the TSA Agent recite Anita’s words from West Side Story: “I know a boat you can get on.” See: VLCC.
[Disclosure: Rocky never gives investment advice, and these sorts of trades entail considerable risk not to mention a nasty hangover. Nonetheless, this trade is a "Rocky V." (See "definitions" tab at the top of this page.)]
Cold comfort: natural gas glut vaporizes
Buried in yesterday’s news cycle (and Northeastern snowbanks), Rocky noticed that the widely reported “glut” of domestic natural gas inventories suddenly vaporized. Or more accurately, it oxidized.
The Department of Energy reported yesterday that Eastern US natural gas inventories are now BELOW their five-year average, and national inventories are in-line with their five-year average. See: http://ir.eia.gov/ngs/ngs.html
Rocky believes that inventories remain ample. However, a few more weeks of arctic cold weather, and natural gas consumers will feel the same chill that heating oil consumers have been experiencing.
[Disclosure: Rocky never gives investment advice, but he thinks natural gas is "cheap" compared to crude oil. But that doesn't mean the natural gas price will go up or the crude oil price will go down.... For details, see Rocky's Definitions at the top of this page under Rocky I and Rocky V. ]
The best kind of pay raise
Rocky just approved his employee paychecks for the first pay period of 2011. He noticed that everyone’s paycheck increased by almost 2%.
“I don’t remember approving any raises!” Rocky grumbled to his CFO. ”Especially not for Bosley in the mailroom. That’s the guy who nodded off while sitting in front of the postage meter — and his forehead wasted a few hundred dollars in postage stamps!”
“Rocky, it’s the tax cut,” explained the CFO. “Congress passed a one year holiday on Social Security and Medicare taxes. Everyone’s paycheck went up by about 2%.”
“That’s great,” said Rocky. “Allowing people to keep their own money is always a good thing. But what should we do with all those wasted postage stamps? Maybe we should hand them out as holiday bonuses?”
[Disclosure: Reducing taxes is the most efficient way to stimulate an economy.]
The Billion Price Project @ MIT : A real-time CPI
Inflation, says Rocky, are rising prices for the things that you WANT to buy. Deflation, says Rocky, are declining prices for the things that you DON’T WANT to buy.
Although it uses a more analytically rigorous definition, there are many problems with the government’s Consumer Price Index (CPI).
It’s exciting to announce that MIT has gone live with it’s “Billion Price Project” (BPP) — which monitors daily prices of 5 million items sold by 300 online retailers!
Here’s the link to the Billion Price Project: http://bpp.mit.edu/
[Disclosure: It costs the Labor Department $234 million each year to calculate the CPI, and it's only reported once each month. For more details, see: http://www.slate.com/id/2278623/ ]
Black clouds, black sheep, red ink
A friend writes: “About 18 months ago, I compiled a list of stocks for a buy-and-hold portfolio. As of today, it’s down 3.2% (excluding dividends). Going back further, my “sure-thing” portfolio is down 9.7% (excluding dividends).
Rocky notes that since December, 2008, the S&P500 has risen about 42%, and the “average” (non-market-cap-weighted) stock has gained about 75%. Interestingly, however, 57 stocks in the S&P500 have declined in price during this period!
Losing money during one of the biggest rallies in history is like walking around with a black cloud over one’s head. (A meteorological phenomonen with which Rocky is very familiar.)
In the spirit of the TV game show with-the-same-name, “The Biggest Loser” turns out to be Dean Foods Company (DF) which produces private label dairy products. Dean Foods has lost about 55% of its value during the past two years. The CEO of Dean Foods surely wishes that instead of “milking” his company dry, he had invested in the poultry business — and raised a few “golden” geese, which could have flown above the black clouds.
[Disclosure: Rocky has never invested in Dean Foods. He welcomes bad puns that involve milk companies that turn sour, but acknowledges the futility of crying over spilled milk. He also notes that investing in a "boring" S&P500 Index Fund can makes tons of hay when the sun shines.]
The cruelest cut: Yoshi Blade (as seen on TV)
The finger injury occurred while opening the plastic wrapper -- not while cutting.
Flush with profits from a recent trade (and a 20% discount coupon), Rocky headed to his local CVS/Pharmacy to treat himself to an indulgence.
He passed on the bubble bath. (skin allergies)
He passed on the organic chocolate bars. (weight gain)
He passed on the automatic blood pressure monitor. (don’t ask, don’t tell)
He settled on Yoshi Blade – “the one knife whose sharpness is guaranteed.”
Rocky enjoys late-night informercials, hence he knew Yoshi Blade is a ceramic knife that’s guaranteed to stay sharp; won’t rust or pit; can replace a drawer full of metal knives; is made of natural eco-friendly materials; and its design is ideal for precision cutting and thin slicing.
After paying $18, he headed home and severely gashed his finger while opening the sharp plastic wrapper. Alas, Rocky discovered that the plastic wrapper would prove to be a better knife than Yoshi Blade (as seen on TV).
“When all else fails, read the instructions,” thought Rocky.
Fearful of a paper cut, Rocky carefully unfolded Yoshi Blade Care and Maintenance Guide, (a booklet containing more detail than his Dell Computer User Guide.)
From the Guide: (verbatim)
- DO NOT use Yoshi Blade or the side of the blade to chop food.
- DO NOT use Yoshi Blade to cut frozen food.
- DO NOT use Yoshi Blade to cut hard cheeses.
- DO NOT use Yoshi Blade for carving poultry or meat with bones.
- DO NOT cut on ceramic plates, marble, stone, glass or tile.
- DO NOT bend, twist, pry or apply force on the tip or side of the blade.
- DO NOT use Yoshi Blade to smash garlic or other foods with the side of the blade.
- DO NOT place Yoshi Blade in or near open flame or heat source, as ceramic blade will get hot.
- Yoshi Blade is NOT dishwasher safe. Hand wash only in warm water with mild soap and never let Yoshi Blade soak in water for any period of time.
Rocky thought he understood the instructions. Yoshi Blade cannot be used for cutting, carving, chopping, twisting, stirring or any other activity normally reserved for knives.
(It suddenly became clear how Yoshi Blade can replace a drawer full of metal knives: put Yoshi Blade in a drawer, and order Chinese Take-Out.)
[Disclosure: Rocky lives dangerously. He put Yoshi Blade in his dishwasher. ]
Garbage In => Garbage Out
Back when Rocky studied Rocket Science, a popular saying was “Garbage In = Garbage Out.” This meant that if you put silly data into a computer, the lights would flash, the drives would spin, the bells would ring, and out of the printer came: garbage.
The GIGO model came to mind when Rocky read the following e-mail from Dow Jones:
[Disclosure: Basing one's investment decisions on a real-time feed from Dow Jones New Service is reminiscent of a blind man who looks in a mirror and shaves using a straight-edge razor. As for "code words," Rocky has only one word that really matters: "Plastics."]
What is QE and what it really means to me
Rocky’s read a lot of information and mis-information regarding Quantitative Easing. This may be the best and clearest discussion of the issues and is worth a read:
http://www.thebigquestions.com/2010/11/18/qe2/
[Disclosure: Rocky rarely agrees with Professor Landsburg, and finds some of his philosophies to be morally objectionable. Nonetheless, the Professor does a good job explaining the pros and cons of QE2 in his article.]
Polyester and the markets
Rocky’s eye for market trends is often sharper than his eye for fashion trends. Yet, as cotton prices reach record highs, he speculates that reasonably-priced polyester may soon come back into vogue.
Fortunately, Rocky’s wash-and-wear polyester leisure suit remains crisply pressed in the back of his closet – next to the pink ruffled tuxedo shirt which last saw action at his high school prom. (Which coincidentally was a time when gold was spiking too.) Moths find old wool suits irresistable, but just like a Hostess Twinkie, a leisure suit can remain “fresh” for thousands of years.
[Disclosure: When Rocky experiences a Saturday night fever, he takes an aspirin and goes to bed early.]
Gold-plated arbitrage
Rocky found some fool’s gold buried in today’s Producer Price Index data.
The year-over-year change in “Karat Gold Jewelry Prices” was 12.1% Whereas the year-over-year change in “Costume Jewelry Prices” was a modest 0.9%.
According to Wikipedia, “Costume jewelry (also called fashion jewelry, junk jewelry, fake jewelry, or fallalery) is jewelry manufactured as ornamentation to complement a particular fashionable costume or garment.”
Since the Government sees fit to include the “all important” costume jewelry price in the PPI, Rocky smells an arbitrage for an upcoming Trophy Wife birthday present.
Rocky currently owns gold in his investment portfolio, but this price discrepancy suggests that he should consider a “short gold / long fake gold” swap for Trophy Wife’s jewelry box portfolio.
[Disclosure: As they say on TV: "We're trained professionals. Don't try this yourselves at home!]
Gold: Manic Parabolic Blow Off Time
As regular readers know, Rocky has held a bullish speculative position in gold for many months. If today’s behavior continues for a few more days, Rocky believes that gold may be finally entering the Manic Parabolic Blow-Off Phase “MPBOP.”
The MPBOP is the most profitable phase of any bull market, and despite what experts on CNBC say, it’s impossible to know how long it will last — nor how high prices can go during the terminal stages of a MPBOP. Rocky speaks from experience having been on the wrong side of the internet MPBOP. (He was an avowed hater of the Pets.Com puppet, but he got revenge when the stock eventually went to zero.) This experience means Rocky wouldn’t scoff at $1500/oz or even $1800/oz gold by year-end.
Sadly, after the parabolic blow-off phase comes the “gravity still exists” phase, where people re-discover that gold is just a shiny piece of metal that makes an excellent dental crown. Which means prices will decline. By a lot.
Many people party on New Year’s Eve without worrying about how they feel on New Year’s Day. But not Rocky! Rocky remains long gold, but he’s beginning to think about his ultimate exit strategy. Parachutes? Ejection seats? Hari Kari? Here’s his latest thinking (posted on the blog Daily Speculations): http://www.dailyspeculations.com/wordpress/?p=5344
[Disclosures: Rocky really has no clue what gold prices will do tomorrow or the days after tomorrow and his ruminations are not investment advice. He does, however, believe in the Laws of Gravity and the First Law of Rocky: In every “macro market” (indices, bonds, commodities), all prices WILL be seen at least twice. The only unknowns are: (1) how long it takes and (2) how far prices go, before the price is re-visited. Additionally, while Rocky currently remains long gold, he also owns hedges against the proven risk that he's more-than-occasionally wrong.]
Free beer at American Airlines
American Airlines sent Rocky the following email:
As a valued Admirals Club® member, we want you to be the first to know that beginning October 1, 2010, American will offer alcoholic beverages, including wine, beer and spirits, free of charge to customers visiting any of our domestic clubs, in addition to complimentary coffee, tea, soft drinks and juices. Domestic clubs will offer well brand liquors, house wine and beer as a complimentary service on October 1st.” Menu items vary by location, and include fresh salads, sandwiches, hot entrees and small bites. All menu items are available to enjoy in the club or for carry-out.
Rocky appreciates the gesture, and instead of visiting his local Applebees or TGIF, he’s planning to “hang out” at the Admirals Club, where he can throw back a ”cold one” while charging his cellphone. He also expects that American may discover a surge in Admiral Club membership in college towns.
[Disclosure: Rocky has no position in American Airlines (AMR) , Applebees (DIN), or BUD stock. But he may re-examine a three-way-arbitrage....in the morning.]
What’s for lunch?
Rocky recently returned from a brief visit to the United Kingdom. Despite the proliferation of Starbucks and McDonald’s, the quintissential pub lunch still survives (for better or worse). In this case, it was for the the worse, although a pint of proper English Bitter helped wash it down quickly.
Any reader who correctly identifies the name and contents of this “classic” pub sandwich, will receive a unique prize of dubious monetary value.
