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?
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....]
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.]