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Posts Tagged ‘inflation’

Investment advice for Ron Paul

December 30, 2011 Comments off

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….]

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Rocky’s (latest) view on gold

August 23, 2011 5 comments

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.]

CPI shows women & children first?

April 15, 2011 2 comments

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.

Reduce the deficit: sell the White House

January 12, 2011 Comments off

Zillow.Com is a nice website that “values” properties across the country. But sometimes Zillow gets a little too cheeky.

Their “zestimate”  for 1600 Pennsylvania Avenue is $251,617,000. For only a monthly mortgage of $1,036,276, you can enjoy 16 bedrooms and 35 baths in this 55,000 sq. foot mansion. (Built 1752).  See: http://www.zillow.com/homes/1600-pennsylvania-avenue-washington_rb/

Zillow says the White House market value declined  25 % since the peak of the housing boom. Hence Rocky believes  it’s a great time for value-oriented condo-developers to swoop in. (“Great views, working fireplaces, bullet-proof windows, great yard for the kids and dogs….)

[Disclosure: Rocky continues to shop for a nice vacation home, but he hates DC’s muggy summer weather.]

The Billion Price Project @ MIT : A real-time CPI

December 23, 2010 2 comments

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/ ]

$7.2 Billion — This does not compute!

December 22, 2010 1 comment

Mrs. Picower voluntarily agreed to return $7.2 Billion to the Madoff Trustee Recovery Fund.  As one of the largest beneficiaries of the fraud, she made the correct moral choice — but what was her real motivation?

Rocky figured this out!

He discovered that Mrs. Picower’s copy of Quicken Personal Finance Software crashed.

Quicken cannot handle dollar amounts larger than $99,999,999.99. Hence the $7,200,000,000.00 sitting in Mrs. Picower’s account was causing her computer to crash!

 Rather than rebooting the computer, she decided to boot the cash to the other victims.  For technical details, see: http://quicken.intuit.com/support/articles/using-quicken/reports-and-graphs/483.html  (The technical term is “maximum supported value.”)

[Disclosure: It’s difficult to imagine a checking account balance of $7.2 Billion. It’s even more shocking to realize that at  1% interest rates, she’s accruing interest at $200,000 per day! It’s worth noting that TurboTax does not list a “maximum supported value” so Internal Revenue Service Agents can relax…]

Don’t spend that penny all at once!

December 9, 2010 Comments off

Real returns turn positive by one basis point.

When Rocky was a little kid, his miserly Uncle Scrooge would hand him a shiny penny, and intone, “Don’t spend it all at once!”

The mathematically-proficient, (but economically ignorant) child would reply, “But Uncle, how do I get change back from a penny?”

After a trip to negative 0.62%, the 5-year Inflation-Index Bond (“TIP”), closed yesterday at a whopping, positive, (drum roll please): 00.01% yield!  That’s ONE BASIS POINT positive yield. Break out the champagne! Savers can now retire early! Not.

When Rocky lends money to the US Treasury, he likes to receive more money than he lends (after inflation).   He’s excited that Uncle Sam will be handing him a shiny new penny!

[Disclosure: Rocky is less bearish on Treasuries. But he’s not bullish on Treasuries. He also notes that his bond market strategy discussed in this post is working nicely at the moment.  https://onehonestman.wordpress.com/2010/11/22/less-exposure-same-return/   ]