Sunday Morning Coffee


John Hathaway, the manager of the Tocqueville
Gold Fund (TGLDX) had a take in Barron’s on why gold can move higher that I don’t recall hearing before. Perhaps people have been saying essentially the same thing but still I thought this was interesting.

He said “the disparity between the amount of paper that has been created since 1980 and the amount of gold that has been produced since then is just enormous.” So we have had a much larger increase in the supply of money compared to the supply of gold. FWIW, Hathaway thinks gold can go quite a bit higher.

I have been writing about having gold exposure one way or another since I started this site, three years ago yesterday by the way. The idea that it can zig when stocks zag has been tested a little bit of late. I own several things in the mix that I think/hope provide offset to domestic stocks. When the market is roaring I would expect gold to lag but sometimes, like the month just ending, gold does even better than stocks.

Maybe a way to think of it is that gold may not a great hedge for market events but could offer a lot more protection against an external shock like a terror attack. If that line of thought makes sense to you then it may be possible that there will be long periods of time where it does very little as was the case from February of this year until August. Personally I do not think this is a bad thing but some folks will not be patient enough to endure sideways action for that long.

I am no gold bug but I do believe that a diversified portfolio needs to include exposure to something that gets mined or to a company that does mining. The theme has been a huge contributor to gains in the last few years and I think will continue to be very important for the next several years.

A reader asked what currencies I think will rise the most against the dollar and how to invest in them. The thing behind the thing for my currency exposure is not to game the forex market. I believe in foreign exposure to stocks, bonds and cash. The best diversification would probably a currency from either a surplus economy or a commodity based economy. Rydex has eight single country currency ETFs and iShares has three ETNs. Beyond those it gets difficult to access single countries. I use short term government bonds from Norway, but not for everyone, as a proxy for the krone. The minimum buy is $100,000 which is easy if you are buying for a bunch of people, pretty tough for an individual.

Everbank has various products but I personally am not a fan of locking into a CD. I think you can buy $10,000 worth of many single currencies in an account without buying a CD but I do not know the particulars.

I Tivo the Saturday morning Fox shows so I can fast forward through the political commentary (if I wasn’t black balled from their channel before I am now, eh?). On this week’s Cashin’ In I only watched Trapper’s picks during the last two minutes and I got a chuckle when he picked the double short ETF that I use and have written about so often of late.

He actually called it a double short fund.

Also from Barron’s Trader column, there was a short write up on Smithfield Foods (SFD), apparently the company is having a problem with “swine fever at some of its Romanian hog farms.” How many Romanian hog farms do they have? I’m not sure why that cracks me up but it does.

If you have been reading blogs for a while you might recall the blog called Inventing Money, written anonymously by Slash, which as been on hiatus for quite a while. Well he back posting again, stop on by and check it out.

The picture is from New Zealand. They may not quite have their current account where they want it but they are not wanting for scenery.

19 Comments

  1. Regarding Trapper’s double short ETF pick….

    Did he recommend buying it now (at a 52 week low) or when you bought it (at a 52 week high)?

    Nothing wrong with a double short fund, but buying it and promptly losing nearly 20% in a month must be painful….Right Roger?

    Reply
  2. Interesting ideas on the currencies. I’m also beginning some investigation on putting some of my relatively risk free cash allotment into non-U.S. currency. I’ve been eyeing the Rydex funds, but still need to understand them more. The bonds you mention are a little too rich for me as well.

    Would value anyone’s opinion on the subject of enhancing risk free investments (i.e. government bonds, foreign currencies, etc).

    Reply
  3. Hataway’s gold article was interesting – more thoughtful than much of the “gold bug” ilk. Like many others he gives a nod to Newmont. I find myself a fan of Newmont for reasons that go beyond economic analytics.

    Do you think there is a place for an emotional (not irrational exuberance but something akin to, say, your non-economic reasons for buying one brand over another) influence in picking and holding a stock? If such thinking influences many of your decisions, whould you label it “foolish?”
    MFB

    Reply
  4. anon 1:44. I tend to believe the fewer emotions the better. Can foolish ever be known? Only in hindsight I suppose.

    If you have a diversified portfolio for a long period of time you there will be decisions you are pleased with and decisions you are not pleased with but that does not have to mean you are never emotional. For most folks there might be a blend of emotion and logic.

    I try to convey the sense to which I assign no emotion but this is simply my approach about what is best and can’t say that someone else should have zero emotion.

    Reply
  5. For the past couple of weeks I have been listening to Don Coxe’s podcast. Awesome. Sounds like BMO clients will get direct access to commodities. He made observations similar in sentiment to what I’ve read here. Roger, this guy sounds smart. Knows how to conceptualize at a global level. Very familiar with the canadian oil sands. First I’ve heard of him. Some canadians I’ve met first mentioned him to me.

    Reply
  6. Coxe is the real deal and very well respected.

    Reply
  7. re:anon 1:44

    Rog, buying a double short fund after a significant drop in the market was an emotional decision.

    If you bought the double short fund now, with the market reaching for new highs, would be rational.

    Your trading strategy is a loser, Rog.

    You have called this move your “defensive plan”. The plan to get defensive should happen as the market moves to new highs, not after it has taken a hit.

    Reply
  8. anon 4:32–Like you, I want to buy low and sell high. You seem like an insightful investor; could you please share your picks that are now at their lows and will be higher in six weeks? Thanks very much.

    Reply
  9. “I can fast forward through the political commentary”

    So you wind up watching about 5 minutes of the two hours? There’s a good drinking game to be made of the Cost of Freedom or whatever they call it now.

    I follow Don Coxe religiously. He’s been really pumping agriculture this year. Good call so far.

    Reply
  10. Roger,

    Do you recommend exposure to gold and commodities as a matter of principle or only during certain periods? The reason I ask is over the very long term, gold/commodities basically tread water.

    http://tinyurl.com/ypuh2m

    Sure, gold/commodities may reduce the volatility of your portfolio, but so would investing in beanie babies or allocating a portion of your porfolio to random trips to the Las Vegas black jack tables.

    The inclusion of gold/commodities make sense if you’re using a timing method or fundamental analysis. But as a standing principle, I just don’t get it.

    Reply
  11. tom k,

    quite simply, I prefer to maintain small positions in things that (I think) will go up during times of panic.

    In the time I have done this with gold it has done well. I have had decent luck with offsetting the drag when these things have not done well.

    As far as not getting it, the perspective is that of trying to smooth out the ride for clients that don’t follow or understand the markets to the extent you do.

    Also this is a philosophical thing–my philosophy so I would not think everyone, or even most folks would have the same beliefs.

    Lastly, I would expect all of the things I do to evolve over longer periods of time. five years from now I might do things differently. I don’t see it from here but anything is possible.

    Reply
  12. Tom,
    the other problems specific to GLD are is negative yield roll and the Tax treatment. Gains on GLD are treated as gains on collectibles because it holds actual Gold.

    IMO it is better to capture the effects with mining stocks. I’ve been using AEM.

    Reply
  13. one other thing–to be a little clearer. the idea of blending different assets together that have low correlations is exactly where I want to be. to me this means that there will always be something working. so far this has been true.

    Reply
  14. Sami.
    How does AEM not hold ‘actual gold’ being a gold mining company?

    Reply
  15. The IRS chose to tax gains in GLD as if gains on trading in collectibles, which has a rate of 28%.
    They did not make the same choice as far as mining companies’ stocks.
    Feel free to send them letters.

    Reply
  16. I bought some gold bullion at $260 an ounce a few years ago. I think it may be peaking now, but I prefer just to hold on to it. I don’t really consider it as an investment.

    Currencies: I can’t find a single one that I think will rise significantly vs the US dollar at current levels, except perhaps the Yen and Yuan.

    Does anyone know of portfolio management software that will handle asset classes other than stocks, bonds & mutual funds – ie precious metals and foreign currencies?

    Thanks

    Jim

    Reply
  17. Sami,

    I could be wrong, but I believe the gold tracking etf from powershares (GDL) avoids the unfavorable tax treatment you reference because it invests in futures contracts instead of the real stuff.

    Reply
  18. Ooops, I meant DGL.

    Reply
  19. Thanks for your response Roger. I suppose I can see the benefit for a money manager who wants to provide a smoother ride.

    Reply

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Sunday Morning Coffee


John Hathaway, the manager of the Tocqueville
Gold Fund (TGLDX) had a take in Barron’s on why gold can move higher that I don’t recall hearing before. Perhaps people have been saying essentially the same thing but still I thought this was interesting.

He said “the disparity between the amount of paper that has been created since 1980 and the amount of gold that has been produced since then is just enormous.” So we have had a much larger increase in the supply of money compared to the supply of gold. FWIW, Hathaway thinks gold can go quite a bit higher.

I have been writing about having gold exposure one way or another since I started this site, three years ago yesterday by the way. The idea that it can zig when stocks zag has been tested a little bit of late. I own several things in the mix that I think/hope provide offset to domestic stocks. When the market is roaring I would expect gold to lag but sometimes, like the month just ending, gold does even better than stocks.

Maybe a way to think of it is that gold may not a great hedge for market events but could offer a lot more protection against an external shock like a terror attack. If that line of thought makes sense to you then it may be possible that there will be long periods of time where it does very little as was the case from February of this year until August. Personally I do not think this is a bad thing but some folks will not be patient enough to endure sideways action for that long.

I am no gold bug but I do believe that a diversified portfolio needs to include exposure to something that gets mined or to a company that does mining. The theme has been a huge contributor to gains in the last few years and I think will continue to be very important for the next several years.

A reader asked what currencies I think will rise the most against the dollar and how to invest in them. The thing behind the thing for my currency exposure is not to game the forex market. I believe in foreign exposure to stocks, bonds and cash. The best diversification would probably a currency from either a surplus economy or a commodity based economy. Rydex has eight single country currency ETFs and iShares has three ETNs. Beyond those it gets difficult to access single countries. I use short term government bonds from Norway, but not for everyone, as a proxy for the krone. The minimum buy is $100,000 which is easy if you are buying for a bunch of people, pretty tough for an individual.

Everbank has various products but I personally am not a fan of locking into a CD. I think you can buy $10,000 worth of many single currencies in an account without buying a CD but I do not know the particulars.

I Tivo the Saturday morning Fox shows so I can fast forward through the political commentary (if I wasn’t black balled from their channel before I am now, eh?). On this week’s Cashin’ In I only watched Trapper’s picks during the last two minutes and I got a chuckle when he picked the double short ETF that I use and have written about so often of late.

He actually called it a double short fund.

Also from Barron’s Trader column, there was a short write up on Smithfield Foods (SFD), apparently the company is having a problem with “swine fever at some of its Romanian hog farms.” How many Romanian hog farms do they have? I’m not sure why that cracks me up but it does.

If you have been reading blogs for a while you might recall the blog called Inventing Money, written anonymously by Slash, which as been on hiatus for quite a while. Well he back posting again, stop on by and check it out.

The picture is from New Zealand. They may not quite have their current account where they want it but they are not wanting for scenery.

Submit a Comment

Your email address will not be published.

WP-SpamFree by Pole Position Marketing