Got Gold? If Not, You Don't Know History

What does Ray Dalio, the legendary founder of the world largest hedge fund, have to say about gold? In a recent exclusive interview with CNBC, Dalio says emphatically without any hedging of his recommendation:

I think gold should be a part of everybody's portfolio to some degree because it diversifies the portfolio... If your investment portfolio doesn't have at least 10% of the yellow metal, then you don't know history.

Wait a minute. The interviewer reminds Dalio that Warren Buffet, a more recognized investing legend, won't touch gold. Is he wrong? Dalio responds in a matter-of-fact manner, "I think he is making a big mistake, yeah." 

Dalio continues on making his case for owning gold:

Gold is like cash. It's an alternative version of cash. Money can be produced. Gold is somewhat limited (in that it can not be simply produced like cash). It's an alternative that should be part of everyone's portfolio but not in a big way. 

Dalio's bottom line: Know your history. Get some gold.

Jim Rogers: "The Best Investment Opportunity in the World Right Now is ..."

  

It's not everyday that there are 'opportunities of a lifetime'. Jim Rogers, the famed investor who has the uncanny ability to be ahead of the game in spotting diamonds in the rough, is making the claim that Myanmar is now such an opportunity:

Legendary investor Jim Rogers recently commented that “probably the best investment opportunity in the world right now is Myanmar. In 1962, Myanmar was the richest country in Asia. They closed off in 1962, and now it’s the poorest country in Asia. I see enormous opportunities there because they’re now opening up,” Rogers said. “It’s like when China opened up in 1978. There were unbelievable opportunities going forward. The same is true in Myanmar now in my view.”

James Turk: 'The Most Important and Extraordinary Chart of 2012'

James Turk comments on what he sees as "the most important and extraordinary chart of 2012" (emphasis mine):

Take a look at the following 30 year chart, which I believe is the most important and extraordinary chart for 2012.  It presents the XAU Gold Mining Index measured in terms of gold, not dollars:

We're making history here. Gold stocks have never been this undervalued before. We've had a 12 year bull market in gold, but we've also had a 15 year bear market in gold shares that began with the Bre-X collapse.

It’s very rare in market history to see an outlier like this.  This is an extraordinary event. Years from now we are going to look back and shake our heads in disbelief at how undervalued gold stocks were in 2012.

Good long-term perspective for the demoralized gold mining investment community. The darkest hour is just before the dawn . . . give or take a year or two.

The Permanent Portfolio - Rock Steady

Greetings! It's been awhile but I'm back.

My absolute all-time favorite passive portfolio is called the Permanent Portfolio. I have not found any portfolio strategy nor money manager that can boast long-term consistent annual returns to beat the Permanent Portfolio. 

Going back to 1972, the Permanent Portfolio boasts an average annual return of nearly 10%. It's biggest down year in the last 40 years is just under 4%. You read that right - in a very tumultuous 40 years, the Permanent Portfolio has never lost more than 4% in one year! Even in the stock market meltdown year of 2008, the Permanent Portfolio posted a small positive return.

So how did it do in 2011 when the stock market was all over the place and ended up a paltry 1% for the year? Well, I'm glad you asked. In 2011 the Permanent Portfolio was up over 11%. Steady as she goes! No big portfolio gyrations. No worrying about what to do when stocks are going down big or going up for that matter. Basically no fuss, no muss.

Here is how each of the 4 components did for 2011 (using ETFs):

LT Treasury Bonds (TLT): +33.6 

Gold (GLD): +9.6 

Cash - Short-Term Treas Bond (SHY): 1.4%

       Total US Stock Market (VTI): +0.9

(hat tip Craig)

I use the Permanent Portfolio as the benchmark to measure against my own portfolio. Is it better to be an active full-time speculative investor or does it make more sense to simply do the Permanent Portfolio and fuhgeddaboudit? After beating the Permanent Portfolio handily in 2009 and 2010, I lost in 2011 by a country mile. 


I wonder why the story of the tortoise and the hare  pops up in my mind as I ponder about my speculative investment strategy to try and compete with this slow and steady competitor known as the Permanent Portfolio over the long-term? Bueller??


For more in-depth posts about the Permanent Portfolio, I highly recommend a friend of mine's blog:http://crawlingroad.com/blog/. Watch for his soon to be released book on the Permanent Portfolio as well.

Einhorn Bets on Gold Mining Companies

Legendary hedge-fund manager David Einhorn has laid his cards on the table. He is betting that the gold mining companies will outperform gold bullion, reversing the trend from the last 6 months. It comforts me to know that Einhorn and I see eye to eye on this. 

Here is what he had to say during his recent conference call for his firm Greenlight Capital: 

“A substantial disconnect has developed between the price of gold and the mining companies. With gold at today’s price, the mining companies have the potential to generate double-digit free cash flow returns and offer attractive risk-adjusted returns even if gold does not advance further,” Einhorn said. “Since we believe gold will continue to rise, we expect gold stocks to do even better.” 

He also mentioned that in the third quarter he cut Greenlight

Capital's gold holdings and moved these funds into the

Market Vectors Gold Fund Miners ETF (GDX).

Are gold mining companies finally starting to narrow the gap

with gold bullion? Since the end of the 3rd quarter, gold

miners (GDX) are up close to 9% while gold bullion (GLD) is

up 7%.

It looks like Einhorn's timing could be spot on.

Personal Savings - Running on Empty

The plot thickens and it aint pretty. As noted in a recent post, consumer expectations for the economy are the lowest in 31 years. At the same time we see in retail sales reports that people are spending as if everything is hunky dory.  There is a very unusual and striking disconnect between consumer attitude and behavior. "I know things are ugly and going to get worse. Hey, check out at my new IPhone 4s. Cool, huh?!"


Well, now we can add another troubling piece. We are finding out that this robust spending is at the expense of personal savings (see chart below). 




The personal savings rate is now at it's lowest level since before the start of the financial crisis in 2008. As you can see, everyone tightened their financial belts for a few months and started saving more -- then gradually savings were chucked out the window. Now the savings rate is plunging. It's easy to predict that very soon there will be no personal savings to buy unnecessary stuff. Not exactly an encouraging picture for the economy at large.

Tap Dat A$$ET

Good candidate for official anthem of Occupy Wall Street. This one will get stuck in your head for the rest of the day. You are welcome.