Revealed: An Inside Look at Ron Paul's PortfolioPosted by Wealth Wire - Tuesday, January 22nd, 2013
Ron Paul is a lot like licorice; not everyone likes him, but the ones who do really like him.
The former Texas congressman built his reputation and loyal following by taking strong positions on a number of controversial issues.
The first is his desire to audit and eliminate the Federal Reserve. Paul is a free-market capitalist and doesn't believe a centrally controlled, non-elected entity should have the ability to dictate interest rates and change the trajectory of the-economy.
Paul has also expressed deep concerns about the U.S. dollar, which is not backed by any physical asset, and has been steadily devaluing against other currencies since 2001 under growing domestic trade deficits.
Finally, Paul is also worried about the possibility of massive inflation. Although the U.S. Bureau of Labor statistics' Consumer Price Index has yet to show any serious signals of inflation, with central banks around the world fully committed to monetary stimulation, the devaluation of fiat currency is a very real consideration for many investors.
But unlike many politicians simply tickling populist fancy, after taking a look at Paul's portfolio, it's obvious the man puts his money where his mouth is.
The typical congressional portfolio might have 10% incash, 10% in bonds, 20% in real estate and 60% in stocksor stock funds, according to the Wall Street Journal.
But Paul has taken a radically different approach.
His 21% allocation to real estate looks pretty normal. So does his 14% allocation in cash. But where he parts ways with his congressional brethren is the remaining 64% of his portfolio, which is invested in gold- and silver-mining stocks. Adding to his contrarian style, his 1% allocation to stocks funds are invested in "short" funds, a bet against future stock gains.
Here is a list of 15 gold- and silver-mining stocks that Paul owns in descending order from largest to smallest market cap.
From the group, I have chosen to highlight Barrick Gold Corp. (NYSE: ABX) because of its historically low valuation and Silver Wheaton (NYSE: SLW) because of its low valuation and unique business model.
Barrick Gold Corp. (NYSE: ABX)
Barrick Gold is the largest gold miner in the world, with a market cap of $34 billion and owning four of the world's 10 largest gold mines. Much like other gold and mining stocks, Barrick has been under pressure during the past year, with shares down 24%.
But in the meantime, Barrick's earnings have held strong, with analysts looking for earnings of $3.89 a share in 2012 and $4.90 a share in 2013, a bullish 26% growth projection. The downtrend in the face of strong earnings has pushed Barrick deep into value territory. The stock is trading at just seven times-forward earnings, a sharp discount to its 10-year average of 19 and its peer average of 12.
Silver Wheaton (NYSE: SLW)
Silver Wheaton has a different business model from other miners in that it is technically a "silver streaming" company. This means Silver Wheaton purchases the by-product silver production of a mine that it does not own or operate, allowing the owner/operator of the mine to receive an upfront payment and focus on its target metal (usually gold). This creates a mutually-beneficial relationship between the companies involved, because it gives Silver Wheaton the option to purchase silver at predetermined prices, while the owner/operator of the mines are able to monetize the value of its future, non-core silver production. This unique business model has lifted Silver Wheaton to a rare gain against its peers, with shares up 17% in the past year.
But in spite of these gains, shares till look undervalued, trading at 16 times forward earnings, a discount to the 10-year average of 25 and its peer group average of 22.
Risks to Consider: Most gold-mining stocks have sharply underperformed gold prices in the past two years, driving big losses for investors choosing to invest in gold miners as opposed to bullion or spotprices through exchange-traded funds like SPDR Gold Shares (NYSE: GLD) and PowerShares DB Gold Double Long (NYSE: DGP).
Action to Take --> If you are concerned the Fed's recent actions, weakness in the dollar and inflation, then it's time to take a page from Ron Paul's portfolio and consider gold and silver miners. And while I wouldn't recommend the same allocation as Paul has, I do like Barrick and Silver Wheaton for most portfolios.
The former Texas congressman is considered a political renegade, fueling what some analysts call the craziest portfolio they have ever seen.
Hedge Fund Converts 1/3 of Assets to Gold
Posted by Adam English - Tuesday, January 22nd, 2013
The Pacific Group Ltd., a Hong Kong-based fund founded by a former PaineWebber Inc. trader, just announced plans to convert one-third of its hedge-fund assets into physical gold.
The move is only reinforcing a recent flood of hedge fund money into gold as veteran traders place large bets that prices will go up as governments print more money to pay off debt.
William Kaye, founder and CIO of The Pacific Group Ltd., is following some very famous fund managers into large gold positions.
Soros Fund Management, founded by George Soros, and Paulson & Co., founded by John Paulson already have massive stakes through the SPDR Gold Trust ETF (NYSEARCA:GLD), the biggest gold-backed exchange-traded product.
Soros raised his GLD investment by 49% in the third quarter to about $215 million while Paulson has about $3.6 billion invested in GLD, according to documents filed with the Securities and Exchange Commission.
“Gold, the way we look at it, is anywhere from being undervalued to being seriously undervalued,” said Kaye. “We’re in the early stages, in our judgment, of what would likely be the world’s largest short squeeze in any instrument.”
Ownership of financial instruments based on gold, such as Comex futures contracts, represents more than 100 times the physical gold that exists above ground worldwide.
“All you actually need for a major upward revaluation of gold is for a small fraction of people to physically reclaim from major central banks or other depositories that are holding your gold and using it for their purposes,” Kaye added.
China's Incredible Shrinking Labor Force
Posted by Brianna Panzica - Tuesday, January 22nd, 2013
China's report of its fourth quarter growth rate—7.9 percent—was released last week, marking the seventh consecutive quarter of declined growth rate.
The rate beat median estimates, but it's still the lowest rate reported by China since 1999.
And a shrinking labor force could be the main driver behind this slowing growth.
China's one-child policy has led to a significant reduction in the size of younger generations. The labor force declined by 3.45 million last year, and though the size still remains high at 937 million, the UN believes between 2015 and 2025, it will drop by another 24 million.
This will put a heavy burden on the plates of incoming leaders Xi Jinping and LI Keqiang, and National Bureau of Statistics head Ma Jiantang believes there might be a need for a policy change ahead.
“The demographic situation and labor demand-supply pattern in our country are changing after decades of family planning,” Ma said on Jan. 18. “While we still have to stick to family planning as a national policy, it's quite necessary to study proper demographic policy according to new changes in the situation.”
But Chinese leaders aren't as concerned about the slowdown in growth, either. Though growth hung at or above 10 percent for 20 years, the shrinking labor force is part of the reason such a high growth is no longer necessary.
Lu Ting, Bank of America Corp.'s head of Greater China economics, told Bloomberg that growth could hit 6 percent as soon as 2020. But because of the dwindling labor force, this sort of slowdown won't create the mass layoffs and unemployment many have feared.
Of course, it's not just the labor force that's contributing to slower growth in China. Demand is shifting as a growing middle class breaks out and the supply of resources begins to tighten.
And economic growth will still exceed global growth. Ken Courtis of Next Capital Partners told Bloomberg he believes China will be the driver behind lifting Eastern Asian growth, and the nation is going to continue to thrive.
But if the one-child policy continues, growth could be threatened in the future.