Tuesday, November 17, 2009

The Lloyd's Prayer

Our Chairman,
Who Art At Goldman,
Blankfein Be Thy Name.
The Rally’s Come. God’s Work Be Done
On Earth As There’s No Fear Of Correction.
Give Us This Day Our Daily Gains,
And Bankrupt Our Competitors
As You Taught Lehman and Bear Their Lessons.
And Bring Us Not Under Indictment.
For Thine Is The Treasury,
The House And The Senate
Forever and Ever.

I didn't write this and don't know who did, but it is priceless. Lloyd Blankfein is the Chairman of Goldman Sachs, one of the primary beneficiaries of the gov't bailouts (they were substantial counter-parties with AIG on billions of $ of contracts - the bailout of AIG was effectively a bailout of Goldman as well).


Tuesday, November 3, 2009

A Little Perspective on All that Glitters

I've never been a big fan of gold as an investment for a number of reasons. I think it is mostly due to having heard the gold bugs cry wolf for too many years. Even a broken clock is right twice a day, but the gold bugs never seemed to be right and they probably aren't right now either.

This brings us to the current state of affairs with gold at ~$1,060 per Troy ounce and daily headlines screaming about hyper-inflation in the US and gold going to $2,000 per Troy ounce. So I take all of this in and think "Gee, maybe I'm missing something here - maybe I should jump on the wagon with my clients' money while gold is still a bargain at $1,060. Hmmm...am I missing anything?"

Should I go down to my friendly neighborhood gold dealer and buy as many gold bars as I can? Maybe I should bury them in the back yard - it won't rot or tarnish - I can always dig them up later and trade them for a loaf of bread or a gun, right?

Maybe - but if it comes to that, gold won't be worth much either - and the gun owner would probably rather keep his/her gun. I would - you can feed yourself with a gun - you can't eat gold.

Should I recommend to my clients that we move a "modest amount" of their portfolios - say a conservative 5% - into gold? And if I do, what is the best way to do so? There is an Exchange-Traded Fund (symbol: GLD) that says it actually buys gold and stores it. Maybe I should just jump into gold mining stocks or mutual funds?


I've always been a fan of outcomes that are summarized with the phrase: "cooler heads prevailed". Does that mean I miss out on some of the excitement? Undoubtedly my cocktail chatter will be pretty ho-hum. Does that mean I might miss out on some capital gains? Of course I might. But I might also miss out on some capital losses. And if I get in now, what is my signal to get out? $1,500 a Troy ounce? $800 a Troy ounce? A family member bought gold bars back in the 1980's at around $800 a Troy ounce. Many years later I happened to meet the broker and he admitted to me that he "had to eat too" and that he had no regrets about having made that sale.

So I digest all of this conflicting information and I come to the conclusion that 1) boring cocktail chatter beats cocktail sob stories every day (reference: SEC vs. Madoff) , 2) I will never have regret in not buying something, and 3) I will be able to look in the mirror in the morning and know that I made the best decision with the information at hand.

I think there is a bubble in gold and at some point it is going to pop.

Please read the attached article/interview from SeekingAlpha.com for some very insightful perspective on gold.


Questions? kimm@sweetwaterinv.com