A Portfolio Update: Replacing Gold with Energy 9 comments
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Click here to view the spreadsheet containing all disclosures for my complete equity portfolio, including initial entry points, YTD returns, total returns, etc.
- Enlightened-American Portfolio: +2.1% YTD (including dividends)
- DJIA: -19.5%
- Nasdaq: -12.6%
- S&P 500: -18.6%
- DJ WIlshire 5000: -17.8%
- Russell 2000 (smallcap): -22.1%
Again this month, my posted portfolio shows higher returns than my actual portfolio. My real-money portfolio was down -1%, due to different weightings in the actual positions than the equal-weight formula I use for the public spreadsheet.
Despite the discrepancy, I am pleased with the performance thus far. Until the first few days of March, my natural resource-oriented holdings were sitting well above their November lows, even as the rest of the market dived toward new bear-market lows. Some of the other holdings haven’t fared as well but overall, I can’t complain. However, that’s not an invitation to get comfortable in this bear and I have been active in recent days, more on the sell than buy side.
Portfolio moves this past month:
- Sold Northgate Minerals (NXG) — As I mentioned last month, I was looking to reduce some exposure to the gold sector. The gold run to $1,000 seemed like an opportune time to take some chips off the table. Gold’s subsequent failure to move solidly into four-figure territory suggests the precious metal will need another catalyst to take it into the next leg up. From a company standpoint, I was nervous with the timing between the Kemess end life and the start-up of Young-Davidson. The lack of dividends or ability to overwrite calls sealed the deal for me.
- Again, I’ve redacted some new positions. I reiterate my pledge not to discuss these securities or the underlying companies on this blog. Generally speaking, while I believe the mad rush into corporate bonds may be somewhat premature, I have poked a toe into a few positions. The junk bond spreads are at record levels on both a relative level (vs. Treasuries) and an absolute level (12%+ interest rates are very high for businesses).
The financial media has been filled with lots of talk about whether stocks are cheap at these levels. I’ve even heard some pundits say stocks are cheaper than they were previously, which is the same as saying absolutely nothing at all.
Despite Alan Greenspan’s protestations otherwise, certain obvious economic conditions and bubbles can be predicted and diagnosed as they happen. Warren Buffett, in his recent annual letter, calls a bubble in the long-term Treasury market. I’m not sure if I share his conviction but 3% over 10 years does seem a paltry return. But he joins Bill Gross and Marc Faber among others who have called bubble in the Treasuries in recent weeks. Understand that at that poker table, you are the fish (or in this case, Treasury buyers).
A few items on which I do have some conviction:
During the so-called bubble in commodities, very little new capacity (as in resources in the ground) were brought to market. From Exxon Mobil (XOM) to Freeport McMoran (FCX), most of these companies repeated the same mantra: Large natural resource deposits are impossible to find.
So we have a bubble that produced little new supply and now a bust that is drastically reducing capacity. Some pundits have been pointed to the gushing storage tanks at Cushing but that is to mistake temporary storage for long-term supply. The gaping spread between WTI and Brent crude made this clear. Today’s surprise inventory draw has erased the WTI/Brent spread. The natural gas market should follow within the year or 2010 at the latest.
A few months ago, I stated the gold sector seemed attractive. Now, energy companies with the ability to bunker down strike me as absolute long-term bargains at these levels.
It’s impossible to predict when the economy will recover but it seems clear the patient is on artificial life support. Despite all the pundits denigrating the Obama administration’s efforts on stimulus and budgeting, government intervention is the only thing propping up this jig. The economy falls through the floor if the government pulls out. It happened to Roosevelt in the Great Depression and history seems to have rhymed an awful lot in the past year or so.
I will post the third part of my “Blogging the Bears” series (a book review of Russell Napier’s Anatomy of the Bear — see part 1 and part 2) tomorrow. Given the current economic dislocation, it seems probable today’s situation will be looked upon as a comparably severe market dislocation, which means cheap stocks can get cheaper. But knowing what’s coming doesn’t mean we can predict the timing and times like these are when fortunes are made.
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This article has 9 comments:
why should the shine come off gold. Treasuries and USD can be created in unlimited quantities out of thin air without being backed by anything.
Those attributes render them, in my opinion, simply forms of counterfeit money, or "garbage assets".
Gold does not have the attributes that justify it's being placed in that same category.
In Feb., the spread narrowed to the $5 area and remained about the same until with WTI around $44, Iran supposedly came out with a statement that no cut would be proposed during the March meeting which tanked WTI to the one day tune of 10% or so. But the dive was shortlived and the spread narrowed. It has been narrowing with each gyration.
Meanwhile, no one in Opec has confirmed the Iranian assertion.
Lets see how USO's rebalancing act affects prices. .
They used to come in and replace the expiring contracts in one day, they will now do so over a 4 day span.
Personally, I include a cple of bucks onto Brent's price to reflect shipping charges. Either way, the Supply/Demand situation seems to have stabilized.
It won't be long before demand exceeds supply, IMO
IMHO
We may be in a deflation now, but do you really think after all the trillions being dumped in the economy, Congress will have the gumption to quickly reduce spending? And the Fed will take interest from zero to ten percent in three months? Inflation is inevitable; is the third party to death and taxes. How much, and when, and for how long, my Ouji board isn't that good.
On a different note COP is in bad shape financially and may be a merger victim. They had more layoffs two days ago. Just thought I would pass that along as well.
Thanks for the comment. SeekingAlpha changed my admittedly boring original title to what's shown above. It is not my position to exchange gold positions for energy positions. I sold NXG but still have big positions in other gold stocks. My point is simply energy looks cheap here relative to gold (and most everything else). The time to buy the gold sector was a few months ago. I guess gold could go higher but it's highly volatile so you'll probably get better entry points with a little patience. Or you could miss the train if some macro-altering event occurs to boost gold so that's a risk.
So I agree with Barking -- gold and oil. The US$ has been strong but the strength seems ill-conceived. Do investors want to stay in this nightmare forever? If not, what happens to the US$ once the economy regains its footing? It seems to me that the best-case scenario for dollar bulls is the Roosevelt 32-37 situation where government life-support props up the economy but no true growth or recovery is actually occurring thus spurring investors to cling to the flight to so-called safety trade.