Plainly the U.S. dollar, which continues to acts like a drunk trying to stand up, has sensed the upcoming economic raison d’etre is one of printing more dollars and attempting to inflate our way out of said predicament. Likewise gold, as well as other tangibles, have “risen” to the occasion.
Indeed, despite all of the talk about the strength in technology stocks, the strongest sectors last week were Energy (+2.53%) and Materials (+2.19%). For more than five years we have opined that EVERY portfolio should have at least a 3% weighting in precious metals, or a mutual fund that plays to precious metals. Despite that mantra, the preponderance of accounts continue to shun gold, which has risen more than 200% over that timeframe (or twice the rate of the DJIA), yet still should be bought on any subsequent decline (see the attendant chart).
Our current precious metals mutual fund of choice is the smaller, more nimble, OCM Gold Fund [OCMGX/$22.54], managed by our friend Greg Orrell, which is up 17.5% year-to-date and up more than 24% on an annualized return basis over the last five years.
In conclusion, we agree with the prescient Richard Russell, of Dow Theory letters fame, who noted in his Friday missive:I had a long conversation last night with a very knowledgeable old-timer, a man who has been around Wall Street for decades. We talked about what phenomena might arrive that could propel the Dow and many of the leading big stocks into spaceville. We agreed that there exists a ‘secret ingredient.’ That secret ingredient could be the newly formed (and rapidly expanding) sovereign wealth funds. These are the funds set up by various nations to invest outside their usual hoards of currencies (these hoards being composed largely of U.S. Treasury bills, notes, and bonds).
We know that there is massive growth in the sovereign wealth funds, the total of which is heading towards the staggering sum of $17 trillion (that's seventeen trillion dollars!). The major object of these funds will be to diversify out of fiat paper into items of tangible value. Is a large, well-situated corporation an item of tangible value? We both agreed that it is.
We therefore believe that a major goal of the sovereign wealth funds will be to buy into and ultimately even take over many of the world's leading corporations. This whole area is one that has received surprisingly little attention. Yet, its significance is truly momentous. It all has to do with the fragility of the whole system of fiat currencies. And, the recognition that inflation or even hyper-inflation may be the wave of the future.
To review – a major trend of the future will be the move to diversify out of fiat currencies and to move into items of tangible value. Along those lines, a corporation like Proctor and Gamble (NYSE:PG) may easily fit the bill. Entities like Proctor and Gamble or General Electric (NYSE:GE) will be considered tangible values. Think about it – and the implications of that statement.
Chart courtesy of Thechartstore.com.