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Contrarian Investment Strategies
As it has been carefully outlined in America's Financial Reckoning Day, geopolitical tensions
and America’s financial vulnerability is going to make it very
problematical for investors to chart a safe course over the next year or so. Growth and income is certainly possible in the near term,
but investors need to be extremely cautious with their personal decisions to
invest in conventional markets and some of the following sectors that will be suggested below. To
be a genuine contrarian, investors have to be willing to restructure their
investment portfolios and always keep a watchful eye on world events.
The following suggestions and recommendations include several
stock/fund symbols for your convenience
and quick reference, but you are required to do your own due diligence
in these matters. As a
regulatory disclaimer, none of these suggestions, recommendations, or
statements should be considered an offer or solicitation to buy or sell
securities. While we believe this information to be reliable and
accurate, IDP Consulting Group, LLC cannot guarantee or warrant its
reliability. Past
performance is not necessarily a guarantee of future performance, and
you are advised to seek your own professionals who are licensed in
securities and legal/tax matters.*
 
For
growth and income in global markets, the Capital World Growth and
Income (CWGIX) and
Capital Income Builder (CAIBX) funds are both available from
www.americanfunds.com, and you are advised to call Mike Meixler at
Meixler Investment Management, Ltd. at 1-866-537-4044 for additional
information. Fidelity
Investments and Charles Schwab also offer a host of trading platforms
for investing in global growth markets. Fidelity currently offers
up to 36
global markets – more than any other discount broker in the U.S. In general, most equity funds should be shorted except for a few notable blue
chips (for a complete listing you are encouraged to purchase the book America's Financial Reckoning Day).
These equity funds would include all major banks with highly leveraged
derivatives exposure and all mortgage lending stocks including Fannie
Mae and
Freddie Mac. GM, Ford and Chrysler stocks should be
avoided as indicated in America's Financial Reckoning Day (p. 305).
The commodity sector has been the most successful market in recent
years and this trend is likely to continue. The Goldman
Sachs Commodity Index is up nearly 350 points, or 233% since
2001. The
Rogers Raw Material Index has also gained 253% since 1998
(www.rogersrawmaterials.com). These various commodities include
natural
resources like lumber, cotton, copper, steel, iron, uranium, rhodium,
aluminum, platinum, gold, silver, crude oil, natural gas, and all
agricultural/livestock issues like beef, pork bellies, hogs, poultry,
soybeans, wheat, corn, coffee, sugar, fruits and vegetables. Eric
N. Roseman, president of ENR Asset Management, Inc. in Quebec, Canada,
is an authority on natural resources and hard assets and makes this
remark:
The 2000s will reward hard asset investors because several key
catalysts will propel prices much higher. These include
protracted conflicts and wars (always bullish for tangibles), rising
inflation as the Federal Reserve combats deflation and a plunging U.S.
dollar. Consumption trends are also compelling, namely from
China, where economic growth continues to double every
decade.
A well-managed commodity fund you might want to consider is the
Ivy Global Natural Resources Fund (IGNAX). This fund has a 50% YTD return (6/09) and you can learn more at www.ivyfunds.com. Energy
stocks and funds are definitely good horses to bet on as world
consumption increases and crude oil and natural gas production starts
peaking out. In 1975, the world consumed 55 million barrels of
crude oil per day. Today it is 85 million barrels per day, and
this figure will increase by 44% to 120 million barrels per day by
2020. This represents a huge increase in energy demand. Since 1980, the number of oil refineries in the U.S. has
declined from 325 to less than 150 today. The energy sector can
only become more expensive, and this represents an opportunity for
investors to ride the crest.
Energy
costs will literally be heating up in the next few years, along with political hostilities over crude
oil and the Middle East. The world is
literally addicted to oil and products produced by the petrochemical
industry. These products include lubricating oils, grease, paints,
lacquers, polishes, printing ink, candles, paraffin, asphalt, roofing,
synthetic rubber, and plastics. In recent years there has been a
renewed focus on the need for alternative fuels and bio-fuels. In
Brazil, at least 50% of the vehicles run on E85, which is a mixture of
15% gasoline and 85% sugar-based ethanol. Ethanol is basically
grain alcohol and is emerging as an important bio-fuel additive. Some Canadian energy funds that are worth considering are
Prime West Energy Trust (PWI) and Enerplus Resources Fund (ERF), along
with the T. Rowe Price New Era Fund (PRNEX). The Vanguard Energy
Fund (VGENX) has been clipping along with 23% annual yields for
investors.
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Another sector that is likely to do well is mining shares.
Although
mining stocks and funds can be extremely volatile the overall trend
should remain strong for investors with a contrarian mindset.
When
it comes to picking winners in this sector, however, it is necessary to
understand the difference between “hedged” and “unhedged” mining
production. When a mining firm is hedged, it means that they have
hedged their loss potential by locking in the price for future delivery
of metals. When they are unhedged, it means that they will sell
metals at the prevailing market price.
For this reason it is
better to select unhedged industry giants like Barrick (ABX), Newmont
(NEM), and AngloGold Ashanti, Ltd. (AU) for more profitability.
These mining firms represent 35% of the industry market cap through
aggressive management and acquisitions. In late 2006, Barrick
acquired Placer Dome and Pioneer Metals and has now replace Newmont as the
world’s largest mining firm with unhedged reserves. In
November 2006, Gold Corp (GG) swooped in and bought up Glamis Gold
(GLG) for $8.6 billion and now trails Gold Fields (GFI) as the 5th
largest firm. Gold Corp and IAM Gold (IAG) are both known as
“holder” companies, meaning that they hold some of their annual
physical production to hedge against paper markets – an excellent
strategy. The Aden Forecast ranks all of these firms as top picks
along with Gold Star Resources (GSS).
Mutual funds represent several precious metals firms. Some of the
better no-load funds (ranked by size) include American Century Global
Gold (BGEIX), Fidelity Select Gold (FSAGX), Vanguard Precious Metals
(VGPMX), Gabelli Gold (GOLDX), ASAA Gold (USAGX), Tocqueville Gold
(TGLDX), US Global World Precious Metals (UNWPX), Invesco Gold (FGLDX),
Central Fund of Canada (CEF), Rydex Precious Metals (RYPMX), and US
Global Gold (USERX). Additional top-rated gold funds are First
Eagle Sogen Gold Fund (SGGDX), Precious Metals UltraSector Profund
(PMPIX), Franklin Gold Fund (FKRCX), Evergreen Precious Metals (EKWAX),
Scudder Gold Fund (SGDCX) and DWS Gold & Precious Metals
(SGDAX). Unfortunately, there are no silver mutual funds, but for
a pure silver play you can invest in a silver exchange-traded fund
which has the trading ease of a common stock. The iShares Silver
Trust (SLV) was approved by the SEC on March 21, 2006, and each share
represents 10 ounces of pure silver
As
a defensive strategy, it is also a good idea to diversify a portion of your
portfolio into inverse index funds, also known as short funds or bear
funds. These unique mutual funds use a shorting strategy to move
inversely of equity fund indexes. In other words, if stocks go
down 33% like they did on Black Monday 1987, your position moves up
33%. The leader in this industry is Rydex with the Inverse
Dynamic Dow (RYIDX) which moves inverse of the DJIA. The Inverse
Dynamic OTC (RYVTX) shorts the NASDAQ 100 index, and there is also the
Inverse S&P 500 index fund (RYARX). Profunds also short the
blue chips with the Bear ProFund (BRPIX), along with the Short OTC
ProFund (SOPIX), and the UltraBear Profund (URPIX). A couple of
no-load funds are the Leuthold Grizzly Short (GRZZX) and the Prudent
Bear fund (BEARX).
Regarding the bond market, the
U.S. bond market is going to become increasingly more dangerous for
bondholders and should generally be avoided. The Fed has no
choice but to continue monetizing debt and this credit expansion is
causing a negative or "inverted" yield curve in the bond market.
This is a condition where short-term interest rates are higher than
long-term rates. As Barron’s Financial Guide notes, “The
existence of an inverted yield curve can be a sign of an unhealthy
economy, marked by high inflation and low levels of
confidence.” We can and should anticipate that America’s financial
reckoning day will largely be a wholesale default on U.S. securities as
foreigners dump these assets and U.S. currency reserves. As
Robert Prechter writes, the U.S. is eventually going to lose its
ability to honor its debt:
Any bond issued by a
borrower who cannot pay goes to zero in a depression. In the
Great Depression, bonds of many companies, municipalities and foreign
governments were crushed. They became wallpaper as their issuers
went bankrupt and defaulted.
In the 1930s, all bonds including AAA bonds suffered, but they did make
a comeback because the U.S. dollar was still linked to gold.
Today, the U.S. is extremely vulnerable to enormous calamity because we
have a fiat currency that is not backed by gold or any other guarantee
- except the guaranty to tax the U.S. citizens to pay interest.
All
U.S. government savings bonds (series EE and HH) should be
rejected. All bondholders will be paid out in increasingly
worthless dollars, and the only sane strategy is to hedge the U.S. bond
market all together if you wish to invest in bonds. But keep in
mind that even foreign government bonds will become vulnerable, so you
should keep a short horizon and be prepared to move quickly into safer
asset classes or currencies.
Global bond funds ranked by total
assets include American Funds Capital World (CWBFX), T. Rowe Price
International Bond (RPIBX), PIMCO Foreign Bond (PFODX), American
Century International Bond (BEGBX), Loomis Sayles Global Bond (LSGLX),
Payden Global Fixed-Income (PYGSX), and Managers Global Bond
(MGGBX). Most of these funds are no-load. Short-term
investors might also consider Treasury Inflation Protected Securities
(TIPS), but even these will suffer negative real returns after taxes
(www.treasurydirect.gov). The five funds that specialize in TIPS
are the Fidelity Inflation Protected Securities Fund (FINPX), Vanguard
Inflation Protected Securities Fund (VIPSX), PIMCO Real Return (PRTNX),
TIAA-CREF Institutional Linked Bond Fund (TCILX), and American Century
Inflation Protected Bond Fund (ACTIX).
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*IDP is not a registered investment advisor or a broker / dealer. All opinions expressed by IDP are not a solicitation to buy, sell, or hold securities. IDP does not guarantee the accurateness and completeness of statements made regarding stocks discussed on this web site and in emails. Investors should not rely on the information given by IDP to make investment decisions. Rather, investors should use the information only as a starting point to do additional independent research so that the investor is able to make his or her own investment decision. This web site contains "forward looking statements" within the meaning of Section 27A of the Securities Act of1933 and Section 21B of the Securities Exchange Act of1934. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, goals, assumptions or future events or performance are not statements of historical fact and may be "forward looking statements." Forward looking statements are based on expectations, estimates and projections at the time the statements are made that involve a number of risks and uncertainties which could cause actual results or events to differ materially from those presently anticipated. Forward looking statements in this action may be identified through the use of words such as "expects", "will," "anticipates," "estimates," "believes," or statements indicating certain act ions "may," "could," or "might" occur.
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