Is It Time to Buy Socialism Insurance Now That Federal Debt Exceeds GDP?

On April 8 2013 when the gold index fund, the GLD, was at 153, I got out of much of my gold, and I wrote that gold might hit $1,200. The GLD is currently at 127, and gold has already dipped below $1,200.  My guess is that there is still some downside in the gold market, though.  The reason is that the effects of the monetary creation since late 2008 through this year have had stimulative effects on the stock market.  The monetary stimulus of Reagan-Bush-Clinton years had a depressing effect on commodity prices,  which is part of why inflation was not as extreme as it might have been. The Bernanke-Obama monetary creation since 2009 will have larger effects than I initially thought, although I did start buying stocks around Thanksgiving of '09.

One of the characteristics of markets is that they tend to bottom with an overreaction, and we haven't seen capitulation in gold.  The decline has been orderly.  I am therefore still somewhat bearish in gold, although buying gold now will make sense in the long term.   Gold is socialism insurance, and we need socialism insurance now more than ever.  The monetary expansion keeps interest rates low, so gold exploration--along with other natural resource exploration--becomes more competitive, pushing down gold and gold stocks. Lower interest rates lead to more exploration, which leads to lower commodity prices, which lead to lower short-term inflation. Ultimately, inflationary expectations will escalate.

Writing in Seeking Alpha, Kirk Lindstrom points out that federal indebtedness, $17.7 trillion, now exceeds the US GDP, $17.3 trillion, a sign of socialist excess.  Lindstrom posts a revealing chart: Gold has gone steadily down since November '12 while the stock market has gone steadily up since April '11.

The gold market is complicated by additional factors.  The Chinese and other central banks have been buying gold in spite of Wall Street, Warren Buffett, their wholly owned media and academia's persistent hostility toward gold.   Second, the Obama monetary expansion occurred on top of a significant contraction and rising gold price.  Therefore, the deflationary and the inflationary processes are intermingled.  Third, the dollar is heavily subsidized by the world's central banks, so inflation may not come gradually; rather, there is a risk of a sharp monetary correction or collapse.  The third consideration makes owning gold more important than it was in the 1970s--even in a flat or declining market.

I am still waiting for capitulation in the gold market.  My stock investments have been OK, but I made the error of focusing on low-risk (low-beta) stocks that didn't appreciate to the same degree as tech stocks. VNR, Vanguard Natural Resources, is one of my holdings, and it's had a few short-term setbacks, but I'm holding onto it. It yields over 8%, and until the recent setbacks everyone believed the management to be fine, and most still do.  At the same time, there has been good news about Kinder Morgan, which I also own, and the MLP went up almost 30%.  I was also holding Heniz when Buffett bought it.  I had been holding CBI, Chicago Bridge and Iron, but I pulled out when it fell by about 20% on rumors.  I am going to buy it back soon. (It's since fallen another 20%.)  I also bought Kellogg (K) recently. It had fallen on poor Special K sales.  I am holding Philip Morris, Pepsi, and Kimberly Clark, which all had nice price appreciation over the past few years.  I like the MLPs because they pay rich dividends.  I also am making long-term investments in Dollar General, Traveler's Insurance, and Dominion Resources (D).  D is priced high for a utility, but they also hold a considerable amount of energy pipelines, which makes them similar to a midstream MLP.  Critics of D say that the dividend coverage is poor.  Also, I am making an exception to my pe-below-15x earnings rule. At the same time, the company is poised for more rapid growth than other utilities when natural gas prices rise.  The down side to investing in lower-risk companies with low price-earnings ratios is that they don't jump in a hot market like last year's.  However, I am holding Intel, Apple, and Microsoft, which have been doing well this year.  I also bought CSX, the railroad.  The railroads have been a play on energy, and I believe that they still have a way to go.  My stocks have been weak in the past few weeks, but so has everything else.  I have to learn not to listen to Warren Buffett's friend, Mr. Market.  

I am waiting for the gold market to fall. Maybe I'm on a fool's errand, but I don't believe that either the stock market run up or the gold market run down is over.

Mineoloa Mothers Support Rob Astorino's Stop Common Core Ballot Line

  

Rob Astorino put together a Stop the Common Core ballot line. They got 62,000 signature to introduce it. Because mothers around New York State are outraged about the common core standards, which Cuomo adopted to appease the Democratic Party and Bill Gates, the additional line should effectively supplement the Republican Party line.  Astorino is a great candidate.

Astorino for Governor

I have decided to support the Astorino campaign. I have it on good advice that Rob is a man of integrity. He has been campaigning against the corruption in the Cuomo administration.  Running against Andrew Cuomo is like shooting fish in a barrel.  There are so many issues. Rob is electable because he is successful at reaching out to Democrats, and he can improve things from the low level to which New York State has sunk.

Oprah Winfrey's 2012 Campaign Donations

Oprah Winfrey is a Democrat par excellence.  She was number 184 on Forbes's list of the richest Americans in 2012.  Rich Democrats get to support candidates who help them financially, but they can also go around telling people that they put others first.   We can thank Oprah for making us all a little poorer, yet at the same time we can admire her conscience with sincere gratitude. She is a saint.

Obama Victory Fund                 35,800

Obama Victory Fund                 40,000

DNC Servcies Corp.                 30,800

Obama Barack                            5,000

Colorado Dem. Party                  3,181

Ohio Dem Party                        10,000

Dem. Exec. Comm. Florida       6,818

Dem. Party Va.                           4,090

Dem. Party WI                           5454

Iowas Democratic Party             4545

Nevada State Dem. Party           4545

New Hampshire Dem. Party      1363