Tuesday, April 27, 2010

Sleeping At Night Is Superior To Yield

All my adult life I've secretly, and sometimes openly, sneered at goldbugs. The world wasn't going to end and gold didn't yield anything. There were better places to put my money. I put gold accumulation in the same camp as bombshelters and canned rations. Fools thought that way and ended up without any net worth.

While those people were fools, I'm aging and my world has definitely changed. The aging part may have made me more cautious, but I still prefer yield and growth to precious metal safety. The changed world part continues to scare me towards gold. Government deficits and debts worldwide are past out of control and, worst of all, we are now beginning to understand the situation. The potential resolution of governmental malfeasance is frightening.

Our world isn't going to end, but we're facing a decade of sovereign defaults and devaluation of currencies. I can't envision that helping the equity markets and it has to be a killer to the bond markets. Broad market index funds aren't going to perform well, most diversified mutual funds will underperform, and balanced funds won't be the conservative place to park money due to their bond and stock components both being out of favor. Picking the right sectors or individual companies will continue to be profitable, but, as always, that is extremely hard to accomplish. Hence, the need for metals.

A recent GAO report says that by 2020, 93 percent of U.S. Government receipts will be committed to entitlement programs and interest on the national debt. Ninety-three percent! Virtually no money left for the military, education, etc. Certainly no bailout funds available. I'm not talking about Portugal, I'm talking USA! And Obama's not done. Our future is uncertain at best and maintaining wealth, let alone earning some, is going to be difficult. I only hope it plays out slowly, not rapidly, like the subprime/banking meltdown of 2008. Another European banking/sovereign collapse would take stock and bond markets much lower.

Last year I weakened and bought some gold ETFs, but sold at a gain since i still hadn't had my conversion. This year I am convinced that there is a place for gold in all portfolios. The ETFs have become a part of mine as has a Vanguard mutual fund of miners.

A testament to my true conversion is my belief that physically possessing the metal is also appropriate. Rather than owning just a share of ore in the mountain or bars in a depository, coins in my safe deposit box now makes sense. I'm, going to need a larger size safe deposit box. maybe I'll need two larger ones in both Nebraska and Florida. I don't know where I might be when the world starts to end.

I haven't stooped to filling my downstairs with MREs yet, or buying small plots of ground where I could, at least intellectually, grow my own food, but I have become convinced that the next ten years isn't going to be like the prior decades that I've lived through and prospered in. Real change is afoot and it isn't going to be easy or pretty. I intend to continue to prosper, but I'll have to change some of my investment patterns.

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