The
Investment Classes That Will Most Benefit From Obama’s Second Term
http://albertpeia.com/investmentsosecond.htm
‘During the its first term, the
Obama Administration thus far has proven itself in favor of increased
Government control and Central Planning. That is, the general trend throughout
the last four years has been towards greater nationalization of industries
(first finance, then automakers and now healthcare and insurance), as well as
greater reliance on our Central Bank to maintain our finances.
Now that Obama’s won a second
term, there is no indication that this trend will end. We must recall that
regardless of what is said, it was Obama who re-appointed Ben Bernanke as Fed
Chairman. And it was under Obama’s watch that QE lite, QE 2, Operation Twist 2,
and now QE 3 were launched. It was also under Obama’s watch that the US reached
a Debt to GDP ratio of over 100%.
Indeed, at no point in history
has the US had this much debt during peacetime. And the fact that we’re overspending
by this amount at the exact time that other countries are showing signs of
shunning US Treasuries is a formula for disaster.
With that in mind, it is highly
likely that the US will enter at the very minimum a debt crisis and quite
possibly a currency crisis during Obama’s second term. In preparation for this,
investors will want to focus on the following investment themes:
1)
Inflation hedges based on continued spending and money printing.
2)
Gold and Silver as an alternate currency based on the US Dollar falling
further.
3)
Productive assets (foreign real estate, apartments in specific markets,
businesses, essentially anything that produces cash).
4)
Preparing for an eventual US Debt Default.
Regarding #1, there are several
areas to consider. They are:
1)
Precious metals (bullion)
2)
Natural resources, particularly timber
3)
(last and least) Blue chip businesses or companies with pricing power
that can maintain profits during periods of inflation
As far as precious metals go,
you need to:
1)
Own Bullion
2)
Store it yourself (not in a bank)
I do not recommend owning a
paper gold-based ETF because frankly the custodial risk is high (that is,
there’s no telling if the Gold is even there or who would get it if
the ETF is liquidated).
In comparison, physical bullion,
stored outside a bank, is literally money in hand. You know where it is and you
can find out what it’s worth. Compare that to a Gold ETF in which you’re hoping
that the bank actually has the Gold and that it could actually
send it to you if you requested (fat chance).
In terms of actual gold coins,
there are three coins that comprise the bulk of the bullion market. They are
Kruggerands, Canadian Maple Leafs, and American Gold Eagles. I’ve been told to
avoid Maple Leafs by both a trader and a bullion dealer as they can easily be
scratched which damages the gold and reduces the coin’s value.
In terms of silver, the easiest
way to get it is via pre-1965 coins (often termed “junk” silver). You can also
get silver one-ounce rounds (coin-like medallions) and 10-ounce bars. Or you
can buy Silver Eagles coins.
I cannot tell you which dealer
to go with, but look for someone who’s been dealing for years (not a
newbie). You should always ask for references from the dealer (former
clients you can talk to about their purchases/ experiences).
Some warning signs to avoid are
dealers who try to store your bullion. Never, I repeat,
never store your bullion with someone else. Always store it yourself. Also, be
sure to talk to the dealer for some time and ask him or her numerous questions
about the industry, the coins, etc. (feel free to test him or her on the
information I’ve provided you with e.g. the three most liquid Gold coins,
etc.). If they can answer everything you ask in a knowledgeable fashion, their
references check out, and you verify everything they say with a 3rd
party, you should be OK.
In terms of other natural
resources, the best assets to own are the actual resources themselves. However,
not everyone can go out and buy timberland or a lead mine. So this means
looking at various commodity and natural resource ETFs.
As far as stocks go, I suggest
looking at large cap blue chips stocks that are able to pass on rising costs to
consumers (at least in part). I’m talking about well-defined brands that offer
goods and services which consumers are willing to pay more for as prices rise
due to increase operational costs and commodity prices.
This inevitably leads to
defensive non-cyclical industries: tobacco, beverages, medicine, energy, etc.
In the large-cap space, the following are worth consideration.
|
Company |
Symbol |
Industry |
Price to Cash Flow |
Dividend Yield |
|
Kraft Foods |
KRFT |
Food |
10 |
N/A |
|
Nestle |
NSRGY |
Food |
15 |
2.6% |
|
Coke |
KO |
Beverage |
17 |
2.6% |
|
McDonalds |
MCD |
Fast Food |
13 |
2.9% |
|
Exxon Mobil |
XOM |
Oil |
8 |
2.2% |
|
Clorox |
CLX |
Cleaning Supplies |
16 |
3.2% |
|
Colgate-Palmolive |
CL |
Oral Health |
18 |
2.2% |
Smaller companies I would
consider if you need to remain long in the stock market are:
|
Company |
Symbol |
Industry |
Price to Cash Flow |
Dividend Yield |
|
Smith and Wesson |
SWHC |
Guns |
10 |
N/A |
|
Sturm, Ruger & Company |
RGR |
Guns |
14 |
2.3% |
|
WD 40 |
WDFC |
Lubricant |
22 |
2.2% |
|
Hormel |
HRL |
Spam |
17 |
1.9% |
I want to stress that even
though these companies all have considerable pricing power, during an
inflationary collapse all companies will be hit as costs rise. This is
why stocks are listed as the last inflation hedges from our list at
the beginning of this issue: they do not offer the same protection against
inflation as bullion, and natural resources assets/ companies do.
I am not recommending any of
these companies here. But if you need to have exposure to stocks to the long
side, these are some of the companies I would consider. As always be sure to do
your own diligence before investing in anything
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Best Regards,
Graham Summers