Thursday, June 11, 2009

Where my retirement fund is invested now

About 3 weeks ago, I decided to bring my retirement fund out of mothballs (read: cash). Since then, I've done rather well, making about $4,000. However, I fully expect to make MUCH more, based on my own read of the economy.

For the foreseeable future, I expect to see the economy flounder between weakness and inflation. As soon as the economy starts to improve, expect inflation to crank up, effectively squashing economic recovery. Then the weakening economy will cut back on the inflation. Wash, rinse, repeat.

Add in massive unfunded government spending (i.e. funded by "Geithner and Bernanke's Magic Printer"), and you can just multiply those effects (higher inflation and deeper economic recessions).

Here is where my money is now (in order of dollars invested):
1. Vanguard Precious Metals & Mining Fund (VGPMX): This is my "gold" play, and also the largest source of profit for my portfolio so far (accounting for $2,400 of my profit).

Even if you assume a "Paul Krugman"-esque view of the economy (i.e. all the money coming out of the government is only staving off deflation, and will not necessarily cause large amounts of inflation), there are two other factors to consider. All the money being printed will kill the dollar on the currency exchanges, thereby increasing the price of all imported commodities, of which most precious metals are included. Also, there are 2 billion people in China and India, where the cultures value hording commodities like gold and silver.

2. Exxon Mobil Corp. (XOM): If you think the price of oil is going up, and I do, then Exxon is the gold standard of blue chip stocks in the oil sector. If the economy turns around, the price of oil will shoot up like a rocket. Even if the economy doesn't turn around, the currency exchange factor affecting precious metals (see #1 above) still applies.

3. Ford Motor Co. (F): I actually didn't have that much invested in Ford, but it has had a nice little run since I started.

My Ford investment is a classic play where you look at how politics will affect business. Specifically, I am looking at the "cash for clunkers" bill rolling through Congress. That bill will most help those auto companies which make good small cars. Right now, Honda (see #8 below) makes the best small cars (i.e. the Fit and the Civic). By later this year/early next year, Ford will join this list with the new Fiesta (based on early reviews of the car).

In addition, the problems with GM and Chrysler have left Ford looking downright solid by comparison. GM is DOA, and Chrysler is hoping they can sell Fiats in America, which is an intriguingly shortsighted strategy since Fiat couldn't sell them the last time they were here.

4. Eni SpA (E): According to the profile, Eni "is engaged in the oil and gas, electricity generation, petrochemicals, oilfield services and engineering industries". Eni, an Italian company, is my Euro/oil play. Also, with a current price/earnings ratio (P/E) of 5.3, this is a highly undervalued company in the oil sector.

5. Wal-Mart Stores Inc. (WMT): This is my "Warren Buffet" play. As Buffet says, invest in what you know. I know Wal-Mart, because that is where I shop, almost religiously. Wal-Mart gives a solid dividend, and can only profit from a down economy.

6. Petroleo Brasileiro SA (PBR): Another oil play, this time in Brazil. By the way, google "PBR +Tupi". Of all the oil companies, Petroleo Brasileiro has the best prospect for growth in the next five years, thanks to the Tupi oil they discovered.

7. CNOOC Ltd (CEO): A Chinese oil company. P/E ratio of 9.8. 'Nuff said.

8. Honda Motor Co Ltd (HMC): A combo Warren Buffet/"cash for clunkers" play (see Wal-Mart at #5 above and Ford at #2 above). Ever since I bought my wife a Fit, I have been a Honda fan.

9. WisdomTree Dreyfus Brazilian Real Fund (BZF): Did you know Brazil has one of the highest average money market rates, approximately 9%? Did you also know Brazil's central bank JUST lowered their prime interest rate to 9.25% (compared to the Federal Reserve's 0.25% rate)? Did you know that currencies in countries with plentiful natural resources AND tight central banks have done best against the declining U.S. dollar?

So I get to earn 9% interest, AND enjoy improving currency exchange rates on that money? Cha-ching!


William R. Barker said...

Good for you, Ed! The only suggestion I'd offer is consider direct currency speculation as well.


EdMcGon said...

Bill, I have considered it. I'm actually thinking about liquidating some of my oil holdings in order to add more currency speculation.