Growth & Income

Contrarian Investment Strategies

As it has been covered in America’s Financial Reckoning Day, structural imbalances, economic distortions, fiscal bankruptcy and global tensions is making it very problematic for investors to chart a safe course for the next several months to come. Growth and income is certainly possible in the near-term but investors need to be extremely cautious with their personal decisions to invest in the following sectors mentioned in this section. There are several reasons to believe that our economy is entering into some dangerous territory with threats of an institutional downgrade of U.S. Treasury long-term debt and other serious matters that we are collectively facing as a nation. To be a genuine “contrarian,” investors need to be alert and willing to restructure their investment portfolios with a watchful eye on world events. In this section, we have included several stock and fund symbols for your convenience which you can research from the home page of this website. It is incumbent that investors do their own research and due diligence regarding the suggestions on this menu, and the following disclaimer at the bottom of this page is made on behalf of all representatives from IDP Consulting Group, LLC.*

Concerning growth and income, Money Magazine publishes their annual “Money 70” of best growth and income funds based on 1-5 year earnings, fee and expense ratios with overall experience and 4-5 star ratings. The following symbols were from the Money Magazine 2011 list as follows: Large Cap (FGRIX, VWELX, PRWCX, PRGIX, AMCPX, JENSX, TRBCX); Medium Cap (FPPFX, MERDX, POAGX); Small Cap (RYVPX, WAAEX, NAESX); and Emerging Markets (NEWFX, PRMSX, VEIEX, PRIDX). A couple of ETFs worth mentioning might be the Powershares Riverfront Tactical Growth & Income (PCA) and Tactical Balanced Growth & Income (PAO). Some U.S. funds that focus on China’s dynamic growth are Global Investors China Region (USCOX), T. Rowe Price New Asia (PRASX), China Fund (CHN), Fidelity China Fund (FHKCX), Templeton China Fund (TCWAX), Matthews China Fund (MCHFX) and an ETF of 100 Chinese companies, Powershares Golden Dragon (PGJ). On the NYSE, smart money is invested in the world’s 2nd largest oil company with a market cap of $303 billion, PetroChina located at the market symbol (PTR); additionally, CNOOC Oil (CEO), China Petroleum (SNP), and China Mobile (CHL) that serves a huge cell phone network and New Oriental Education (EDU), founded in 1993 to teach English courses. After the collapse of stocks in 2001 related to the “dot.com bubble” and 9/11, commodity prices have continued to post significant gains across the board. The Rogers Raw Material Index has gained 289% from 1998 and the CRB Index is up 83% from 2009. These 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. Good commodity funds include the Ivy Global Natural Resource Fund (IGNAX), U.S. Global Investors (PSPFX) and large-cap funds like Prudential Jennison Natural Resources (PNRZX) and the T. Rowe Price New Era Fund (PRNEX).

Energy stocks and funds are a very good consideration as world energy consumption increases and crude oil and natural gas production is experiencing a bell-shaped curve. 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 all investors. The world is literally addicted to oil and products produced by the petrochemical industry. This includes lubricating oils, grease, paints, lacquers, polishes, printing ink, candles, paraffin, asphalt, roofing, synthetic rubber, plastics and so on. Some energy funds you might consider are the Profunds UltraSector Oil & Gas (ENPIX), BlackRock All-Cap (BACSX), Rydex Energy (RYEIX), Fidelity Select Energy (FSENX) and Guinness Atkinson Global Energy (GAGEX). Popular ETFs (Exchanged Traded Funds) are iShares Energy (IYE), PowerShares Energy (DBE), Energy Select Sector (XLE) and United States Gasoline (UGA) that tracks fuel costs at the pump. Companies that yield nice dividends are San Juan Basin (HGT), Hogoton Royalty Trust (HGT) and Canadian firms Penn West Petroleum (PWE), Enerplus Corp. (ERF) and Canadian Oil Sands (COSWF.PK). The leading oil majors based on market cap are ExxonMobile (XOM), ChevronTexaco (CVX), BP Amoco-Arco (BP), Royal Dutch-Shell (RDSA.L), ConocoPhillips (COP), Occidental Petroleum (OXY), Apache Oil (APA), Devon Energy (DVN), Sunoco (SUN, Apache Oil (APA), and Teco Energy (TE). On world markets, Russia has now edged out Saudi Arabia (Aramco) as the world’s largest oil producer. These over-the-counter (OTC) stocks include Lukoil (LUKOY.PK) which has soared since 1998 and Gazprom Neft (GZPFY.PK).

Although mining stocks and funds can be volatile the overall trend remains strong in this important sector. Mining shares can often trail precious metals indexes simply because they are traded as equities on world markets. When it comes to picking winners in this sector 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. Some other good firms include Gold Corp (GG), Gold Fields (GFI), IAM Gold (IAG), Harmony Gold (HMY), Agnacio Eagle (AEM), Randgold (GOLD) and ASA, Ltd. (ASA), Freeport McMoran (FCX), Royal Gold (RGLD), Hecla Mining (HL) in Coeur d’Alene, Idaho along with Coeur d’Alene (CDE), partially acquired by China. Canadian firms to consider are Central Fund of Canada (CEF), Silver Wheaton (SLW), Pan American Silver (PAAS), Silver Standard (SSRI) and Endeavor Silver Corp (EXK). Another firm to consider is Joy Global (JOYG) that provides equipment to the mining sector. Mexico has the richest ore body and produces 12% of the world’s silver. Mexico’s Fresnillo Mine operated by Industrial Penoles produces 80 million ounces per year and should be extremely profitable in the months and years to come (PENOLES.MX).
 

Precious metal mutual funds represent several firms in the industry. Some of the funds to look at are American Century Global Gold (BGEIX), Fidelity Select Gold (FSAGX), Vanguard Precious Metals (VGPMX), Gabelli Gold (GOLDX), USAA Gold (USAGX), Tocqueville Gold (TGLDX), Invesco Gold (FGLDX), Rydex Precious Metals (RYPMX), First Eagle Sogen Gold Fund (SGGDX), ProFunds Precious Metals (PMPIX), Franklin Gold Fund (FKRCX) and the five-star Permanent Portfolio (PRPFX). Currently, there are no pure silver mutual funds but plenty of silver and gold ETFs since 2005; like iShares Silver Trust (SLV), iShares Gold Trust (IAU), SPDR Gold Shares (GLD), Physical Silver Shares (SIVR) and the Physical Swiss Gold Shares (SGOL). Eric Sprott, Senior Portfolio Manager for Sprott Asset Management in Canada has introduced the Sprott Physical Silver Trust (PSLV) and the Sprott Physical Gold Trust (PHYS) that are very worthy of consideration. A final and strategic consideration is the “rare earth” mining sector dominated by China. According to James Dine, rare earth metals “could spike 400%” in the near future and you can obtain his report The Coming Rare Earth Boom at www.dinesletter.com. Canadian firms include Avalon Rare Metals (AVL), Rare Element Resources (REE), Quest Rare (QSURF.PK) and Great Western Minerals Group (GWG.V) and Lynas Corp (LYSCF.PK) in Australia. In late 2010, a rare earth ETF has now been launched by Market Vectors Rare Earth Metals (REMX).

In the previous edition of America’s Financial Reckoning Day (2007), investors were strongly warned to short the equity markets that topped in October of 2007 and finally bottomed in March of 2009 (a full 54% decline). This warning included GM along with Fannie Mae and Freddie Mac and many others. All equity (stock) funds carry risk along with considerable fee and expense ratios, but they can also be very rewarding. As a defensive strategy, it is a good idea to diversify a portion of your portfolio into inverse index funds, also known as short funds or bear funds. These 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% or more. In the previous edition of America’s Financial Reckoning Day, readers were advised to diversify into the Grizzly Short (GRZZX), Federated Prudent Bear (BEARX) and the UltraBear Profund (URPIX) and all three funds had gains of 73%, 63% and 65% respectively while all U.S. investors lost corresponding amounts. The same was true for funds like RYVTX (87%), RYIDX (54%) and RVARX (40%). Today, you can weight a portion of your portfolio in funds that short the Dow index 100% and 200% like (DOG, DXD), the S&P 500 (SH, SDS), and the NASDAQ-100 (DOG, DXD).

Concluding, the intermediate and long-term U.S. Treasury bond complex is going to be risky for bondholders. The bond market is suffering from a “flat yield curve” and this does not bode well for any government-engineered economic recovery. As Barron’s Financial Guide notes, “The existence of flat yield curve generally indicates a high level of economic uncertainty and low levels of confidence.” Adding to this uncertainty is the stunning announcement made on April 18, 2011 by Standard & Poor’s to downgrade U.S. debt to a “negative” outlook. This “shot over the bow” might very well be an early tipping point that could eventually lead to a sovereign debt default for the first time in U.S. history. For contrarian investors it is advisable to avoid all municipal bonds and government savings bonds (Series EE and Series 1). Investing in bond mutual funds can provide income but investors need to monitor the bond market and be prepared to move into safer asset classes. These are some of the best funds ranked by market cap, Vanguard Total Bond (BND), Dodge & Cox Income (DODIX), American Funds High Income (AHITX), and Harbor Bond Fund (HABDX). A good way to hedge the U.S. bond market is the American Century International Bond (BEGBX) and T. Rowe Price International Bond (RPIBX) with YTD yields of 6.7%. Another consideration is Treasury Inflation Protected Securities (TIPS) that are linked to the Consumer Price Index (CPI), but even these can suffer negative real returns since the CPI is currently 2.7% and this index excludes rising food and energy inflation (TIP, VIPSX, ACTIX, FINPX). Finally, to short the U.S. bond market you can select Powershares Short 20-Year Treasury (TBF) and Rydex Inverse Government Long Bond Strategy (RYJUX).

In this section on growth and income we have tried to offer a brief overview of various strategies from a contrarian point of view. It is essential that you invest with a firm that shares a contrarian worldview along with traditional American values, and one such firm is Barnett Financial Services located in Lewistown, Montana (clearing trades through Raymond James Financial Services). Gary D. Barnett is a fee-based manager that caters to a discriminating and discerning client base who understand the challenging times that we are living in, and he is also a regular contributor to www.lewrockwell.com – a premier libertarian website. You can contact his office at 1-800-841-0084 (MST).

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*Investing involves substantial risk. None of the following 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 we cannot guarantee or warrant its reliability and investors are required to do their own research and due diligence, including carefully reviewing the prospectus and other public filings of issuing firms. The advice and strategies contained herein may not be suitable for every situation. 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 further counsel. We specifically disclaim all warranties, including without limitation warranties of fitness for a particular purpose and we shall not be held liable for any losses or damages arising from the following suggestions, recommendations or statements contained herein based on Section 27a of the Securities Act of 1933 and Section 21b of the Securities Exchange Act of 1934.