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Continue to read Linda P. Jones's insights on her blogs at http://www.ShowMeWealth.com and http://www.LiveWealthyandSmart.com.

Gold Takes a Well-Deserved Rest

Did you see famous hedge fund manager John Paulson (the one who made $2.7 billion shorting subprime mortgages) is trying to have another awesome trade with gold?  He is mostly concerned about our depreciating currency, so much so he is investing $250 million of his own money to start a hedge fund backed by gold. (The last time he launched a hedge fund for a specific purpose was to short subprime).  A paltry $10 million minimum is all that's required.  I nabbed his Report to Shareholders and posted it on my twitter site for those who would like to see what he has to say (http://www.twitter.com/lindapjones, "profile").

His hedge funds currently own $4.3 billion solely in gold related investments-gold stocks and derivatives.  His thesis, in a nutshell, is he sees the dollar continuing to depreciate which will cause gold demand to increase as a hedge, he sees more use of gold as a reserve currency (since no one can print more gold), and its tight supply is anticipated to create escalating prices.  He thinks gold stocks are undervalued compared to the bullion and his favorite stocks are AngloGold Ashanti (AU), Gold Fields (GFI), Kinross (KGC), and, of course, GDX the gold mining ETF.

My next issue of the Investment Spa will be the last under this name.  I have three new exciting websites I've been working on that I'll be sharing with you next week.  I'll continue writing this blog, but will be re-titling it "The Visionary Investor", so watch for it in your email inbox.  I can't wait to tell you all about my new focus and how I'll be expanding next year!  I think you'll be pleasantly surprised!

Disclosure:  I'm long KGC and GDX.

Short Year-End Checklist

I hope you had a good Thanksgiving!  It was a delight to be in Palm Springs with family, and enjoy turkey and all the trimmings, including my sister's fudge and Mom's date loaf dessert. No calories or waistlines were spared at our table!

I can't believe the end of 2009 is approaching already!  I've created a short end of the year checklist for you to consider...

1.  If you don't already have a fixed rate mortgage, I recommend you get out of a variable rate mortgage and lock in the low rate.  30 year fixed-rate mortgages reached a low of 4.71% recently.

2.  Consider taking capital gains this year instead of next year.  There are rumors the cap gains rate will increase from 15% next year and will be made retroactive to January 1, 2010.

3.  Lighten up on bonds.  With interest rates at one of the lowest points in 27 years, the risk of rates rising in the future means we're looking at a potential long-term bear market for bonds, particularly Treasuries.  Quite possibly the next bubble.

4.  Become familiar with inverse Exchange Traded Funds (ETF's).  These are groups of stocks that trade under a single ticker symbol.  You can purchase them on the major indexes like the Dow Jones (DOG), Standard and Poors 500 (SH), and Nasdaq 100 (PSQ).  You can make $1 profit for every $1 the index declines.  There are also leveraged ETF's which will earn you $2 profit (DXD, SDS, QID respectively) for every $1 decline in the underlying index.  Cool!  I'll be writing more about them in the future.

5.  Continue to buy gold and silver on dips!  The metals protect your purchasing power against the long-term decline of the dollar.

6.  Consider whether you should be converting your traditional IRA to a Roth (must be done by year end).  You must have maximum adjusted gross income of $100,000 or less.  Talk to your Financial Advisor or cut and paste this link into your browser:  http://www.forbes.com/forbes/2009/1214/investment-guide-10-ira-tax-heirs-irs-roth-conversion-question.html?partner=yahoo

Disclosure:  I'm long gold and silver.

For my favorite articles and an ETF Guide, check out http://www.twitter.com/lindapjones. 

A Moment of Reflection

As we get closer to Thanksgiving, like everyone, I like to reflect on the past year and all the things I'm grateful for.  Of course, good health, family and friends, and financial blessings are things we're all grateful for.  But as I think back over the last year, I have to say it's been one of spiritual growth, of stretching my boundaries, and of stepping out into a new world.  

To keep growing and learning to me is an "amazement" because we are actually changing and evolving as people.  Together.  

As the financial crisis unfolded last year and everything we knew was turned upside down, it's caused a re-examination of what's important in life.  We're moving from valuing "things" to valuing meaning and purpose.  The vulnerable feeling we had when the rug was pulled out from under us makes us reach down deeper inside ourselves for what we value and what we know to be true. It requires a greater understanding of self, and a greater self-trust.  A movement away from things that aren't important, to the essentials that are important, and how we want to live our lives.

I'm grateful to have the opportunity to have a moment in your week to chat with you about the economy or markets or stocks, but mostly to stay connected to you at this time and in this way. For as we go forward, we have many new things to learn and experience together.  To keep moving forward and growing and experiencing and changing and learning.  Together.  For that, I am truly grateful.

I wish you a happy, healthy, sacred time with your friends and family this Thanksgiving and always.

Is Gold In A Bubble?

For those of you who have been reading this blog for a while, you're familiar with my "crush" on gold and silver mining stocks.  I've been encouraging you to consider them and many of you have.  It shouldn't have surprised me, then, to have someone ask me if gold was too high now? Or, as she said, "Is gold in a bubble?"

My definition of a bubble is something that takes a long-term trend, a nice upwardly sloping curve to the right and begins to spike vertically, usually 40% to 100% in a year.  It also coincides with anecdotal evidence like people telling stories at cocktail parties about how much money they've made in the bubbled asset, along with every magazine cover telling you to buy it. None of these things has occurred yet.

Gold has been compounding at 21% a year since 2001 (and yet many still won't consider it a small part of an asset allocation strategy, but they consider allocating 30% of a portfolio to large company stocks in the Dow Jones Industrial Average, which has averaged 0% for 10 years).  Perhaps that's the best indicator that gold is not in a bubble yet!

The fact that gold is now trading at over $1,000 an ounce, highlights the fact that paper currency, in the US and elsewhere, has big problems ahead as the printing presses run uncontrolled as never before.  The more dollars are printed, the less each one is worth.

The printed money has created liquidity which is finding its way into the stock market.  When banks are only paying 1% interest and a 30 year Treasury is paying 4.4% interest, who wants to invest there when the stock market is going up?  

Though the stock market has been in an uptrend and on a tear, it advances higher with very little volume, meaning if there is a pullback there is little support of buyers underneath to step in.  The only place I feel comfortable is in gold mining stocks at the moment because I don't think they are in a bubble yet. And technical indicators show potential to $1,300 an ounce before I will start to worry.

A week ago, "Son of GDX" was launched, or what's known as ticker: GDXJ, a "Junior" gold stock mining index exchange traded fund (ETF).  It's a basket of smaller gold mining stocks that has more volatility on the upside and downside.  Maybe a consideration for a small portion of your portfolio?

Disclosure:  I own "GDX".

For more information and my favorite articles, check out http://www.twitter.com/lindapjones

A View From Las Vegas

Last week I was in Las Vegas for an internet entrepreneurs conference.  It has been years since I've been to Las Vegas and it was astounding to me how built up it is!  The developers really went to town putting up high rises and casinos. It was interesting to see that the strip was crowded and amazingly busy. Although the high-end steak houses were packed and people partied like it was 1999 (and had $100+ seafood platters being delivered to tables all around us), the jewelry and designer clothing stores were absolutely empty...people have their priorities you know! 

Back in Palm Springs I went to the outlet mall at Cabazon (doing research for the blog, of course), and found the shops packed - with foreigners!  Italian, Korean, French and other languages were heard while they were buying up the designer duds.  With the dollar so weak, foreigners can buy a lot of expensive goods for less.  Heard about the designer shoe shopping junkets from Europe to New York? 

My observation is that we need to look to the strong trends coming in the future and invest accordingly (not in the rear-view mirror). Beginning in 1982, we had inflation peak and it has been in a 26 year, long-term, declining trend (good). Interest rates have declined from 18% to near zero (looked at CD rates  recently?).  It was this long-term deflationary trend that caused the stock market/financials to boom. 

Right now the Federal Reserve is printing money and providing stimulus to re-inflate the economy (cash for clunkers and the home buyer credit, among others).  The money has filtered into the economy and provided a higher rate of growth (GDP). So right now, we are near the opposite end of the business cycle that peaked in 1982 and perhaps somewhat close to starting a new trend, eventually: rising interest rates.  

U.S. Treasuries are in a pickle because once interest rates start increasing (either as the economy recovers OR to entice more investors to buy our government bonds), since bond values move inversely to interest rates, we could see bond values decline.  A way to profit is to buy the inverse exchange traded fund (ETF) with the symbol TBT which increases as bond values decrease.  It has tracking error, meaning it does not follow it exactly, but it is a way to profit from a long-term trend of interest rates rising - eventually.

For more information and articles, check out www.twitter.com/lindapjones.

The Great Leveling

The awaited October correction is here as is the rally in the dollar.  Use this time to think about re-positioning your portfolio.  As I wrote about in my last column, international stocks, commodities, and foreign currencies are going to be paramount to have in your portfolio to benefit from a weakening dollar.  The weakening dollar is going to be the story for the next several years and I believe those who are positioned correctly will make a fortune and those who aren't will suffer.  Are you on the right side to profit?

The big picture, as I see it, is about a leveling out of global standards of living.  As Americans, our standard of living has been the highest in the world.  As the dollar loses value, our standard of living will decline and other countries' standard of living will increase.   No one likes to hear their standard of living will decline, but if you know about it you can plan for it.  I guess I would call it "The Great Leveling".  Other countries have the natural resources that we need to import and, with a weaker dollar, it's about to get a lot more expensive to import our necessities like food and oil.

There's no two ways about it, the cost of food is going up.  We're importers of our food and with the dollar's continued weakness, food and all other imports will become more expensive.  Time to make a run to Costco with one of those flatbed carts?  Pick up some water while you're at it.

As long as we're talking about food, how about agriculture stocks, fertilizer, and farm equipment?  I would consider Agrium (AGU), Potash (POT), Monsanto (MON), Caterpillar (CAT) and agriculture ETF's such as DBA, MOO, and RJA.  Since agriculture is also priced in dollars, it should increase as the dollar decreases.

Energy also rises inversely to the dollar and stocks like Exxon (XOM), China's 3rd largest oil and gas company CNOOC (CNOC) and Petroleo Brasileiro (PBR) are good bets.

International ETF's such as Brazil (EWH), China (FXI), China A shares (CAF), and Russia (RSX), as well as Africa (AFK), and Africa and the Middle East (GAF) make sense.  The BRIC countries have been espoused by the media ad nauseum so I won't go into why I like them, but I will say Africa is poised to benefit from the Chinese buying their resources and also from the price of gold increasing.

Of course, you know metals are my favorite right now and this is a good time to buy the dip before the big super run-up I see coming in gold and silver between now and the end of February.   I'm expecting a parabolic move up soon.  Great time to buy junk silver coins too.

Longer-term I think water is the new oil (PHO) and timber (to build the emerging market countries' new houses and cities) will be outstanding long term buys if you're patient.

3 Ways to Mega-Profit From a Weak Dollar

The 3 ways to mega-profit from the declining dollar are:

1) International stocks/bonds.  As the dollar declines, that translates into a positive return in currency exchange.  If the dollar declines 10% (which it has already this year), that's a positive 10% return for you.  That's not even taking into account the foreign markets' performance.  If the foreign markets you're invested in rise by, say 5%, add that to the 10% currency gain and that's a 15% total return.  It's like being leveraged, but without the leverage of debt!

2) Commodities, especially oil, silver, and gold.  Most commodities are priced in dollars, yet they are real assets with prices that are driven by supply and demand.  If their price were based only on the dollar and the dollar declined, that would mean, for example, the price of oil would decline.  But oil is a limited resource that trades on the basis of supply and demand.  Therefore, the price of oil must rise when the dollar declines because given the supply and demand stayed the same, the only thing that changed was the value of the currency.  Therefore, the price of oil must rise to compensate for the currency declining.  So the price of oil works pretty much inversely to the dollar.  It's the same with other commodities like agriculture - wheat, corn, cotton, coffee, etc. That's why we will see the price of food rise if the dollar continues to decline. If there's a bad harvest or a frost on crops, that will drive food prices even higher. For agriculture, I have two favorite ETFs, symbol MOO and RJA, the Rogers Agriculture ETF.

Silver and gold work in the same way.  If the dollar is in a downtrend, then the prices of silver and gold will increase.  That's one reason I've been persistently talking about the gold and silver mining exchange traded fund (ETF) with the symbol GDX.  It's a diversified index of gold and silver mining stocks and it's another way to leverage the dollar declining without the debt. If the cost to mine an ounce of gold costs $400 and gold is selling for $1,000 an ounce, that's a $600 profit.  If the price of gold rises to $1,200 an ounce, it still costs $400 to mine an ounce, but now the profit is $800!  So you have a way for earnings, and hence the stock price, to increase exponentially from the decline in the dollar.  

3) Foreign Currencies.  Foreign currencies generally rise inversely to the dollar. The trick with choosing a foreign currency is to invest in countries that have strong economies like Norway or Canada because they are fiscally sound and have small deficits or even surpluses. There are ETF's that you can invest in by country.  One example would be the Australian currency ETF, symbol FXA. There, you're getting the currency and the strength of the country's commodities both working in your favor.

Now, for the Daily Double question...how do you leverage the declining dollar the MOST? Combine a strong foreign economy, currency, and commodity.   How about Petrobras Brasileiro (PBR) the Brazilian oil company?  You get the bump up from the strength of the economy of the country, currency and from oil.  Or Australian gold stocks?  Again, you get the bump up from the country, currency, and from gold.  Pretty cool, huh?  

Now do you get why the hedge funds are loaded up with gold and silver mining stocks and foreign oil?

Disclosure:  I'm long FXA, GDX, and gold and silver mining stocks.

For my favorite articles and investing ideas, check out Twitter.com/LindaPJones.

Buy Real Assets on Dips

Gold has moved to an all time high...have you bought mining stocks yet?  I urged you to buy them by September 1st, remember?  Don't let gold's "all time high" discourage you from buying it on dips. If you adjust for inflation, gold really wouldn't be at its all time high until it reaches over $2,000 an ounce, so its not as expensive as some report. Remember, owning gold is NOT about inflation, but the failing of the dollar as a paper or "fiat" currency. All fiat currencies have failed when the printing presses run too much and devalue them.

Last week the Gulf Arab states, along with China, Russia, Japan, and France met to put an end to dollar-based trading in oil.  This week, Russia and China are discussing about 30 contracts in infrastructure, energy (China is the world's second-biggest energy user), mining, transportation, and telecoms - all with the replacement of the US dollar.  They plan (with some weak denials) to replace it with a basket of currencies and gold, hence the recent spike in gold and slump in the dollar.  This is extremely bullish for gold and, in my opinion, we could see $1,200 to $1,500 an ounce by February or March and $5,000 by 2015.  The mining stocks should gain even more than the bullion percentage-wise.

I'm still expecting the crowded trade of shorting the dollar to reverse, albeit temporarily, so I wouldn't be surprised to see the dollar spike up before resuming its downtrend.  However, longer term the dollar looks like it's going to be allowed to decline into oblivion since our deficits are exploding.  Listen to what hedge fund manager John Paulson (you know, the one who made $1 billion in a year shorting the housing bubble) said about the dollar at a recent conference:  “I lost faith in the dollar as a reserve currency for my assets…What I'm looking at is not where gold is going to be tomorrow, one week from now, one month from now, three months from now. What I'm looking at is where gold is going to be vis-à-vis the dollar one year from now, three years from now, five years from now. And I think with a high probability at each one of those points, gold will be higher than it is relative to the dollar today. That probability increases the further out you go. So when I looked at what the risk is, the risk to me is far more staying in dollars than it is in gold at this point."

Other important asset classes to add on dips include commodities and international stocks/ETF's.  If the dollar is shunned by foreigners and loses its world reserve status, which I believe is just a matter of time, the price of the dollar will reflect this.  Although it appears the price of gold is rising, what's really happening is the value of the dollar is falling in relation to gold.  Gold is maintaining its purchasing power and the dollar is losing its.  On any temporary dollar strength, it's time to move more of your portfolio out of US dollars.  The Yale Endowment is roughly only 13% in US stocks.  The growth rates, demographics, and fiscal responsibility are stronger in foreign emerging market countries.  Buy REAL ASSETS: gold and silver mining stocks, commodities, and international stocks/ETF's on dips for potential long-term appreciation and iron clad protection of your purchasing power.

Market Ready for a Correction

After the spectacular gains off the March lows, the market is looking like it wants to take a break.  The "short dollar" trade is very overcrowded and perhaps wants to reverse for a bit. The "long stock market" and "short dollar" trade has been a favorite of the hedge funds.  It's interesting to note in Goldman Sach's latest poll of hedge funds that the #1 position was gold!  No surprise to you, of course.  

A dollar rally would send the market down and could also send gold lower, although with China (and India) buying gold any time it trades below $1,000 an ounce it's been called the "China Put". I think any dips in the metals are a gift.  If we have dips in gold or silver in October, I suggest adding more to your portfolio.  The seasonal time for precious metals is right around the corner in November, and of course with a long-term trend of a weaker dollar (for several more years) due to money printing and reduced foreign demand for our bonds, precious metals have further upside to come, in my opinion.  

The stimulus money is finding it's way into the market and has moved markets higher, but what happens next year when the stimulus stops?  The stimulus has helped inflate some deflationary trends, but prices are still coming down in retail and rents, two areas of extreme weakness.    

I've lightened up on stocks and purchased the double short Nasdaq ETF, QID, and look forward to possibly shorting the Dow, S & P, and Russell 2000 later this week, in anticipation of a move up in the dollar and decline in the market. 

Disclosure:  Long QID

I "tweet" my favorite articles to www.twitter.com/lindapjones and add additional video content to my blog at www.TheInvestmentSpa.blogspot.com. Check it out!