Candidate of Doom and Gloom By By JIM MCTAGUE
| SATURDAY, AUGUST 20, 2011
Note to voters: Congressman and presidential candidate
Ron Paul's multi-million investment portfolio is a big bet
against the U.S. economy.
Say this for him: Ron Paul puts his money where his mouth
is. Over the past 16 years, the dollar-doom-and-gloom prophet
has invested heavily in gold-mining stocks. It's his hedge
against what the Texas Republican congressman and perennial
presidential candidate calls "The Great Inflation,"
which he has long preached is inevitable, given the profligacy
of the federal government and the easy monetary policies
of the Federal Reserve. Fortunately for Ron Paul and his
army of gold-bug disciples, the "stopped clock"
investment strategy finally seems to be paying off. Gold
and gold futures prices have been hitting record highs.
Gold-mining stocks, where Paul has the bulk of his money,
have also hit pay dirt, albeit rising at a slower pace.
Gold is up about 28% this year, through Thursday, to $1,823.80
a troy ounce, and 106.8% since 2009. In the same periods,
the NYSE ARCA Gold Miners Index is down 2.9% and up 78.6%.
The S&P 500 is down 9.3% and up 26.3%.
In his most recent financial disclosure, which covers the
year 2010, Paul had $1.6 million to $3.5 million in gold-
mining stocks. He also has a stake in three bear-market
funds—and has for many years.
In
all, Ron Paul's portfolio amounts to a super bearish bet
against the U.S. economy. If the country had defaulted on
its debt earlier this month, he likely would have made a
bundle. The congressman voted against House Speaker John
Boehner's plan to lift the nation's $14.3 trillion spending
cap.
TO OUR SURPRISE, Paul's financial disclosures reveal no
holdings of physical gold, gold coins, or gold equivalents
like certain exchange-traded gold funds, which is confounding,
given his strident advocacy of the metal as an insurance
policy against the almost-certain debasement of the currency
by politicians and central bankers. So we dug around a little.
In his financial-disclosure form for the years 1994 through
2002, Paul reported holding "semi-numismatic"
coins worth between $100,001 and $250,000. But from 2003
onward, they were never mentioned again.
Rachel Mills, the congressman's press spokesperson, said
Paul, who generally is garrulous on the topic of hard money,
did not wish to comment. According to the 2010 guidelines
by the House committee on Official Conduct, "Personal
property, if held for investment or the production of income,
must be disclosed if it meets the reporting thresholds.
Collectibles can include, but are not limited to, works
of art, vintage automobiles, stamps, jewelry, precious metals,
rare coins, and books."
Based on his congressional financial disclosures going
back to 1994, Paul is a buy-and-hold investor who seldom
cashes in his winning picks. He's owned shares of Agnico
Eagle Mines (ticker: AEM), Barrick Gold (ABX) and Goldcorp
(GG) since at least 1994. And he made additions to his gold-mining
portfolio in 2003, the year the U.S. invaded Iraq, adding
a dozen new mining stocks to his portfolio, while selling
shares of Barrick Gold and his entire stake in Freeport-McMoRan
Copper & Gold (FCX), which he had owned since at least
1994. He unloaded $27,440 worth of Pan American Silver warrants,
purchased in January 2003, as the stock market was tanking
in February 2008. In 2010, he sold $50,000 to $100,000 worth
of his Goldcorp shares with hardly any gains.
Paul, who vows that as president he would abolish the Federal
Reserve, also owns stakes valued at $1,001 to $15,000 apiece
in three contrarian mutual funds: Federated Prudent Bear
(BEARX); Rydex Dynamic Nasdaq-100 2X (RYVYX), an inverse
bet on the Nasdaq; and Rydex Inverse S&P 500 Strategy
(RYURX), which bets against the S&P 500. And he owns
$1,001 to $15,000 worth of Dundee Corp. (DC-A.Canada), a
Toronto-based investment management firm heavily into minerals.
Paul's investment strategy is a financial planner's nightmare.
Most pros say that gold-mining stocks should be a small
part of a diverse portfolio because the shares tend to outperform
in bull markets but underperform in bear markets. Mining
stocks, for example, were among the most dismal performers
in 2008.
David Christensen, CEO of ASA Gold and Precious Metals
(ASA), a closed-end fund, told us that mining shares have
historically been more volatile than hard gold. If bullion
went up 10%, for example, you'd see a 20% gain or more in
gold-mining stocks, he said. But lately that has changed.
"In the last six to nine months, gold-mining shares
have not exhibited that amount of leverage," said Christensen.
He thinks exchange-traded funds trading in gold, which are
a more efficient way for investors to own bullion, have
drawn off some investment dollars from gold-mining shares.
Paul has been predicting disastrous inflation since President
Richard Milhous Nixon took the U.S. off the gold standard
in 1971. According to his scenario, inflation will be so
severe that people will abandon the dollar and insist on
hard money like gold for payment.
A 2010 blog post expands on the idea. Massive inflation,
he wrote, "guts the savings and earnings of the people,
who have very limited options for protecting themselves
against these ravages. One option is to convert their fiat
currency into something out of reach of central banks and
government spending, such as gold or silver."
But if he's wrong, bullion prices likely will pull back
as the born-again gold bugs rush to take profits. Gold-mining
shares would pull back even more if history is any guide,
taking a lot of the glitter of Ron Paul's gains.