Tuesday, September 28, 2004

My friend Victor Bremson offers the following investment advice today.

September 28, 2004

Investment Strategy for the new Millennium� (This is not political even if it sounds like it.)

Everyone trying to retire is looking for places to invest their money. Many of us would like to be socially responsible but it is becoming very hard. I was discussing this with my friend Mark today and he gave me some valuable insight that I would like to share.

It begins with the assumption that we are really running out of oil. Mark posits that this maybe the great secret behind the secretive Cheney energy task force. Most energy scientists believe this to be true. (do a Google search "running out of oil" for more background on this.) Americans will not take this message easily. They love their big cars and free energy spending. And before you ask why wouldn't the President try and prepare us for this--- remember that he and his family are real tight with big oil people. Consider the possibility that the Iraqi war isn�t really about terrorism or weapons of mass destruction or even getting rid of a lousy dictator. (If so what about Iran and most of the third world.) Consider the possibility that the Iraqi war is about ensuring that Americans protect their oil reserves in the Middle East. That would include Kuwait and Saudi Arabia by the way.

Add to this mix our huge deficit which in turn will lead to tremendous shortfalls in social security and other social programs. Read how easily it would be to ensure that trust fund lasts for a long time if the trust fund money is used to pay benefits and not deficits.

I believe this speaks to the following core to an investment portfolio:

  1. Oil stocks including new oil technologies for extracting oil shale.
  2. Defense contractors.
This of course will probably lead to stag-flation which is a combination of low job growth and low real incomes with high inflation. This suggests:
  1. Avoid bonds of any kind until interest rates substantially increase. You will see a major erosion in your principle value.
  2. Try to keep bond maturity dates to one year or less in the short term.
  3. Obtain the highest possible mortgage at the lowest possible fixed rate. Right now they are available at no-cost 5 5/8% 30 years. The idea here is to pay off this mortgage with lower valued dollars after inflation takes over. The more serious the inflation the bigger the bonus.
  4. Consider buying some real estate but stay leveraged.

Now this could lead to less free spending on the part of consumers. During the depression things like movies and beauty salons did very well. People needed some fun and comfort even when things got financially tough. And by the way there are many stories of people who actually enjoyed the depression. People didn't have to work so hard and had more time to get to know their community. But here are some depression ideas to add.

  1. Internet/cable companies
  2. Video games manufacturers
  3. Movie related
You might want to consider some socially responsible funds to help you with your conscience. I am looking for instance for a fund that invests in alternative energy sources. But I will only put a small amount of my retirement portfolio into it.

Victor