Week 16 Portfolio Update

I can’t believe how weak the gold stocks have been.  While the price of gold has held up reasonably well, the stocks got pummelled yet again this week.  Gold stocks seem to be reacting to each tick up or down in the price of gold as if their business was operating on the slimmest of margins.  Yet nothing could be further from the truth.  The gold producers are pulling in record margins, and should report record cash flow for the third quarter.

With that in mind I “leveraged up” on the gold stocks this week, buying a position in Barrick Gold on Friday (as it hovers around its 52 week low), adding to my position in Newmont, and re-starting a position in OceanaGold.  I’m seriously considering trading out of Jaguar and into OceanaGold for no other reason than I am so sick of having the stock sitting on my watch list.  But we will see if cooler heads prevail there.

I’ve also been listening to a number of interviews with Kyle Bass this week.  I learned about Bass recently while reading an article about Michael Lewis’s new book Boomerang.  Bass was one of the few that predicted and then bet on the subprime debacle.  Lately Bass has had some very interesting things to say about what is taking place in Europe.

I’m happy to report that his views are not much different than what I’ve been saying since the beginning of August. That means that he also thinks the EU is unlikely to be able to deal with their debt issues in a sufficient manner.

Others agree.  William Buiter, the Chief Economist of Citigroup called the EFSF a “pea shooter earlier last week”.  Then on Friday night the European Commission released a report where they suggested private bondholders will be pushed to take 50 or 60 per cent haircuts on Greece.

All of the solutions being proposed right now are instances of the same basic idea.  Layer on more new debt to pay back the old debt.  How is this going to work?  How is it going to appease the market?

Its the type of world where I am not comfortable owning much of anything, but it is one where I still have to believe that owning gold is a reasonable choice.  Simply, how is it that we can have the second largest currency in the world under continued pressure and possible collapse, and it not be good for the asset class that is the “anti-currency”.

What’s more, it may be that the world’s third largest reserve currency is much closer to its own demise than anyone gives credit for.

Again, to the talented Mr. Bass (I just learned how to embed videos from CNBC so I’m all over that right now).

We might be on the verge of a far larger shift in the global reserve currency system than anyone imagines right now.

So I added a bit of Barrick at its 52 week low.  I don’t want to get crazy or anything.