Why buy Gold when you can own Oil? Reply

This is not an advice piece.  I like to think out loud through my blog.  Any investments you might undertake should be consulted with your financial advisor.

With that said, I cannot understand why people would put money into gold when they can buy oil at a huge discount.  As I type this, WTI oil is pricing at $80.91 per barrel.  We haven’t seen this level since Feb. of 2009. That was the midst of the biggest financial crisis our generation has seen.  Guess what, since then our economy has improved.  I know it may not feel like it, but it has.  Matter of fact, usage is up since January where oil was trading well over $100 per barrel.  It is a fact that most oil production companies and countries cannot make a profit selling oil below $80 per barrel, so it is in their best interest to keep the prices at these levels.  Believe me when I tell you that they have the power to do so.  The only exception to this rule is Saudi Arabia.  They can make money all the way down to $70 per barrel.

I don’t want to confuse this situation too much.  The real comparison is to gold.  Gold traded up to about $2k per ounce and has since traded back down to the $1,600 level.  That is a potential of 20% upside from here and will really only materialize if the dollar falls off a cliff with that of the Euro.  Remember though, that is the only real catalyst for gold… hell breaking loose.  As for oil, there are many factors that can contribute to it going back over $100 per barrel which is a 25% gain.  U.S. growth, improved employment numbers, a resolution of the “Euro crisis,” any strife in the middle East, or the upcoming trade embargo with Iran can shoot prices back up.  I don’t know about you, but I’m thinking if I have to pay $4.00 at the pump I would rather have at least made some money on its climb in prices.

July 1st is the deadline for the Iran situation.  Any lack of complete agreement with them will result in a trade embargo which will significantly decrease the world’s supply of oil.  I honestly hope that things don’t deteriorate, but it is a catalyst that can raise prices. If someone would like an idea of how to play it, one could buy the ETFs USO or UCO.  UCO is trading at $25.63.  It is a leveraged ETF and should return to $40 per share if oil trades back up to the $100 range giving you a 56% increase if you hold it that long.  USO is trading at $30.49 and was trading at $40 plus when oil was in the $100 range.  That would give you an approximate of 33% should oil trade back up to $100 levels.    The beauty of all this is that there is a pretty damn good chance that oil will return to $100 per barrel at some point.  I wouldn’t bet against it!

Again, so that no one tries to sue me, this is not an advice piece.  You should consult your advisor before making any decisions based on this information.

Newt’s Super PAC “uncoordinated” Reply

There are several different kinds of PAC’s (political action committee).  You have your connected PAC, un-connected PAC, Super PAC, and Leadership PAC’s.  They all boil down to one thing: raising and then throwing money at a particular issue or political campaign.  For the purposes of this article, I will focus on the campaign type of PAC.  In theory they are an avenue for people of like mind to support their favorite runner in a campaign.  The thought behind this is that it is a form of free speech.  “By donating my money to this Super PAC that supports (insert potential candidate here) I am voicing my support for him or her.”  Leadership PAC’s are very similar but they allow for spending on “non campaign costs” and the party or elected official can start this up themselves.  They can spend said money on traveling, paying administration staff, and setting up the party for which they fundraise.  So, a presidential runner might have a leadership pack to pay for everything not directly related to campaigning and a Super PAC that pays for all advertising.  The major difference is that they are not supposed to coordinate with their Super PAC.

Lets examine the idea of “coordination.” The Webster’s dictionary defines “coordination” as 1. the act of coordinating, 2. the harmonious functioning of parts for effective results.  So to put it in political terms.  A politician is not allowed to speak with his Super PAC to achieve a common goal of ultimately winning an election.  Let’s take that a step further.  Would showing up to a Super PAC fundraiser be coordination?  As the law is defined, it is.  Also, have you ever heard the end of a political commercial where they say something along the lines of, “PAID FOR BY WINNING OUR FUTURE, WHICH IS RESPONSIBLE FOR THE CONTENTS OF THIS MESSAGE, NOT AUTHORIZED BY ANY CANDIDATE OR CANDIDATE’S COMMITTEE. WWW.WINNINGOURFUTURE.COM.” This is at the end of a commercial attacking Mitt Romney for his Bain Capitol involvement.  The committee is supporting Newt Gingrich by attacking Romney.  It is their “free speech.”  It is run by Becky Burkett and Ricky Tyler. Tyler is his former Press Secretary and Becky Burkett was his Chief Development officer for his 527 called American Solutions for Winning our Future. 527’s aren’t allowed to expressly campaign for one candidate or against another.  Weird how their names are virtually identical.  In the above picture you will see Newt with his staff.  Two feet behind him is Ricky Tyler, but they are NOT coordinating.  That would be absolutely wrong, not to say illegal.  I would never imply that Newt’s staff includes a manager of his Super PAC.  I could be held liable for slander so I will not imply that he would do such a thing.  I’m sure that Tyler just happened to walk into Newt’s staff office accidentally.  While there, he didn’t speak to Newt about where his campaign was going or what messages he was trying to get across.  They certainly didn’t discuss that they should put out more commercials attacking Mitt Romney about Bain Capitol.  Again, that would be illegal and unethical.

What am I getting at here?  Super PAC’s are simply an avenue to dump unlimited amounts of money on a campaign.  There is no way of proving coordination unless we tap their phones.  Is Newt any worse than the other candidates?  No, he is playing the game in front of him.  It’s time to change the game.  The only free speech is that coming from the candidates.  The only difference is that they can get untapped donations to voice their political agenda.  You might say, so what… It’s free speech.  Is it really?  Understand that campaign donors are being rewarded for their donations.  As these donations get bigger, so do the favors they expect in return.  Just look at what donations of $2500 to $5000 are getting donors: http://thelobbyisteffect.com/2012/02/28/earmarks-are-a-microcosm-of-how-government-works/   Casino owner Sheldon Adelson has donated untold millions towards Gingrich’s election bid.  Does anyone really think he wants nothing in return? It goes the same for all the Presidential candidates.  Our government is for sale and the price is only getting bigger.  Money is NOT speech.