LOF: Well, I’ve had a gold position for 20 years in gold coins, and then in the last three years I’ve been adding to that through ETFs.
DAVID: What percentage of your portfolio, more or less, would you say is now in gold?
LOF: It’s probably 3% or 4%, but it probably should be higher.
DAVID: Moving along, it’s safe to assume you’re pretty well off financially. What did you think of Buffett’s call that the government should be taxing the rich more?
LOF: I have what you may find an interesting point of view on that. I do think that inequality is a bad thing, and it is something that causes political unrest. Being a dedicated Republican, as much as I dislike this administration, I would have to believe that if there were a Republican administration in place and we had this kind of an economy, you could easily see a lot more political unrest in the street than you do right now.
Now ask yourself what Buffett and people at that level of wealth are afraid of… I can tell you they are not afraid of much – if you have whatever he has, 50 billion dollars, you’re pretty well set. The real fear people like that have is social unrest, and so maybe what he’s doing is trying to appease the masses by virtue of saying he should be taxed more, even though that’s not going to make any kind of a dent in his net worth.
So it’s an appeasement thing, and I understand why he’s doing it, but I don’t think it works. I don’t think it appeases anyone, and I don’t think it does anything to redress the inequality problem that’s out there. That’s a very, very great fear that people with money have, of social unrest on the home front.
DAVID: Do you anticipate your taxes going up, a little or a lot?
LOF: I think you have to assume that over time they will go up a lot. Whether or not that happens in a short time frame or a long time frame, I think the political pressures ensure it. If 50% of the people don’t pay any taxes and they’re voters, then that has to be the direction we are heading. As much as I don’t think that will be good for the economy, and I certainly don’t think that it will be good for me, I think it’s pretty hard to resist the reality.
DAVID: Other than gold, what else are you investing in these days? Are you heavy in cash?
LOF: Yes, I’m more heavy in cash than I ever was. I still have an allocation to municipal bonds where I keep the duration relatively low. I have an allocation to common stocks of companies providing consumer staples, the Procter & Gambles and the Kimberly Clarks and the Johnson & Johnsons of the world. Companies that are in better financial shape probably than the US government and that pay dividends of 3% or so.
I have an allocation to hedge funds run by very smart people who can do things and think things out in ways that surpass my level of confidence in doing it myself.
I have an allocation to convertible bonds, convertible bonds of companies where you keep the duration short, and you believe that they’ll still have a pulse a few years down the road, so you’re going to at least get your interest on the bond if you’re wrong and if the stocks don’t perform.
As I mentioned, I’ve got an allocation in gold and in TIPS. And I also believe in having money in private equity. I do believe if you want to take risk, put some money with a manager who is putting his money to work side by side with yours, watching for opportune situations, taking advantage of the dislocations that exist, and doesn’t have a liquidity issue where investors have the ability to pull their money out whenever they get nervous. I think that is a very sound place to have an allocation to.
DAVID: To give us some sense of how concerned you are about things at this point, what percentage of your portfolio is in cash?
LOF: About 10%.
DAVID: That’s all, so you haven’t completely run to cover?
LOF: I consider my municipal portfolio, which is pretty short term and is maybe another 15% or so, and my convertible portfolio and my portfolio of consumer staples as all being things that constitute my safety net. If you add all those together, it’s probably close to 40% to 50% of my portfolio, So, yes, it’s not all cash, but it’s, you know, at least in the categories that I feel comfortable with.
DAVID: Wrapping up, looking over, let’s say, the next five years, on a scale from 1-10 with 1 being everything is going to be okay and 10 being something closer to Doug Casey’s view that “people will be grubbing for roots and berries,” where would you put yourself?
LOF: The next five years: 1 is hunky dory and 10 is Doug?
DAVID: Yes.
LOF: I guess I’d be a 6. I mean, I think that we’re not going to be fighting in the streets and having to use our gold and silver coins to eat, but I do think the economy is going to be extremely sluggish – very, very sluggish. I think we’re going to have high unemployment and there’s going to be more unrest, but I think we’ll slog through it.
DAVID: As you contemplate the future, is there anything in particular that keeps you up at night?
LOF: I don’t stay up at night and worry about the economy. I do think that for most people that have been fortunate enough to live to an older age, the biggest concern they’ll face is about their children and grandchildren. The older folks will struggle through it because when you get into your sixties and seventies, you don’t need that much, and you can adjust, and you can compensate one way or another.
But when you’re young and you’ve got a family, it’s much harder to adjust, and I think those are the people that I worry about, and that’s what I think other people are going to be worrying about, too. They’re going to have their kids moving back in with them and not having any kind of self-esteem, and they’re going to be worried about their grandchildren. That’s really where the issues are, not people losing sleep over their own ability to survive.
DAVID: A wise observation. On that note, thank you very much for agreeing to this interview.
[Insightful interviews and analyses are part and parcel of The Casey Report. Big-picture perspectives combined with actionable advice on contrarian investments give you a deeper understanding of global trends and help you protect your wealth in times of crisis. Take The Casey Report for a test drive today: for just a few days, you can get a full year of invaluable information for just $98… a savings of 72%, with three-month money-back guarantee.]
