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Why I'm Keeping My Portfolio in Maximum Defense ModeBy
Tuesday, September 8, 2009
We walked around a swamp, jumped over a fence, and then hid in the bushes next to the departure track. There was an intermodal train here. It carried container boxes and semi-truck trailers. It was two miles long and looked like it might depart at any minute.
We rushed to find a ride. We chose a flat car with a semi-truck trailer on top. Hobos call these wagons "piggy backs." We slid between the trailer's wheels and waited for the train to leave. You should always wear black clothes when you're jumping a train. My friend was wearing white sneakers. When a yard worker drove slowly along the train inspecting the brakes and the air hoses, he spotted my friend's shoes poking out from behind the truck tire. "Hey!" yelled the worker. "Get down from there!" We crawled out from under the trailer's axels and jumped off the train. Three yard workers were standing next to the train, pointing flash lights at us. Freight railroads are among the most economically sensitive businesses in America. They transport all the most important goods and commodities in the economy... like chemicals, coal, lumber, grain, new cars, oil, and chemicals. When activity increases on the rails, you know the economy is improving. When there's no hustle and bustle in the rail yards, it's a recession. We went to a yard in south Jacksonville operated by the Florida East Coast Railroad. The tracks run between Jacksonville and Miami. This railroad runs six container trains a day in each direction, and we were hoping to catch a ride. As the railroad workers escorted us out of the yard, I took the opportunity to ask them about business... "It's horrible," said one. "I can't believe how many people they've fired." "How much has business fallen?" I asked. "A lot," he answered, figuring it had dropped more than 20%. "On the TV, they say the economy is recovering. Have you at least seen some improvement?" I asked. "Nope," he said. "It's leveled out, but it's definitely not getting any better." Right now, the newspapers and the magazines are proclaiming the recession is over and the stock market is in a new bull market. But the message from the freight yards south of Jacksonville is different. Judging by how things are going there, the economy has stopped getting worse, but isn't yet recovering. Until I see some improvement in the railroad business, I'll continue to consider the rally in the stock market a bounce in a bear market. I'll keep my newsletter's portfolio in maximum defense mode. We're holding pipeline companies with 10% dividends. These companies transport, process, and store natural gas... but they don't own it. They collect fees no matter what. We've loaded up on bonds. These bonds trade on the stock market and pay 8% yields. We'll get 100% of our principal back when the bonds mature, just like a loan. We're buying insurance companies. Insurance rates are about to enter a bull market. These insurance companies are loaded with cash, so they are among the safest investments in the stock market right now, yet they have 25% a year profit potential. Finally, we'll sell covered calls. We'll earn 15% income from stock market volatility, without taking any credit risk. The workers dropped us off at the entrance to the freight yard and I apologized for the inconvenience we had caused them. "Next time don't wear white shoes," they said. Good investing, Tom
Further Reading:
The No. 1 Reason I Don't Trust This Market Market NotesWHAT MOST PEOPLE DON'T KNOW ABOUT GOLD
A Labor Day gift for gold owners: The world's best form of real money is now over $1,000 an ounce... and sits comfortably at its highest point in six months.
But here's what many gold investors don't know... Most believe gold is rising because the U.S. dollar "stinks." A nation's currency is sort of like its "stock price." If the nation mismanages its finances with excessive spending and crazy debt levels, the marketplace will send the currency lower. If a nation produces more than it consumes and runs a balanced budget, its currency tends to rise. And sure... the U.S. budget is in terrible shape. But many other countries are in the same boat. Gold isn't just rising in response to a weak dollar, it's rising against all the world's paper currencies. Rising gold is the market's way of saying, "you can't tax and spend your way to prosperity," and it will continue to go higher. 
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