Trumpocalypse: Not Now

I’ve been getting emails lately from readers who fear an imminent investment apocalypse at the hands of President Trump. These anxious letters should be read to the strains of “The End”  by The Doors:

“I’m worried about Donald Trump’s affect on the financial markets. Will his reckless behavior trigger a market meltdown? Should I hedge my portfolio?” — Jane B.

Jane, whether you think Trump is a menace or a savior, you should stick to your long-term investment goals. History has shown that the markets are resilient and profitable, regardless of who sits in the Oval Office.

That said, the bull market is more than seven years old and stocks as a whole are overvalued. With many credible analysts now calling for a correction, the time is ripe to add downside protection.

Below, I pinpoint four gold investments suitable for these uncertain times. But first, let’s look at a defensive hedge that’s synonymous with Donald Trump: real estate.

Hail to the Landlord-in-Chief…

America’s president-elect also doubles as Manhattan’s best-known real estate mogul. Over the years, Trump has made money (and avoided taxes) by investing in real estate investment trusts (REITs). You can emulate Trump’s real estate success, by purchasing shares of the right REITs.

REITs invest in real estate through property or mortgages and trade on major exchanges just like a stock. They provide investors with an extremely liquid stake in real estate, confer special tax advantages, and offer high dividend yields. REITs are required by law to maintain dividend payout ratios of at least 90%, making them a favorite for income-seeking investors.

Many “super investors” have bought REITs or used them to raise capital. Warren Buffett, the Oracle of Omaha, last December took an 8% stake worth $70.5 million in Seritage Growth Properties (NYSE: SRG), a REIT spun off from Sears Holdings (NYSE: SHLD). Before he ran for president, Trump procured loans from a little-known REIT called Ladder Capital (NYSE: LADR).

Over the past month, the broader markets have rallied but major REITs have declined. The Federal Reserve’s coming interest rate hike seemingly makes REITs less attractive from a risk basis, when compared to interest-pegged income alternatives.

However, the quality REITs highlighted below should provide robust income and long-term capital appreciation, despite any modest uptick in rates. Rising rates also mean that the economy is improving, which translates into better demand for rental property. And since their recent declines, our recommended REITs are bargains to boot.

1) Realty Income (NYSE: O)

This REIT holds over 4,540 properties owned under long-term lease agreements with regional and national retail chains and other commercial enterprises.

Realty Income leases to about 240 commercial tenants, 79% of which are retailers. Over the last five and 10 years, Realty Income’s dividend growth has averaged 5%-6% and it’s on a path to become an S&P Dividend Aristocrat by the beginning of 2020. Dividend yield: 4.43%.

Jim Pearce, chief investment strategist of our flagship publication Personal Finance, added Realty Income to the PF Income Portfolio on October 23, 2013. Since then, the REIT has generated a hefty total return of 52.7%.

2) Washington Real Estate Investment Trust (NYSE: WRE)

Since its founding in 1960, WRE has operated in the Washington, DC metropolitan area. WRE holds about 50 properties, totaling 7.2 million square feet of commercial space and over 3,260 residential units, and land held for development.

By focusing on premium properties in one of the most affluent areas in the country, WRE has been able to sustain a robust payout while funding organic growth through prudent acquisitions. Dividend yield: 3.88%.

3) Public Storage (NYSE: PSA)

PSA owns those ubiquitous, bright orange self-storage warehouses. This REIT has an ownership interest in 2,280 U.S.-based self-storage facilities and 220 European storage facilities.

As the number of Americans selling their homes and storing their belongings skyrockets, Public Storage is the best way to leverage this trend. Dividend yield: 3.82%.

Four golden plays…

Gold is humankind’s classic hedge, whether against inflation, a stock market correction, devaluation, or social upheaval. The Midas Metal now trades at about $1,168 per ounce; Goldman Sachs (NYSE: GS) forecasts that the yellow metal will reach $1,280 an ounce by year-end, for a gain of nearly 10%.

Here are four ways to play gold’s rise, in descending order of risk:

  • If you’re an aggressive investor, consider junior gold miner Pershing Gold (NASDAQ: PGLC). Insider buying has picked up at Pershing over the past couple of weeks, an auspicious sign. With a market cap of $93 million, Nevada-based Pershing announced on December 1 that it had entered into a non-binding term sheet with Sprott Resource Lending for $20 million in financing.

Pershing also announced on December 2 that it had raised $7.5 million in a public offering. The company’s principal growth driver is the Relief Canyon Mine in Pershing County, Nevada, where it operates low-cost but highly productive mining facilities.

  • You can mitigate some of the risk of individual junior mining stocks by purchasing the VanEck Vectors Junior Gold Miners ETF (NYSE: GDXJ). With net assets of $4.3 billion, this ETF has gained a whopping 85.2% year to date.
  • If you prefer a large-cap senior miner, consider Goldcorp (NYSE: GG). With a market cap of $12.2 billion, Canada-based Goldcorp boasts one of the lowest all-in production costs of any primary gold producer in the world. If gold prices rise this year as expected, Goldcorp’s low production costs should pay off in a big way.
  • If you’re risk averse and more comfortable with a fund, we recommend SPDR Gold Shares (NYSE: GLD). With net assets of $38.5 billion, GLD is the largest ETF backed by physical holdings of bullion. The fund YTD has risen nearly 10%.

How are you invested in gold right now? Let me know with a quick email: — John Persinos

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“If you’re risk averse and more comfortable with a fund, we recommend SPDR Gold Shares (NYSE: GLD). With net assets of $38.5 billion, GLD is the largest ETF backed by physical holdings of bullion.”

This is highly questionable. Paper gold GLD claims to be fully backed by physical gold bullion but yet it refuses to give retail investors the right to redeem for any of these ‘claimed’ gold bullion. This fact alone would mean GLD shares are nothing more than paper at the end of the day. Furthermore, GLD’s prospectus is chalk full of weasel clauses and legal loopholes that allows the fund to get away without the full physical gold backing. One good example of this is the clause that states GLD has no right to audit subcustodial gold holdings. To this day, I have not heard of a single good reason for the existence of this audit loophole. I’ve also verified the following to be true and welcome everyone else to do so:

“Did anyone try calling the GLD hotline at (866) 320 4053 in search of numerical details on GLD’s insurance? The prospectus vaguely states “The Custodian maintains insurance with regard to its business on such terms and conditions as it considers appropriate which does not cover the full amount of gold held in custody.” When I asked about how much of the gold was insured, the representative proceeded to act as if he didn’t know and said they were just the “marketing agent” for GLD. What kind of marketing agent would not know such basic information about a product they are marketing? It seems like they are deliberately hiding information from investors.”

“I remember there was a well documented visit by CNBC’s Bob Pisani to GLD’s gold vault. This visit was organized by GLD’s management to prove the existence of GLD’s gold but the gold bar held up by Mr. Pisani had the serial number ZJ6752 which did not appear on the most recent bar list at that time. It was later discovered that this “GLD” bar was actually owned by ETF Securities.”

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