Opinion

James Saft

Triumph of gold, the anti-investment

Apr 21, 2011 12:23 UTC

In investing, extreme behavior is becoming more mainstream every day.

How else can we interpret the extraordinary moves by the University of Texas’ endowment fund to not only buy nearly $1 billion of gold, equal to about 5 percent of its assets, but to insist on taking physical delivery of the precious metal.

Things really have come to an interesting juncture when the second-largest academic endowment in the U.S., managed and advised by sober, rational people, decides that what they need is insurance against getting, in essence, robbed, via inflation, by fiscal and monetary policy.

Little wonder that gold futures went above $1,500 per ounce for the first time on Wednesday, driven by a laundry list of concerns starting with a falling dollar and not ending with the growing chance of “debt restructuring” (well, default, if you insist) by Greece.

“The role gold plays in our portfolio is as a hedge against currencies. The concern is that we have excess monetary and fiscal stimulus,” Bruce Zimmerman, chief executive officer of The University of Texas Investment Management Company told CNBC television.

While Zimmerman said it was easier and more economical for the fund to physically accept the gold, which it is paying to store in a vault presumably deep below the sidewalks of New York, rather than the more usual route of buying a derivative contract, the move also must reflect concern about the risk of those contracts not being honored. To that extent the investment is not only protection against inflation and currency risk, but against market failure as well.

S&P U.S. warning — late and welcome

Apr 19, 2011 14:19 UTC

James Saft is a Reuters columnist. The opinions expressed are his own.

Standard & Poor’s decision to put the U.S. on warning that it may lose its AAA debt rating is both deliciously absurd and genuinely earthshaking.

Absurd because S&P are some of the people who missed the real estate bubble and mortgage bond implosion; and earthshaking because not only has the U.S. never held less than a AAA rating, much less been put on threat of downgrade, it thoroughly deserves the warning.

Standard & Poor’s cited the risks of a lack of a credible plan to reduce the national debt and said the move flags a one-in-three chance of a downgrade over the coming two years.

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