The Gold Parachute

It’s dawning on wall street that George W. Bush may be the first president since Lyndon B. Johnson who believes that we can have a guns-and-butter federal spending policy without creating a serious inflation spiral, if not outright government bankruptcy. At least LBJ, to his credit, believed that there were limits to profligacy and that taxes had to be raised. Not President Bush. He’s making Johnson look like a fiscal conservative, what with his insistence on waging a war in Iraq that’s costing $177 million a day and rebuilding New Orleans by taking on a monstrous load of federal debt.

For the longest time, because Bush is a Republican, we on Wall Street simply didn’t believe that he could be a reckless spender. We knew only two paradigms: You either spent less and cut taxes or you spent more and raised taxes. Both courses at least presumed some sacrifice at some time. Not Bush’s plan. He’s gone on both the biggest spending binge and the lowest taxation course in U.S. history, which, alas, will produce gigantic liabilities down the road. Of course, he’ll be back on the ranch by the time his successor will have to deal with his inflation and currency debasement. Our only hope that financial disaster won’t strike sooner lies with the Chinese, who actually fund our deficit by buying our Treasuries—$242 billion worth, or 12 percent of all foreign holdings. If the Chinese decide to be good communists and stop buying our bonds, the Feds will have to raise rates to attract new investors and the reaper will be at our doorstep with interest rates more akin to those of South than North America. Right now, it’s not a problem. But in a year or two or maybe less, I perceive that the government will throw a bond auction and nobody will show, including the Chinese, until rates shoot up dramatically.

What if that happens? What if our fiscally clueless president really does keep spending at a rate that far exceeds what our government can take in at these low tax rates? What happens if the president’s acolytes and the Pollyannas in Treasury keep believing that we can grow our way, fairy-tale-like, out of this jam? You can bet that when you cash out your nest egg of nice U.S.-based mutual funds and solid common stocks, your dollars will fit nicely into a wheelbarrow designed specifically to cart worthless currency to the bank.

Or you can take matters into your own hands and build a portfolio around these five imminent-Bush-disaster stocks. Be the first on your block to immunize yourself against what may turn out to be the most financially reckless president in history with these anti-inflation equities designed to profit from our president’s unbelievably foolish Panglossian profligacy.

Any portfolio designed to counter government-mandated inflation has to be bedrocked in gold, and there is no gold outfit that can rival Goldcorp, known as Gigi on Wall Street for its GG symbol. Gigi is on pace to produce 1.1 million ounces of the precious metal this year, with a finding cost of $60 per ounce (significantly lower than the industry standard). While Gigi is wildly profitable with gold at $465—you didn’t know gold had shot up that much lately? Well, what did you expect with this deficit?—I figure gold could reach $1,000 if the Chinese stop buying our paper. Once the levee to the Treasuries breaks, the easy high ground worth gaining will be gold. Gigi’s got no debt and is incredibly well run—the only gold stock you will ever need. Oh, and like all the companies in this portfolio, it’s not based in the United States, so it’s less tied to the health of the U.S. economy and the strength of the dollar. What a godsend!

Even LBJ believed there were limits to profligacy. Not Bush. He’s making Johnson look like a fiscal conservative.

When paper gets debased, you can’t have enough minerals, gold or otherwise, in your stock basket. That’s why I think you should shell out $160 a share for Rio Tinto, the world’s largest mineral seller—it produces silver, copper, iron ore, coal, diamonds, and even zircon (what New York society may be stuck wearing if government spending stays unchecked). Minerals keep their value during periods of inflation, and Rio Tinto has become the chief supplier for China’s industrial revolution.

The world is running out of oil, of course, and the Bush policy of anti-conservation—his bold “drive less” initiative notwithstanding—assures us that we are going to pay full boat for oil for a long time to come. To my way of thinking, you want to be in an oil company that will be allowed to drill and find oil anywhere, which is something U.S. companies can’t necessarily count on, as the welcome mat increasingly gets yanked for Yanks. You need Total, the French Foreign Legion of oil companies. Whether it’s building nuclear power plants to generate electricity or steam to blast oil out of the ground in Canada, or drilling in Iran and Myanmar—two places we aren’t all that welcome—Total’s got your bases covered for the surge in crude.

For those of you who think the energy bill won’t produce anything but subsidies for a bunch of pals of Bush’s or, at best, heavily polluting alternatives to oil, may I give you Sasol? Using pioneering techniques, Sasol’s got the only gas-to-liquids technology that can save the Free World from our insatiable thirst. Of course, it can’t make enough of the darned stuff, but what it can make, it will be able to charge a fortune for. Added bonus: Sasol’s located in Johannesburg, so be sure to take your 2.6 percent dividend and leave it in Krugerrands in South Africa.

Finally, you’ll need some coal holdings, because when things get desperate you can count on this White House to sanction the use of so-called clean coal from Wyoming for everything. I like Fording Canadian Coal Trust because it yields 14 percent and has long-lived reserves that will certainly outlast this administration. It would help if you were domiciled in Canada, a nation also once known for its profligacy but now a beacon of fiscal sanity, because then you wouldn’t get dinged by Uncle Sam’s Canadian withholding tax (generally 15 percent). That way, you could take the dividend in the very strong loonie, long a laughingstock currency until this president decided that debasing the greenback is just one more acceptable casualty of making sure that the rich get richer with extremely low taxes. Thanks, Mr. President!

Look, I don’t know how bad things are going to get. Fortunately, you can do only so much damage to the deficit in three years’ time. But considering Bush has never vetoed a spending bill and would rather die than raise taxes, you have to believe we’d be just plain stupid to make a huge 401(k) bet on strictly domestic stocks. I’m not waiting until the Chinese decide to walk away from the Treasuries table. I’d start buying these stocks now, even if I were a Republican.

James J. Cramer is co-founder of He often buys and sells securities that are the subject of his columns and articles, both before and after they are published, and the positions he takes may change at any time. At the time of this writing, he owned Fording Canadian Coal Trust.

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The Gold Parachute