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Dear Mr. Berko: I want to own assets that will protect me from inflation. So, my broker had me trading gold, silver, oil and natural gas future contracts. In three months I lost $22,000. I guess I was a sucker. So, I got a new broker who said he bought you a bottle of beer at a golf tournament in May. He would have me invest in a list of three gold stocks, three natural gas stocks and three oil stocks. Please give me your thoughts on these nine issues as inflation hedges, which are much less risky than trading futures contracts. Do you agree with the many who believe all this new debt the government is putting on the books will be inflationary and stands to ruin our future economy?

D.A.
Boca Raton, Fla.

Dear D.A.: I like your broker, and he鈥檚 a darn good golfer. And, yes, we each had a Bud Light Lime at his country club鈥檚 clubhouse. And I agree that buying oil, gold and natural gas stocks are less risky, by orders of magnitude, than buying oil, gold or natural gas futures. However, good intentions aside, this lad would probably mess up a free lunch. There鈥檚 a much safer way to hedge against inflation.

I agree that within the next year our economy could begin to experience significant inflation due to inexorably expanding national debt. Thomas Jefferson, the third president of the United States, was probably one of the most brilliant thinkers in the world. Everything he wrote is as valid today as it was nearly 200 years ago. Among The Jefferson Papers (20,000-plus letters he wrote), is a 1799 letter to Elbridge Thomas Gerry, a signer of the Declaration of Independence, member of the Continental Congress and vice president under President James Madison. Jefferson wrote: 鈥淚 sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling on a large scale.鈥� I agree, and the next dozen months could again validate Jefferson鈥檚 belief.

Southwestern Energy Co. (SWN-$40.25), Devon Energy Corp. (DVN-$55.55) and XTO Energy Inc. (XTO-$39.23) are fine natural gas stocks that should move higher as the economy gains strength. The latter two even pay small dividends. But to minimize your risk as much as possible, I would recommend United States Natural Gas Fund LP (UNG-$13.10), an exchange-traded fund listed on the American Stock Exchange.

Its assets are investments in various futures contracts for natural gas that trade primarily on the New York Mercantile Exchange. The fund鈥檚 52-week trading range is $12.69-$63.89. It鈥檚 a pure play on natural gas, and it has much less risk than the three natural gas stocks.

Royal Dutch Shell PLC (RDS-B, $50.84), BP PLC (BP-$49.50) and Chevron Corp. (CVX-$64.66) are fine oil companies trading some 40 percent below their recent high prices. Royal Dutch Shell鈥檚 dividend pays 6.4 percent, BP鈥檚 yields 6.9 percent and Chevron鈥檚 yields 3.8 percent. But I would rather that you own United States Oil (USO-$34.10), an exchange-traded fund with a 52-week trading range of $23-$119. United States Oil is a pure play on the spot price of West Texas Intermediate light sweet crude and purchase futures contracts on the New York Mercantile Exchange. I believe there is much less risk in owning United States Oil than oil stocks or trading oil futures.

Finally, AngloGold Ashanti Ltd. (AU-$37.64), Eldorado Gold Corp. (EGO-$8.48) and Newmont Mining Corp. (NEM-$41) are good gold issues. Newmont Mining Corp. is the only issue that pays a dividend. However, I would be much more comfortable owning SPDR Gold Trust (GLD-$91.10), an exchange-traded fund with a 52-week trading range of $66-$99. SPDR Gold Trust seeks to reflect the current price of gold bullion. This fund actually holds and owns $35 billion of hard gold bullion, and occasionally sells a few pounds to pay the trust鈥檚 expenses.

While your broker didn鈥檛 mention Treasury Inflation-Protected Securities, I suggest iShares Barclays TIPS Bond Fund (TIP-$100.40). This exchange-traded fund seeks to duplicate the performance of government issued Treasury Inflation-Protected Securities by investing in the inflation protected bonds of its underlying index. Be sure to reinvest the monthly dividend that has an annual yield of 5.1 percent. This fund has a 52-week trading range of $84-$109.

Address your financial questions to Malcolm Berko, c/o The Daily Journal of Commerce, P.O. Box 1416, Boca Raton, FL 33429, or e-mail him at [email protected].
漏 Creators Syndicate Inc.