Paul Mendelsohn: Participating In The Asset Bubble Safely

November 17, 2009

Windham Financial’s chief investment strategist explains why he’s moving into commodities right now.
  • Bernanke: ‘Speeding up the car, then slamming the brakes’
  • Why he’d rather hold gold than dollars
  • Why miners trump clean tech right now


In the early summer, Paul Mendelsohn, chief investment strategist at Vermont-based Windham Financial Services, began shifting out of many of his lucrative equity positions and into commodities and commodity-related stocks and ETFs. In this Q&A session, asks Mendelsohn about the reasons for his focus shift, and what his forecasts are for 2010.


Daniel Harrison for (HAI): Which commodity sectors are you primarily focused on right now?

Paul Mendelsohn, CIS, Windham Financial Services (Mendelsohn): We're specialized on gold and silver right now, because we think that's the area that will benefit the most. Iron ore, nickel and other commodities are more econ-related, as opposed to inflation- or declining-dollar-related, so they form just a side position for us. We have also focused a little on the CRB Commodity Index overall, and the CRB Agricultural Index.

HAI: Will agricultural commodities begin to outperform soon?

Mendelsohn: I've been reading a lot of stories saying that it's been very wet in the Midwest, and as such, there's been trouble bringing in corn harvests. I would think if the dollar declines further, then agricultural commodities—along with virtually anything denominated in dollars—should do well.

HAI: What commodity positions are you hedging, and how?

Mendelsohn: I've been doing a lot of [call] option writes vs. gold stocks just to protect me. So where I've been buying a gold miner that's moved a lot, I give myself some protection. Typically, I'll sell a March call option at a 9-and-a-half to a 10 percent premium [to today's price].

HAI: Are you more heavily invested in ETFs or stocks right now?

Mendelsohn: I do both. I cannot recommend particular securities or funds, but among others, I own the GDX, SLB, GLD, DBA, DBC, Barrick Gold and Pan American Silver. I own a lot of the stocks of the miners, and on the other side, I have a combination of industrial materials companies as a kind of investment overlap.

HAI: Many money managers are concerned that the volatility in commodities will lead the sector to under-perform next year. Do you share these concerns?

Mendelsohn: No. Gold has been moving very nicely, and it is exactly where I want to be right now. I listened to Bernanke on Monday and he's saying the same things Greenspan said. Greenspan has acknowledged that there was something wrong with the way he viewed the world when he was Fed chairman, but Bernanke is doing nothing that Greenspan didn't. He's setting the stage to build the next bubble. He's speeding the car up and then suddenly jamming on the brakes, instead of having a nice steady monetary policy that takes the future into account. There are too many extremes in monetary policy for me to be concerned about owning commodities right now.

It's like that gold commercial that's on right now that asks: "If you had $50,000, would you rather hold it in gold or in dollars?" The answer is simple: I'd rather hold gold! Right now both equities and commodities are performing very well, which is unusual. That's because the Fed is flooding the system with so much money, that it is going in all sorts of directions. I find it interesting that none of the cash is going to the consumer, but to banks to speculate with.

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