More than ever I have been seeing in action the truth of Ecclesiastes 11:2, which says, “no one knows what evil may fall upon the earth.” Now would I call hyperinflation or deflation “evil”? No, probably not. But I believe that this verse and also James 3:14, is saying that man does not know the future and can’t know what is going to happen unless it is already written in the Bible. I have been reading so many experts, with decades of experience, which are getting paid hundreds of thousands of dollars every year to write a newsletter. None of them seem to agree about what is going to happen economically speaking.
For example, when you read The Casey Report, the experts will tell you that inflation is coming and that gold and other precious metals are going to go up. This group also believes that interest rates are going to rise and that the dollar is going to come under pressure. Then you will read pages of reasons as to why this is going to happen. The hyperinflation or inflation view is very popular right now among the general public as well because we are in year 9 of a gold bull market and the US dollar has gone down 4 of the last 5 years.
Then you go and read A. Gary Shilling or Bob Prechter and they believe we are going to see a rise in the US dollar index and that commodity prices will come under pressure again. This is a less popular view to the public, right now, because it really has not begun to happen yet except in 2008 when it happened in a MAJOR way.
Then of course there is Grant’s Interest Rate Observer and, to me, the topic of deflation or
inflation really isn’t directly addressed. It seems to me the writers believe that we are in a recovery that started in fall (or so) of last year (2009).
So there you have it. None of the experts agree and God says, that no man can know the future. That is why I cringe when I talk to an investor that “knows” the US dollar is going to tank and that gold is going “through the roof”. We can all find verses and media to support what we want to believe, amen? But a better question is why would someone want to believe something about an asset class? Maybe because they have money in it? For example, I want to believe that home prices are going to appreciate because I have money in my home or the home we are steward over.
I cannot ever recall a time when money market interest rates have been negative or zero.
And 12 month CDs are paying 1.6%. In my opinion, if money market rates were say around 3-4% right now, the US stock market would collapse. Rates are being kept low to encouragement investment and risk taking but many people don’t want to take risk. However, their greed and desire to make money wins out and so they “buy and hold”. I have been helping many of you to make money in fixed income investments while still being able to make more than CDs. In fact, our global income strategy increased by over 4% last year, net of all fees. In 2010, this strategy is off to a great start, as well, being up about .9% through 1/31.
The S&P 500 has produced a negative total return for each of the last 3 Februarys. The stock index was down 2.0% in 2/07, down 3.2% in 2/08 and then lost 10.6% in 2/09. February’s average performance over the last 20 years (1990-2009) is a loss of ½ of 1% (i.e., -0.5%), ranking February as the 10th best month over the 2-decade period (source: BTN Research).
John Paulson loves gold and thinks it is going to keep going up. George Soros said gold is in the “ultimate bubble”. Both of these men are proven winners, as hedge fund managers, but who will end up being correct? Stay tuned.
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