What to believe about gold, stocks and bonds in 2011
Yesterday, we promised to give you a 鈥淧rediction-Plus鈥� about the stock market. You remember what a 鈥淧rediction-Plus鈥� is, don鈥檛 you? It鈥檚 better than a prediction. It鈥檚 what you should believe鈥ven if it turns out to be wrong.
What should you believe about bonds? They鈥檙e going down. They鈥檙e a 鈥渟uicidal鈥� investment, says our old friend, Marc Faber.
What should you believe about gold? It鈥檚 going up. Yes, we know鈥t might go down. Yesterday, gold dropped $44 dollars. Whee! We鈥檝e been warning you for months that gold could correct. No bull market goes up in a straight line. And gold has already attracted too many speculators who don鈥檛 really know what they are doing.
Remember what happened during the last big gold bull market in the 鈥�70s? Gold lost 50% (from memory) of its value, in 鈥�74, before finally hitting its high in 鈥�80. Gold could drop down below $1,000.
We wish it would. So we could buy more!
But what about stocks? What should you believe about the stock market?
You should think they鈥檙e going down.
Why?
Because there鈥檚 more downside than upside. Because stocks are good things to buy during an expansion, but not during a contraction. Because the bear market that began in 2000, or in 2007, has never fully expressed itself; it has a rendezvous with the bottom鈥hich should be at less than half today鈥檚 levels. Because stocks normally rise when interest rates go down; today, we鈥檙e probably facing rising yields for the next 5 or 10 years.
And because there are potential crises coming up in 2011 鈥� which could trigger a big sell-off in stocks.
叠别肠补耻蝉别鈥别肠补耻蝉别鈥别肠补耻蝉别鈥�
You have to play the odds. The last big run-up in stocks began in 1982. At that time the Dow was barely over 1,000, the yield on a 10-year US Treasury note was around 15%, and the US was just arriving at its Reagan-era peak.
Today, the world is practically the inverse of 鈥�82. The Dow is over 14,000 and yields are close to zero. And the US is tired, slipping down like a used-up empire. Yields have nowhere to go but up. The Dow will probably go down.
And even if it doesn鈥檛, you should think it will. Because investors are overwhelmingly bullish. They鈥檝e plumped their money down on stocks. The smart money is taking the other side of that bet. You should too.
------------------------------
海角大神 has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.
