With the stock markets moving up I felt it would be a good idea to restate my position that stocks continue to pose too great a risk to be a smart investment. I still advise that people stay out of stocks and any funds containing them. The same goes for mid- and long-term bonds and funds relying on them.
The current upward movement of the stock market is happening because people are caving in frustration after getting no real return on their money in safer fixed income investments. While I’m sympathetic to the feelings behind this trend, I know better.
The problem with what they are doing is that the underlying strength of the U.S. and most major world economies is highly likely to continue to erode. Any market bubble that may be developing is strictly temporary. Attempting to play a potential bubble is a very bad idea as the insiders control such games and more importantly, nobody can time markets. Nobody. It’s gambling pure and simple. Over time, gamblers almost always lose big-time. Common sense investors usually don’t. Me, I’ll stay out of the stock market until real and reliable growth is inevitable, and I don’t expect that to happy anytime soon, thank you.
Proved below is the current thinking of a well respected guy named Doug Casey. Doug, the Chairman of Casey Research, has come to the same basic conclusions as I have, and it’s worth taking a minute to read some of what he has to say. Here are some excerpts from a Yahoo Finance article from 1/17/2013.
“There are going to be other bubbles created by all the money central banks are printing,” (Casey) says. “And, they’re likely to be in the stock market.”
Casey’s not alone. Bloomberg reports Federal Reserve officials from Chairman Ben Bernanke to Kansas City Fed President Esther George have been voicing concern in speeches over the last few weeks “that record-low interest rates are overheating markets for assets from farmland to junk bonds, which could heighten risks when they reverse their unprecedented bond purchases.”
“I’m of the opinion we entered the ‘greater depression’ back in 2007,” Casey explains. “Look at it as being a hurricane. We passed the leading edge of the hurricane of 2007 – 2009. We’re now in the eye of the storm, which was created by these governments creating trillions of currency units. I think 2013 we’re going to come out through the trailing edge of the storm, and it’s going to be much worse and much longer than what we saw in 2008.”
Here’s more of his 2013 view:
- Doesn’t like real estate. “The problem, even though it’s cheaper than a few years ago, is that it’s floating on a sea of debt.” When interest rates rise Casey says it will be very bad for real estate.
- Stocks are overpriced. They could go higher because of a panic out of dollars.
- Bonds are a triple threat to capital. “Worst possible place to be is in bonds of any type,” he says, although people are “panicking into them. This is going to be a bigger catastrophe than real estate when the bond bubble bursts.” Casey said in his Jan. 2 Casey Daily Dispatch newsletter, bond owners face huge default risk, huge interest rate risk, and huge inflation risk. He has also conceded that he’s been saying this for awhile and thought the bond bubble would pop last year.
As to where to invest now, my advice remains the same. Yes, our cash is being eaten by inflation but, to me it’s least worst place to be right now except for starting or buying the right business, investing in your career (if the opportunity is there) or buying a home with a 30 year fixed mortgage (if you don’t already have one).
For now, I believe the best bet is to keep your powder dry and your money safe until the next good investment opportunities show up- and they always do eventually. Stay primarily in very short term fixed income investments, pay off all debts except a low rate real estate mortgage, and keep saving as much as you can. (See my site for how to save a lot more.)