HARM

Gold Is Just a Brick ('Active Value Investing' Book Excerpt)

"Despite its unique properties, gold has not been a good investment. Over the past 200 years, its returns have barely kept up with inflation."

Interesting choice of time frame... 200 years. How about the last 5 years? (300+% returns) Or, for that matter, how are those Enron, HomeGrocer, or homebuilder stocks doing these days?

"Treasury inflation-protected securities may turn out to be the key challenger to gold's store-of-value supremacy status in the future. Aside from being issued by the U.S. Treasury and therefore backed by the full faith of the U.S. government, they also protect investors from inflation - one of gold's most-valued qualities. TIPS' principal is tied to the CPI"

Does anyone paying attention for the last 10-15 years actually believe the BLS hedonically-adjusted CPI "inflation" figures any more? They are about as credible as "progress" reports on the War on Terror (or Drugs), or cooked "unemployment" figures (that exclude the marginally employed, millions of illegals, and the long-term unemployed).

"It is important to note that gold's monopoly as an instrument of choice at the time of fear and uncertainty has been undermined by other very capable and often superior financial instruments."

Yeah, those Alt-A & subprime MBSs, CDOs, Super-SIVs and other derivates are working out great! They're definitely "superior" at spreading the risk around. Thank God for the Wall Street Wizards, creating all these cool, new "innovative" financial instruments that hedge risk so well.

"Any cash flow-generating asset, like a stock or a bond, can be valued on the future cash flows that it is expected to generate. Predicting gold prices is extremely difficult because gold is not a cash-generating asset. In fact, it is important to note that gold actually has a negative yield. Gold is a cash-consuming asset; its safekeeping and transportation cost money. TIPS, as well as any bonds and dividend-paying stocks, have a positive yield; they pay investors for holding them."

Physical gold may not pay dividends, but gold mining stocks certainly do. It's also fair to point out that most tech stocks or VC start-ups do not pay dividends. And, thanks to the easy-money Fed, TIPs, Treasuries and most corporate bonds today pay well below the true rate of inflation --in other words, a negative yield.