odin

5 Reasons to Avoid the Gold Rush

This is the state when inflation is not on the horizon.

I am bullish on gold because viewed as an asset class, it is hugely underrepresented in most portfolios. And as insurance against long-term mild-moderate inflationary scenarios, it does have a valid place in a portfolio. However, when I see the comments above, I become very wary. It reminds me of the Krugerrand buying in the 80s.

If by chance we get hyperinflation in this country -- do we really believe that an ETF will protect our wealth? Or physical coins for that matter? Just because of events last year (which are minor compared to a hyperinflationary, high unemployment, scarcity-ridden environment), the government stepped in and overturned all sorts of written/unwritten expectations investors had come to rely upon (short sales, contract law, "too-big-to-fail"). When a major upheavel occurs, the likelihood that gold will save your wealth is very small indeed.

Is Market Liquidity Returning?

Well said, htx. We have an attempt at public borrowing trying to replace private borrowing. However, I am skeptical about rate moves. Just as China (or net surplus) financed the US deficits to keep rates low, where do you think will the savings being accumulated on private balance sheets (consumers, banks) eventually go?

Some might find their way into risky assets (i forget, have we cleared out the cobwebs on CMBS, ABS yet?). Investors may start seeing inflation behind every shadow (unemployment, output gap anyone?). They may even start pricing in near-term tightening.

While we may see fully flowering fruit orchards in income and spending statistics, as macro man points out, these green shoots of govt handouts are neon green -- artificial. Are transfers from productive individuals to non-productive individuals sustainable (and we're not even talking about boomer retirements yet)?

Everyone loves a winner, but will markets continue to rise at the current 300% annualized pace we've seen since the lows? Once past the short-covering and momentum rally fades, what lies past the disillusionment in the performance of risky assets?

But over the near and medium-term (boomer retirement is not decades away), return OF capital will be just as important as return on capital.

Having said that, we have left the worst case scenario very much behind and some of the doom/gloom pricing was clearly overdone.