Wall street is forever trying to lure us away from gold investment and back into stocks. Posted by James Randolph on December 22, 2010
A miracle on Wall Street?
December 22, 2010 – Wall street is forever trying to lure us away from gold investment and back into stocks by painting rosy pictures of the year ahead. The headline of one such Wall Street Journal article triumphantly proclaims “Stock Markets Are Poised to Steal the Show Next Year.” Let the good times roll! That is a wonderful sentiment for this time of year, but probably not one that should influence our investment strategies.
To start with, “the show” includes only stocks and bonds. Stealing that show is about as challenging as the Klitschko brothers getting into the ring with Dr. Ruth. None-the-less, Richard Barley, the article’s author, states his case, citing “cash-rich corporate balance sheets, strong earnings, and global growth looking good” as reasons for optimism.
The first two should be encouraging, but all that cash and those strong earnings are not finding their way into investors’ pockets. Instead, a big chunk of that is going into retiring equity, which Barley assumes will trickle down to favor investors. However, it can also be seen as a mechanism to funnel corporate cash into M & A and private equity schemes, which benefit only insiders and not investors.
Barley’s third point is even more curious. Global growth, on the whole, may be looking up but it is still below average and outside of Asia it is downright anemic. Since emerging Asian economies are highly susceptible to disruption, it might be a good idea to hold off optimism until western nations get back on their feet as well.
Even if we accept Mr. Barley’s argument, we can’t ignore his disclaimer: “But volatility is likely. Politics and policy are big risks . . . These hazards will likely drive periods of risk aversion.”
Amen. Stocks may steal the show, but gold investments will hold up the tent.
Senior Staff Writer – Certified Gold Exchange