New Year Deliberations
It was a difficult year and the next one will be not much easier.
For starters, experts’ opinions are all over the place. Some are expecting a severe depression and deflation ( gold would suffer ), some are expecting inflation ( gold would prosper ), some say stocks are cheap ( they dropped already a lot, some markets are down by 70% ), some say they’re expensive.
Take your pick.
Worried investors have bought boatloads of government bonds, which are yielding exactly zero on the shorter end. Government bonds, in my opinion, are for suckers: To buy them means you hand over your money to people who are running the biggest Ponzi scheme of all ( think about the future of pensions and social security as an example ) for no return. Governments are the biggest borrowers and the greatest liars and now people are handing money over to them for free. Anyway, what’s the value of money when it’s essentially being created by the click on a computer and backed only by government promise? We have seen paper money coming and going, mostly going.
If not by outright cancellation then at least by inflation. That leads us to gold: keep some of your money in gold, physical gold preferred ( who knows whether one day the gold funds declare that they have less gold in the warehouse than reported ? ). It might well be that gold is not the best investment, especially if we’re really going to suffer a big depression.
Therefore, don’t go overboard. I’d recommend a maximum of 25% of investible investments in gold, not more.
Regarding stocks: yes, they’re cheap and we will see some rallies from depressed levels. My advice: sell into rallies and buy them back after fresh falls. Historically, stocks have dropped to 8-10 times reported earnings during severe recessions and we’re not there yet. In the worst case, stocks might drop another fifty percent from today’s levels. But that doesn’t mean you should just sit on the sidelines ( or buy those damned government paper ). You should actually trade the paper as mentioned above.
How have we ourselves performed last year? As of today Xam Capital has lost 12 %, measured in dollars, since the beginning of 2008. In euros we are more or less unchanged. It’s not a glorious performance but it could have been a lot worse.
So, here’s one to the coming New Year! We are, as always, looking at the bright side of life. Cheers!