Gold has been much in the news these days. It has reached new price highs in dollar terms, which probably says more about the dollar than it does about gold. But we still see lots of people with a desire to hold gold. Why? First of all, gold is supposedly a store of value. During times of crisis, lots of folks almost automatically turn to gold for a piece of their savings. This has always fascinated and mystified us. (This is the whole tuna fish and shotgun shell argument. For those who have not heard that one, in the worst case scenario, which the gold bugs seemingly always think is right around the corner, gold will be valued no matter what. We argue that canned tuna will probably be more highly valued while shotgun shells, with the appropriate appliance to put them to good use, will be even more highly prized.) This is a kind of self-fulfilling prophesy. If enough people have the same knee-jerk reaction to buy gold, gold will go up regardless of the cause.

Okay, we’ll grant that so long as that knee-jerk reaction is dependable there is no sense in arguing with it. But, is there any real fundamental reason to own gold in portfolios? It is a dandy diversifier, like most commodities. It can work as an inflation hedge, like most commodities. So, why not just buy commodities? Read more

The US market is no longer the only highly liquid, highly regulated and highly transparent market in the world. Several of the developed markets would argue that they are better regulated or more transparent and just about as liquid. Some of the emerging markets are closing fast on one or more of those criteria. So, the US is not the only game in town. That is reason number one.

We think that the outlook for a lot of the globe is more amenable to investors than here at home. The outlook for the US economy and US corporate profits (and so US stock markets) isn’t as favorable as it once was. The demographic argument that we just aren’t creating as many highly skilled, highly motivated and highly productive workers as we once did is a big piece of this. We used to grow by 3% or more a year in population. Now, we grow barely 1% and largely due to immigration (legal and illegal). Productivity adds to that and gives us a potential, long-term GDP that is lower than our history and lower than many, more promising opportunities. That is reason two. Read more

These are some mini-rants that have not made it up to full rant status and so have been saved up, like Green Stamps (for those old enough to remember those things) and now are being dropped on you before they go stale.

 The economy still in the news

“Our great nation is on the verge of another great wave of growth. It may not come rapidly or at the exact time we may expect it, but it is coming. Why? Because we have all the ingredients we need to get lots of economic growth. Interest rates are low. There is lots of money flowing around. We have lots of unused capacity in labor and capital markets. Many cyclical industries are operating at minimal operating levels (so any increase in demand translates into marked growth). We have a consumer who has dramatically reduced consumption. Inflation is virtually non-existent, outside periodic bouts of commodity-driven price increases. And, the government has a program to pump money into the economy and create make-work jobs. There should be no question we are going to have a recovery. The only question is how powerful it is likely to be.” Read more