The Best Investment?

Keynes:  The market can stay irrational longer than you can stay solvent.

To see how various investments have fared is easy.  Just look in the rear view mirror.  In fact, the "rear view mirror" approach is a very popular investment approach.  What isn't generally appreciated is that it often ends badly.  Ask those that jumped on the dot.com bubble in 2000.

Let's consider some year-to-date returns:

TLT (longer term U.S. Treasury exchange traded fund): +20.79%
GLD (gold exchange traded fund): +29.02%
INTC (intel common stock):  -6.03%

Performance numbers are through 8/19 and were obtained from Morningstar.

The rear view mirror investor has it easy.  Go 50% TLT and 50% GLD.  This portfolio captures the rampant fear in the marketplace based on the dysfunction of global governments and the rise of anger over the continuing request for responsible parties to bail out the irresponsible.  This fear is what has driven the price of gold sharply higher and the yield on longer Treasuries to unprecedentedly low levels.

But what lies ahead?

Consider that the yield on the 10-year U.S. Treasury note is close to 2%. 2%!  Ten years!  Worth mulling over.  With governments having to borrow record amounts as far as the eye can see and rumblings about the possible inflation impact, some  hard reflection would seem to be in order.

Put against this the 4% dividend yield on Intel common stock and the liklihood that the dividend will be increased consistently over the next 10 years.  Furthermore, consider that the whole world wants every bit of personalized entertainment and information at its fingettips via its cell phone.

Of the 3 investment choices, which do you think will have the best performance over the next 6 months, 1 year, 5 years? 

Disclosure:  The above is for informational purposes only.  Investors need to do their own research and or consult a professional advisor before making investment decisions.

Is This Another Great Depression?

John Maynard Keynes

The Dow is down 450 points, the S&P 500 is off 50 points, the 10-year Treasury note yield is close to 2%, and gold is up $31/oz.
 
As a long time observer of markets, I have studied and wondered about how it felt as the 1930s unfolded.  I 'm not claiming to be an expert on the Great Depression like our esteemed Federal Reserve Chairman, Ben Bernanke, but have read widely on the subject.

I find it ironic that Bernanke et al. find Federal Reserve policies  responsible for the duration as well as the magnitude of the 1930s economic downturn when, today, a well-supported argument is emerging pointing to the Greenspan/Bernanke Fed  playing a major role in today's debacle.  To wit:  look at today's inflation report and anemic employment number, both of which have been heavily affected by Fed policy.

It wasn't long ago that even the mention of the possibility of the U.S. entering a 1930s economic downturn was laughable.  The response was always a dimissive "we know too much today" in terms of economic policy to counter economic downturns.  Implication:  we are a lot smarter than they were in the 1930s!

The fact of the matter is that, at this point, just about everything, including the kitchen sink, has been thrown at the economy; and the response has been pitiful.

John Maynard Keynes, in the General Theory of Employment, Interest, and Money, famously painted the capital markets as a type of beauty pagent judging contest where the goal was to  guess which contestants others would think most attractive-thereby breaking down into an onion-peeling type situation.  Today all eyes are on governments.  What policies will they enact next?  What will be the outcome of the next press conference or Jackson Hole speech?  Investors are worrying about how other investors will react to government policies.  These events--in lieu of future earnings and other company and economic fundamentals.

Having said all this, I don't expect a serious double-dip type downturn and don't  believe a 1930s situation is unfolding.  Instead, I see this is as an opportunity with stocks offering exceptional dividend yields and growth prospects for those with a bit longer of an investment horizon.

Still, with politicians driving the bus, it is hard to hold onto confidence.  Be sure to keep your seat belt on!