This leader from The Economist, titled "Bubble Warning," makes the point that markets have become dependent on unsustainable government stimulus.
I strongly suggest reading the entire thing. But here's a key part that's relevant to stock market investors:
For all the panic last year, asset values never quite reached the lows that marked other bear-market bottoms, and now the rally has made several markets look pricey again.
That is absolutely true -- we HAD a panic. Yet the bear never finished its work. And I saw the other day that the dividend yield for the S&P 500 is back below 2% for the first time in over two years.
I expect at some point the bear will return to finish its work. I don't know if that will be this year or next year. Or even the one after that or the one after that.
As for stocks, I'm not finding anything popping up on my radar screen. My recent purchase of Geeknet (LNUX) is more of a special situation (or perhaps I should say a flat-out speculation), and I'd be happy to have deployed my portfolio cash in more of those.
That lead me to gold mining stocks. With cash earning nothing and the US government printing money like there's no tomorrow, putting 20% on my portfolio in gold mining stocks plus leaving another 10% in gold bullion feels safer to me. Ten years or so ago, if bargains weren't around I'd hide out in short-term US Treasuries earning 6% or thereabouts. That option doesn't exist.
Here's the key with regards to gold. If someone believes we're in a gold bull market (as I do), then gold mining stocks should outperform over time. This is because gold mining stocks have lagged gold bullion to this point, and they ultimately overtake bullion before a gold bull ends.
Of course, if I'm wrong, and this is not a gold bull market, then I'll end up with egg on my face. We'll just have to see how this all plays out.
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