Only an Idiot Would Buy This Today

Only an Idiot Would Buy This Today

By Tim Hanson
February 11, 2010

Think back to last Thursday at 3:45 p.m. The Snowpocalypse was bearing down on Washington, D.C., and the market was about to close down 3%. It was so bad around here that you'd be forgiven for thinking the end was nigh.

And that was just one more day in a whole season of bad news. What in the name of all that is good and sane in this world should we investors be doing to protect ourselves?

The old standby?
The obvious answer is that as uncertainty spikes, investors seeking peace of mind should flock to lower-risk or even risk-free assets such as Treasuries. These, after all, are backed by the full faith and credit of the U.S. government, and that means something -- or at least, it did 10 years ago. But only an idiot would buy Treasuries today.

In fact, financial supergenius Nassim Nicholas Taleb, of Black Swan fame, recently told a conference in Moscow that "every single human being" should short U.S. treasuries. (If you agree, then Ultrashort 20+ Year Treasury ProShares (NYSE: TBT) is your play.) Taleb cited looming hyperinflation and the inability of the U.S. government to get its spending under control, prospects that eliminate holding plain old dollars as well.

What does Taleb recommend instead? Gold.

Gold?
Only an idiot would buy gold today. The price of that commodity is currently north of $1,000 per ounce, and flirting with new all-time highs on a daily basis. According to billionaire George Soros, gold today is "the ultimate asset bubble."

Given what's happened with the last two ultimate bubbles -- real estate and tech stocks -- it may be best to avoid this one. Recall that if you bought Oracle (Nasdaq: ORCL) or Intel (Nasdaq: INTC) in 2000 or Bank of America (NYSE: BAC) in 2007, you're still down 40% or more.

What about bonds?
Both short- and long-term bonds look like another idiot move. Although bonds tend to offer a regular return and better principal protection than equities, remember that interest rates are near an all-time low. As soon as they revert to the mean, today's bonds, both low- and "high-" yielding issues, will get crushed.

Furthermore, thanks to a risk-averse market, high-quality corporate bonds offer next to nothing in terms of yield. This prompted Forbes to recently declare a "monster bond mutual fund bubble." That sounds even worse than "the ultimate asset bubble."

So … equities?
Master investor David Dreman is bullish on stocks, describing them as good hedge against inflation. But again, the stock market was down near 3% last Thursday, unemployment keeps hovering near 10%, and our country still has to survive significant deleveraging. I've heard from several sources that only an idiot would buy stocks today.

Even Berkshire Hathaway (NYSE: BRK-B), a stalwart if ever there was one, has lost its coveted AAA credit rating. As the last two years have shown, the U.S. stock market is not the place for risk-averse investors.

With the U.S. in trouble, you might look abroad.

• Unfortunately, Europe's situation, with Spain, Portugal, and Greece all struggling to meet their debt obligations, looks worse than our own. 
• As for fast-growing emerging markets, they're all going down as soon as the massive China bubble pops -- as short-seller Jim Chanos has predicted that it will. 
• This, in turn, will take down commodity prices as well, so don't seek safety in oil or food.

Thus, you're only courting double trouble by getting interested in Chinese energy stocks such as PetroChina (NYSE: PTR) or CNOOC (NYSE: CEO). Only an idiot would buy any of those!

Have you noticed there's nothing left?

All told, if you have money to invest, and have spent any time at all reading about the markets, chances are you're panicked. You don't know what to buy (since everything's a bubble), and you don't want to hold cash (since its value will just get inflated away).

This is the perfect illustration of why, when it comes to investing in good times or bad, you can't get caught up in the short term, or in breathless market commentary.

In order to make money in the stock market -- which we all want when we're trying to "protect" our portfolios -- you need take a long-term view, diversify across asset classes, and commit to buying great companies at great prices whenever the market gives you the opportunity. After all, anything has the chance to make you look like an idiot in the short term. But if you stay balanced, stay patient, and stay invested, you'll be in pretty good shape.

Are you any of those things?
That's our view at Motley Fool Global Gains, and we've been tilting our exposure more and more toward emerging markets this year because, while we do expect some volatility, we also expect that emerging markets will be the global economic success story of the next decade.

Furthermore, we recently advised our members that they should consider buying CNOOC -- one of the aforementioned Chinese energy plays -- below $150. That's because the company has increased its production guidance, and it remains a very good way to play the inevitable increase in China's energy demand long-term.

Unfortunately, most U.S. investors remain dramatically underexposed to foreign markets and stocks such as CNOOC -- a vital part of any balanced, long-term, protected portfolio. If that describes you, then get our latest stock recommendations -- including today's two brand-new picks -- by joining Global Gains free for 30 days.


Tim Hanson is co-advisor of Motley Fool Global Gains. Berkshire Hathaway and Intel are Motley Fool Inside Value recommendations. Berkshire Hathaway is a Stock Advisor pick. CNOOC is a Global Gains selection. Motley Fool Options has recommended buying calls on Intel. The Fool owns shares of Berkshire Hathaway and Oracle. The Fool's disclosure policy does not fear the Snowpocalypse, only the Snowmageddon.

http://www.fool.com/features/market-recap/2010/02/11/only-an-idiot-would-buy-this-today.aspx

Stock markets flirt with full bubble territory

Stock markets flirt with full bubble territory
With the FTSE 100 back at levels last seen before the collapse of Lehman Brothers, Martin Hutchinson asks whether there is a bubble brewing in asset prices.

Published: 11:36AM GMT 29 Dec 2009

Rapid increases in the prices of financial assets can be a healthy sign. Markets are doing their job when prices jump because of sudden economic strength or a disruption of supply. But when the causes are more monetary than real, a market bubble is forming. Are markets healthy or unhealthy now?

Observers from the Bank of International Settlements to the Hong Kong central bank are asking the question. And quite right, too. The MSCI World stock price index is up 70pc since March and many commodity prices are rocketing. The Reuters-CRB Metals Index is up 74pc over the past year.

Some portion of those increases is probably healthy. Prices were lowest when the financial and economic worlds were undergoing a near-death experience. Banking systems and the economy are not exactly up and running, but the trends are more positive.

Still, some markets seem to have moved past recovery into excess. The jump in commodities, probably the most "financialised" markets in the world, comes despite ample current inventories and limited recovery in demand.

Global stock markets are in danger of hitting full bubble territory. Analysts expect global market earnings to increase by 30pc in 2010, and investors are already paying a fairly generous 14 times those expected earnings, according to Societe Generale calculations.

The case for a bubble is supported by day-to-day market behaviour -- prices often fall on good economic news. Investors seem to care less about the prospect of stronger demand than about the possibility that the authorities will tighten up financial conditions.

If past practice is any guide, the tightening will be slow in coming. Central bankers have not yet fully cast off their long-established belief that asset prices aren't relevant to their task of keeping inflation at bay, while governments find it hard to abandon the many pleasures of deficit spending.

Recent experience should teach another lesson. Financial excess leads to destabilising market crashes. More distant history suggests that monetary excess frequently leads to retail price inflation. Tighter money might make the recovery less robust over the next year or two, but would make the world safer for the next decade.

http://www.telegraph.co.uk/finance/markets/6905092/Stock-markets-flirt-with-full-bubble-territory.html

Marc Faber: The next bubble being inflated right now

Faber: Next Stimulus Will Be Worse

Wednesday, July 15, 2009 3:46 PM

By: Julie Crawshaw Article Font Size

Some economists think that another bubble is what’s needed to get the economy moving again.

Gloom, Boom and Doom publisher Marc Faber said this is ridiculous, and that the Federal Reserve — which he holds responsible for creating the housing bubble — wants to do it all over again.

The central bank should not encourage excessive credit growth, Faber tells Moneynews.com's Dan Mangru in an exclusive interview.

Between 2000 and 2007 the total U.S. credit market debt increased at five times the rate of nominal gross domestic product.

Unfortunately, Faber said, the next bubble is already here. This time it’s government spending and fiscal deficits that Faber thinks will double the government’s debt during the next six years or less.

“The U.S. government is largely deranged,” he said. “The private sector is the dynamic one, and that’s why I object tremendously against building up fiscal deficits because (they) shift economic activity into unproductive government instead of leaving it in the private sector.”

Another stimulus package would only make matters worse.

“In the Depression, they had one stimulus after another and it didn’t help,” Faber said. “What helped was World War II.”

The problem with bubbles, Faber said, is that they only temporarily stimulate the economy.

“The whole economic expansion driven by a bubble in America has been a total disaster and has shifted wealth from the ordinary people who work … to the Wall Street elite,” he said.

Nor does the government score any higher when it comes to managing inflation, which Faber thinks will reach Zimbabwe-like levels in the U.S. courtesy of the Fed’s policy of keeping interest rates too low.

“The Fed, in my opinion, has zilch idea about monetary policy,” Faber said.

“What they focus upon is basically core inflation, which does not include energy and food prices and the way the Fed measures inflation is highly questionable in the first place because when you measure inflation it’s a basket of goods and services.”

When the economy recovers, interest rates should go up because of inflationary pressures, something Faber expects the Fed won’t let happen because it could cause interest payments on the government’s debt to double. Those payments today are slightly below $500 billion annually.

If the global economy collapses in a deflationary spiral, those government deficits actually expand, leading to more central bank-driven monetization, Faber said. And keeping interest rates artificially low will lead to more and more inflation.

Add to all of this the expectation that health care costs will soar and jobless rates will probably continue to be high, and the economic picture becomes even gloomier.

“I think we’ve just gone … to the beginning of the realization that the economy may be bottoming out but not much recovery is forthcoming,” Faber said.

© 2009 Newsmax. All rights reserved.

http://www.thedailycrux.com/content/2349/Economy/eml

http://moneynews.newsmax.com/streettalk/federal_reserve/2009/07/15/235992.html