Nine months into 2014 and it's time to look at how two popular forms of investment have so far this year and where I think they are headed through year's end.
Stocks
She Dow Jones Industrial Average closed yesterday up 2.8% for the year. Given the risk of the stock market, 2.8% is no big gain. I wrote at the beginning of 2014 that the return on stocks would not be worth the risk this year. I was on the money. When we look at the broad market, the Russell 2000 Index is down 5.4% for the year.
Going forward, I see stocks as risky. Plain and simple, they're overpriced in an environment where the Federal Reserve is putting the brakes on paper money printing and is warning that interest rates are going higher.
On a typical day, I see the Dow Jones up 100 points; the next day, it’s down 100 points. This is happening in an environment where trading volume has collapsed. I wouldn’t be surprised to see October deliver us a nasty stock market crash.
Gold
I find it interesting that Gold is flat for the year in U.S. dollars. But if we look at gold in Japanese yen, gold is up 4.6% for 2014. If we look at gold in Canadian dollars, bullion is up 4.6% as well this year. And if we measure gold in euros, we find that bullion prices are up 10.4% in 2014.
What is that so?
On Thursday, the U.S. dollar hit another six-year high against the yen and a 22-month high against the euro. While the Federal Reserve gets ready to tighten monetary policy, other major central banks are doing the opposite.
China’s central bank is easing lending rules so its banks can make more home mortgage loans. And the European Central Bank needs to lower interest rates to fight weak inflation (inflation hit a five-year low in September).
So, for now, the rush is to the greenback. And that is making gold very affordable for investors. There is a “for sale” sign on gold. There is an “overpriced” sign on stocks. I know which I would buy.
Disclaimer: Dear Reader: There is no magic formula to getting rich. Success in investment vehicles with the best prospects for price appreciation can only be achieved through proper and rigorous research and analysis. The opinions in this e-newsletter are just that, opinions of the authors. Information contained herein, while believed to be correct, is not guaranteed as accurate. Warning: Investing often involves high risks and you can lose a lot of money. Please do not invest with money you cannot afford to lose.