A recent article I saw said investment professionals are increasingly in one of two camps. One camp has blind faith in the central banks and governments. They believe we have turned the corner and most of our problems have been fixed - or are at least manageable.
The other camp believes that governments are simply “kicking the can down the road” for someone else to deal with. They believe that governments are borrowing too much - central banks are printing trillions of dollars - and the end result will be a set of unintended, perhaps catastrophic consequences down the road. They also believe that politicians are overly concerned with getting re-elected, so the tough decisions are left unmade and the economic risks are growing.
Here are links to two articles that present very different predictions.
- The main suggestion is for cautious optimism - although they have been cautiously optimistic every year I can remember, including 2008.
- Most analysts expect the S&P 500 to rise 5% - 10% in 2013.
- There is increasing talk of a currency war as various countries print money and devalue their currencies in hopes of increasing their exports and improving their domestic employment situation.
- The US Fed is printing $85 billion new dollars every month. This has never happened before.
- $10 trillion dollars of new money in various countries has been printed and we continue to experience mediocre growth and high unemployment. How long can this continue? And what will our money be worth?
We would love to believe that we are out of the woods and the world is returning to stronger growth and full employment. Most of the investments in our clients' portfolios would do well if that were the case.
But what if governments and central banks don’t really have things under control? These are extraordinary times and we still see significant risks. We think it is prudent to allocate a portion of every portfolio to gold, or other alternative investments, just in case these agencies lose control ... again.