The return of the Dow Jones to 10,000 points means that buy-and-hold stock investors have suffered through a market that has produced zero gains over the past decade.
London's FTSE 100 has not fared much better, despite all the smoke and mirrors regarding the changing names of its company constituents. The index is still trading at around 5,000, the same level it first hit in 1997!
And it gets worse. If you take the Dow at 10,000 today and you adjust for inflation and the dollar falls, it is only worth around 7,500. So you have not stood still, you have actually lost money. This is an important lesson to all investors. The Dow could go to 30,000 in the next ten years, but if inflation soars and purchasing power plummets then your Dow 30,000 means nothing.
Now before you say 'What about dividends?' I agree that both the Dow and FTSE 100 would have given you a dividend yield. But then again, so would a good high-interest savings account. The conclusion is that buying and holding large-cap stocks may work over 100 years, but it certainly does not work over ten years.
Gold would have been a far better investment over the past ten years - an ounce of gold is up around 100 per cent over the past decade. Now, to be fair, we also need to factor in loss of purchasing power, so let's take off 40 per cent - i.e. the US dollar now buys 40 per cent less than it did in 1999. That leaves a gain of 60 per cent, still far better than the stock market, and you have preserved purchasing power. If I had to say which will be the best investment for the next ten years out of the FTSE 100, the Dow or gold, I would have to say gold.
When the Dow hit 10,000 the first time around, an ounce of gold cost $460, and it has increased in value since then to around $1,200. In the same period, the Dow has only returned to the same level. Of course, gold could pull back, maybe even to $750 at some stage, but over the next decade I see higher prices. Remember the price of anything only matters when you come to sell it, and if you own physical gold you have no expiration date. Short term, platinum and palladium offer good value, and I have been adding to my holdings in both.
Of course, we still have lots of opportunities to make money in global markets - even in a sideways market shares still go up and down. Also, as I have stated here previously, the world is a big place and the smart money is not in the UK, US or Europe, but in Brazil, Africa, India and Asia, where the true growth is being seen. Australia, New Zealand and Canada are also doing better, since they have raw materials that the emerging markets need.
I still remain bullish on commodities long term, especially agriculture, where I also include sugar, cocoa and coffee and where it is the easiest way to obtain global exposure.
My seasonal system has now given a buy signal on the S&P 500. If you recall, historically, October to April is where stock markets make most of their gains. This year, with all the Frankenstein market manipulation, seasonality has been thrown out, but it would be wrong to give up on a system because of this.
I still take the view that this rally does not stack up, and the rally since March is nothing more than a quick-fix liquidity rally, which comes from investors having to put money into the stock market and riskier assets because they are being paid near zero on savings.
If anyone wants to argue that this is a real rally in stocks and corporate bonds then put interest rates up to around 5 per cent and you will see how much money flows back into cash deposits. With zero interest rates and the Fed printing money, stocks are safe for the next few months.
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