gold pendulumGold is often touted as a must-have investment for the most intense of risk-mitigation situations, a “when all else fails” hedging instrument. Indeed, pick an ailment: Inflation? Hedge with gold. Economic and political crises? Hedge with gold. Collapse of modern society? Say it with me, folks, “Hedge with gold”. With the global economy as shaky as it is, multiple countries in one crisis or another, and plenty of uncertainty as to what the future holds to go around, gold continues to make the rounds as a necessary holding despite the fact that its value in US dollar terms has been steadily declining over the last four years after reaching a peak in 2011 of almost $1,900 an ounce. In the wake of the Fed’s recent decision to stand pat on interest rates and gold’s subsequent jump today, here are 3 reasons to avoid gold, both as a physical or paper holding, apart from a very small percentage of a well-balanced and diversified passive or lazy investment portfolio:

  • It’s a highly emotional and psychological asset
  • There’s no historical evidence that it hedges well against any risk
  • It has very little practical use

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pile of us dollarsWhy is the US dollar so strong these days, and what is the significance? Well, unless you’ve been reading financial news, traveling, living outside of the United States, or really paying strict attention to the cost of all the imported goods you buy, perhaps you haven’t even realized that the $USD has been on a tear in forex markets. But, I’m guessing a good number of you have noticed or have an inkling at least that the currency these days has been bulking up considerably. What’s going on? Is it a new trainer? Mega amounts of egg protein and creatine? Performance-enhancing drugs? The answer lies somewhere between central bank actions and investor sentiment. Continue reading

HalloweenEffectThe Halloween effect just might be more of a trick than a treat – think less chocolate and more witch’s brew. The end of October and beginning of November mark the start of the six-month period of November-April during which, historical evidence shows, stocks have outperformed when compared with their performance during the other six months of the year, May-October, or with the performance of a general buy-and-hold strategy. Indeed, over the past year, the numbers seem to indicate something similar for the U.S. stock markets as per a mutual fund stand-in, the Vanguard Total Stock Market Index Fund (VTSMX) – positive returns of close to 10% from November 1, 2013 through May 31, 2014, as opposed to only a little over 5% from June 1, 2014 through October 31, 2014. This outperformance continues to lend credence to the concept of market timing and fuel the debate over active versus passive investment strategies. And so, with another potential bumper period for stocks possibly about to get under way, we owe it to ourselves to address the topic and speak to why we shouldn’t give the wolf in sheep’s clothing any candy; why it is not advisable to indulge in this active strategy in spite of evidence of a persistent seasonal pattern.Continue reading

scary parallel chartFor some reason (probably just because fear sells), a particular chart has been making the rounds of late. It draws a “scary parallel” between the recent performance of the DJIA and that of the same prior to the 1929 crash, implying that a significant decline is impending (maybe). Already just this month three analysts over at The Wall Street Journal’s MarketWatch have penned at least four articles inspired by the graphic (including this retort), after it first appeared in the McClellan Market Report in late November, and more articles than that have been posted since the start of December. What should you do about it? Continue reading