Gold and oil are very different in their investment characteristics since gold is purchased principally to hold as an inflation hedge and oil is purchased primarily for refinement into gasoline and other petroleum products. Typically, this makes oil much more subject to international political factors and global economic forces. However, Gold has taken a more prominent role over the last few years as it has become a de-facto ‘anchor’ currency that is value-constant against monetary fluctuations by central banks.
Month: February 2011
Fiscally Fit: A Check-Up for Your Financial Fitness
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Fiscally Fit: A check-up for your financial fitness
1) When is the monetary expansion going to cause inflation to hit?
a. Never . . . monetary inflation is a myth
b. By the end of the year, if not sooner
c. By the end of next year, because of lag effects
d. It’s very difficult to tell exactly, but when it starts it will unfold very quickly
Our Experts See Fed Monetary Policy Headed This Way
One of the primary monetary news items to note as 2010 draws to a close is the announcement of more ‘quantitative easing’ by the Federal Reserve1. In plain terms, this means that the Fed will purchase treasuries on the open market. This will have the effect of artificially increasing demand for treasuries, which will push down the rate of interest. It is also expected to have the effect of pushing more money out into the economy with the hopes that it will stimulate consumer demand. Unfortunately, many fear that it will also stimulate inflation.
Living in the Land of Volatility
Traditional financial theory holds that the best way for average investors to acquire wealth over the long term is to become a ‘buy and hold’ investor. The basis for this notion is rooted in the fact that stock market values have progressively grown over an extended time interval. For example, the 20-year period from 1974 to 1994 saw a relatively smooth growth trajectory, even when accounting for the market crash of 1987. When investing in this kind of market, it is quite rational to ‘buy and hold’ because of the steady value progression over time.
25.2% Return on Investment with Atlanta Income Property
Atlanta represents an investment gem in the southeastern United States. It has spectacular economics from a development and employment perspective that make it a tremendous opportunity for income property investors. With a wide diversity of employers, many universities, and a vibrant cultural presence in the city, Atlanta has attracted a tremendous amount of in-migration from young professionals seeking employment opportunities. Since many of these young professionals choose to rent, the Atlanta market has very healthy rents relative to values. Currently, approximately 31% of listings in Atlanta are from foreclosures.
Bursting the Warren Buffett Bubble
There is a popular sentiment among many investors that the secret to success in the financial markets is to find a ‘Rock Star’ fund manager and ride their expertise to wealth. Of all these rock stars, none has more acclaim than Warren Buffet. Supporters frequently point to the 27.7%, 30-year compounded rate of return for Berkshire Hathaway (Compared to 12.8% for the S&P 500) and assume that the only thing they need in order to realize success is to find a person with the skill and insight of Buffett and invest in their ventures to achieve success.
S&P 500 vs. Gold Price
One of the important ratios to keep in mind when examining the equity markets is the gold price relative to the major stock market indexes. This provides a valuable insight into the extent to which market values reflect a real shift of sentiment toward equity value, versus the extent to which the value has lost value, driving increases in nominal valuations to simply retain purchasing power. Over the last 35 years, the relative price of Gold1 and the S&P 5002 has oscillated up and down very significantly. In the aftermath of 2008 and the financial crisis, this ratio has regressed toward a value of 1.0, which indicates equal valuation for the S&P 500 index and an ounce of gold. In the latter half of 2010, the S&P 500 vs. Gold ratio dropped below 1.0 as Gold prices were pushed up by speculators seeking to hedge against expected future inflation. Our analysis indicates that this trend is likely to continue through 2011 as monetary expansion inflates both asset classes.
Paying the Man
The current financial situation in the United States is on the precipice of major interest rate increases that will be precipitated by one of two events. The basis for both scenarios is the profligate monetary expansion undertaken by the Federal Reserve over the last year to address a perceived risk of deflation and purchasing bonds from the Treasury to artificially hold down interest rates. This current trend of monetary expansion cannot be sustained indefinitely without consequence.
Fiscally Fit: A Check-Up for Your Financial Fitness
Fiscally Fit: A check-up for your financial fitness
1. What happens to home values when the replacement costs increase?
a. The go up like a rocket
b. They go down because nobody can afford to build
c. They are pulled toward the cost of new construction
d. They don’t change . . . construction costs don’t matter
2. What is happening to the economy now that the debt bubble has burst?
a. The recovery going to happening, because Ben Bernake said so
b. The government attempting to re-inflate the debt bubble in order to stimulate short-term demand
c. It’s just like the great depression, only worse
d. The recovery has already started . . . the government reporting agencies are just suppressing the information
Here’s Where Interest Rates Are Going This Year
One of the principal economic leading indicators for 2011 will be the movement of 10-year treasury rates. The reason for this is because 30-year fixed rate mortgages are indexed against the 10-year treasury, and interest rate movements have a dramatic impact on the affordability of homes.