Should I invest in a mattress to hide my cash or re-enter the stock market that burned me so badly in 2009? What would you do?
When economists recommend investing in a gun to defend against people desperate for food and money, you may start wondering if the financial outlook is as rosy as it appears on the surface. The stock market is nearing pre-recession highs and unemployment is slowing falling. This isn’t the economic equivalent of The Walking Dead. Or is it?
The gun tip is attributed to Gerald Celente, a forecaster with The Trends Research Institute and one of a growing band of doomsayers who warn us that we’re one asset bubble away from a global recession or worse.
It’s not too hard to guess the scenario put forth by Harry Dent, author of The Great Crash Ahead. Robert Prechter, who wrote Conquer the Crash, also says depression - and he isn’t talking about mood disorders. Prechter recently told USA Today that our modest recovery will soon spiral down in a 1930s-style deflation as stocks lose more than half of their value.
Ben Bernanke, chairman of the nation’s central bank, plays Polyanna to Celente’s Cassandra. He and other analysts at the Federal Reserve, tell us that the American consumer – that’s you, me and all of our available credit – is feeling spendy again despite the dark cloud settling over the European economy and signs that the economic machine known as China is slowing down.
Consumers are ramping up spending, yet inflation will remain tame and the economy will grow at the moderate rate of 2 percent, picking up steam toward the end of the year. The Fed has even dropped the “F word” – fragile – when describing the U.S. economy.
Who to believe? Do I buy a bigger mattress for hoarding my cash and gold, or do I re-enter the stock market that burned me so badly in 2009? Warren Buffet says I’m a fool if I don’t buy stocks, which he sees as still attractively valued. (Alternatively, he recommends taking advantage of the great deals available in the still depressed housing market.)
Bond king Bill Gross – co-founder of PIMCO, provider of the world’s largest mutual fund - seems to agree with Buffett’s bullish assessment of equities. Keep in mind that even Buffett and Gross – who lost big time in his bet against U.S. Treasuries last year – can get it wrong.
In a January investment outlook not so reassuringly called “Towards the Paranormal,” Gross predicts that stocks will outperform bonds in the near future, but he cautions investors to stick to industry sectors and companies with stable cash flows as the world economy enters an ominous new phase: “It’s as if the Earth now has two moons instead of one and both are growing in size like a cancerous tumor that may threaten the financial tides, oceans and economic life as we have known it for the past half century.”
Still not sure what to do in the face of so much grimness? Me neither. Perhaps I’ll hedge my bets, buy a bigger mattress and increase my exposure to stocks – but under absolutely no circumstances am I buying a gun!