Asset Allocation

Now marketing himself as a “rogue economist,” Harry Dent is forecasting “gold down to $750 an ounce, housing down 35%, oil down to $10 a barrel, the Dow down to 6,000, [and] a war between inflation and deflation” this year. His swami-like predictions in the past have been truly dreadful but, unlike most of his ilk, Dent has perhaps offered something actionable, if not in the way he intended. Let me explain.

Over the next couple of months everything should generally rise together but once the dollar puts in an intermediate bottom sometime in March or April, commodities and gold will move down into an intermediate correction as the stock market completes its final blow off top. After the stock market parabola collapses later this summer it will be time to put the pedal to the metal in the commodity markets, and especially the precious metal markets as the Great Inflation begins in earnest.

If you have 401k assets, are a financial professional or individual investors looking to construct portfolios and not move monies very often, and looking to beat inflation over an extended period of time, the chart below is well worth being aware of.

Very poor sentiment towards gold and oversold conditions is reminiscent of the conditions seen in late 2008 and January 2009 [as seen in the chart below] when gold prices had fallen by more than 25% in 9 months. Subsequently, gold rose from a low on January 15, 2009 at $802.60/oz to a high less than 12 months later at $1,215/oz for a gain of over 50%. A similar move today would see gold above $1,800/oz by year end.

Following a brutal year for bullion in 2013 and an even worse year for gold miners, those bullish on the yellow metal and the companies that extract it from the earth may finally have something to hang their hats on.

While the S&P 500 yields less than 2%, much higher yield with specific stocks can be found. The key, though, is to find higher yield that is sustainable and will lead to wealth accumulation over time. Below I identify 3 such stocks and explain why they might be good choices for your portfolio in 2014.

There’s no fear anymore - anywhere - and I’m talking about the type of fear that overwhelms investors – and, in turn, the market. The surest indication of this can be found in the following chart.

Each December we publish a list of investment themes that we feel are critical to the coming year. Below are our expectations for the U.S, Japanese and European stock markets, municipal bonds and gold.

The stock market is likely to experience a 4-year overall market loss of -25%, followed by positive 9% average annual total returns for the S&P 500 over the subsequent 6-year period, which would compound to produce a 10-year total return averaging 2.3%.

While the stock market is the only game in town - for now - stocks will not continue to out perform all other asset classes indefinitely. Eventually either bonds and gold will rally or stocks will crash very hard. It is one, the other, or even more likely a mixture of both.