Ten top tips for 2011
Posted on 27 December 2010 with 3 comments from readers
Investors are likely going to face another roller-coaster of a year with a major change of direction for stock markets, a bond market crisis and more pain in real estate. In this conflagration precious metals stand out as both a hedge against consumer price inflation and the devaluation of paper money. So in no particular order:
1. If you have a pension or other investments in bonds then sell out. Interest rates are on the way up and bond prices on the way down in 2011. What started as a modest bond crisis in the periphery of the euro zone will become increasingly focused into mainstream markets, and there is a likely municipal bond crisis in the US too. Basically too much is being borrowed by too many for interest rates not to go up.
2. Rising interest rates do not bode well for stock markets, either in the emerging or developed world. Both look very over-stretched at two year highs. The recoveries in the developed markets in particular do not justify the position of stocks today, and the economic outlook certainly does not. If nothing else GDP growth will be too low to justify these prices.
3. Real estate prices may be looking more attractive in many markets but that does not mean that they cannot go lower in 2011 as interest rates go up. However, important bottoms may emerge in some markets such as US residential and Dubai.
4. Precious metals are the best place to be invested but will be volatile. Silver is the best choice and also the most volatile. But you will eventually be kicking yourself if you have not invested at least part of your portfolio in precious metals in 2011.
5. Oil and industrial commodities look ripe for a major correction. Copper and oil are near a new peak with a double-dip recession perfectly possible for many global economies. The fraction of a percentage growth forecast for Europe could easily turn negative and the US also looks vulnerable to underperformance. China is another case…
6. Will China finally come unstuck in 2011? Jim Chanos proved too early with his short position a year ago but what goes up must come down. More than 60 per cent of GDP is from construction and real estate and all past precedent suggests that this is always an unsustainable bubble.
7. 2011 will be a year of consumer price inflation. But the reality is that many key asset prices will be in deflation. And if commodities get caught in this downturn then consumer price inflation will slow later in the year.
8. The dollar will rally at least in the first half of the year as major financial markets liquidate. But the greenback could well weaken again in the second half as the long term weakness of the US economy becomes more of a worry and cash is invested back into emerging markets and commodities.
9. UAE stock markets may finally bottom out in the summer but we doubt anybody will pay any attention, particularly after the post-Ramadan rally of 2010 crashes down in early 2011.
10. The world will end 2011 better positioned for a recovery than it is now, but few will believe it having suffered another volatile and difficult year. Timing such market movements is very tough in reality and more will get it wrong than right.
But instead of reviewing your investments once a year from a list of 10 top tips why not become a bit more scientific about it in 2011 and do a monthly review with us each time you get your ArabianMoney newsletter? Getting a subscription is our final tip for the New Year (click here to sign-up).
3 Comments posted by readers:
I agree that a person should be in bullion and especially silver, as Ed says. What he doesn’t say, though he may do in the bulletins, is how you get into silver and gold. People are put off the whole idea because they think you have to buy bags and bags of coins or heavy blocks of bullion and store them in your attic or in a safe deposit box in your bank.
Recently, Ed recommended investment in Perth on the grounds that it is backed by a AAA rated Australian State. Well, I looked into Perth after this and found that, in spite of being backed by AAA, Perth also has insurance. Apart from insurance being unnecessary if you’re backed by AAA, the other bullion dealers are also insured. So what’s the difference and what’s the big deal about an AAA exchequer behind you?
Furthermore, I discovered that if you want to buy silver or gold from Perth, you have to TELEPHONE them or to FAX them to arrange this. For goodness sake, we are living in the 2000s when email and electronic messaging is de rigeur.
In addition to telephoning or faxing, you have to communicate with a human being at the other end. If you’re like me, it is the human interaction with brokers etc that really puts me off investing in anything. The beauty of GoldMoney and BullionVault is that you make your own decision and you effect your purchases and your sales on the internet by yourself.
I have been with GoldMoney since last January having invested £80,000 then. I will know exactly at the end of 31 December what gain I have made in 2010 but it is touching 50%. I am mainly into silver which I purchased on line at £11 per ounce and it is today at £19 per ounce. Like Ed I am expecting it to rise more in 2011 than in 2010.
And I have not had to take delivery of this £80,000 worth of bullion. It is all stored for me automatically by GoldMoney in vaults in London and is monitored at arm’s length to GoldMoney by others. I pay rent on the storage but you would at a bank in a safe deposit box, if you can find one free if you live in Germany. It is insured by GoldMoney and I don’t really care about the UK’s AAA rating as regards my bullion purchases.
Ed Note: These are of course well known and reputable operations but private sector and not rated. You buy gold for safety and security so it seems sensible to go for the maximum of both available.
Thanks for commenting, Ed! You say that an AAA rating plus insurance is really more sensible than just insurance because these eDealers are private sector and, by implication, might go bust or whatever.
However, you are missing the point that the safety is not with the eDealers such as GoldMoney but with the Vault owners. OK, they are still private sector, true, but they are professional vault keepers, whose livelihood depends on their vaults being so secure that they never lose business because of theft.
So, my gold and silver is insured and it is guarded by professional vault owners (Mat or BrinksMat or some such name). Furthermore, it doesn’t matter to me if GoldMoney goes broke or crashes in some way because the bullion in the vault owner’s vault does not belong to GoldMoney. It belongs to me!
You can hype up storage risk of bullion if you wish but there is, as you rightly advise us, enormous counterparty risk in holding bonds or shares or property, whereas I have no counterparty risk whatsoever.
Sure, there is the risk that the vault will be robbed rotten but then there is the risk I’ll lose all my money in shares or bonds where there is no insurance let alone AAA protection, because that’s where some people will leave their wealth if they are frightened off or put off (as in the case of Perth) by complexity and telephone calls.
The likelihood of the vault being robbed is sufficiently low to enable me to ignore an AAA rating if the ease of buying and selling is much, much greater with GoldMoney or BullionVault than it is with Perth, whom you have to telephone or fax.
I have just read that UK shares have risen by 11% this year and that experts expect a rise of 25% in 2011.
Well, I’ve just checked my bullion figures and I have made a gain to this evening of £43,093 on £80,000 which I invested on 4 January 2010. This is a gain of 53.86% and the year has not finished yet. With silver rising as it has done today, I might reach 55% for 2010.
When you realise that the fund managers take their share of your 11% share price rise (if you get the lucky shares), then my 54% looks excellent. I pay the eDealer up front when I purchase and nothing on selling. Dividends have been, on average, 3% I understand, so gold and silver has vastly outperformed both share price + dividend for one very ordinary guy, who has done it without a professional intermediary.
I do recommend the eDealer GoldMoney especially for simplicity compared to BullionVault which baffles me.