Before I decipher my title, I need to give well-deserved credit where credit is due. As you know kortsessions.com is all about going after the media on the fear, distrust and misinformation that it continually sows. Sometimes, however, they get it right. One columnist, who seems to pop up often on the right side (as I define it) of pressing investment issues is Chuck Jaffe, a frequent contributor to MarketWatch. His work today, “Investors double down on dumb idea” (MarketWatch-4/27/2014), is worth your attention. The article discusses the possibility that those seeking too much safety might find themselves worse off than those who are too aggressive with their investments. Jaffe posits that taking no risk at this juncture may be worse than piling on risk at market tops…classic individual investor behavior.
Is this the classical pattern?
According to Jaffe’s piece and surveys conducted by Bankrate.com this week and in 2012 and 2013, the answer is NO. Bankrate’s most recent survey (this week) states, “…nearly three quarters of Americans said that they were not inclined to invest in the stock market right now…,” regardless of the fact 0f it having produced great returns since 2009 vs. paltry returns on cash and fixed income investments.
Jaffe reports, “Those numbers held across all ages and income groups, and mirror results from surveys done in 2012 and 2013, where 76% of Americans said they were not inclined to increase their stock market exposure.”
The good news and the bad
That’s the good news. This type of risk aversion is not indicative of a “Bubble” or “Market Top.” The bad news for the risk-averse according to Jaffe is “…money kept on the sidelines does not face principal risk…it runs headlong into purchasing power risk (inflation) …and longevity risk, when current returns are insufficient to make their money last their lifetime.”
In the final analysis, I think that, long-term, inflation is the major risk we all face. What even makes me more certain about this, is the current lack of concern or belief that most have that this will be the real issue. It is a topic that is really not on most people’s radar screen, accept those on the fringe, like Peter Schiff. Schiff has been a perma-bear and goldbug to such an extreme and for so long, he has lost all credibility. He is a stopped clock that is likely to be right someday. Ironically, Schiff’s latest post (“Reckless Fed may push gold to $5000.00”) is one of the most sourced articles on MarketWatch today. Jaffe’s article did not even place. I guess fear sells.
Inflation can be a good thing, if you own assets
In an inflationary time it is good to own assets, which will generally increase in value vs. devalued currency. You do not want to be a lender as your repayment will be in devalued currency. I am agnostic as to what type of asset you prefer. I happen to be very comfortable with common stocks as a way to protect purchasing power. I detailed what I think is a pretty compelling case for a resurgence of inflation back in February of last year in Session 7 (“My Biases…”). Session 7 does not predict when inflation comes back (impossible), but it makes a compelling case for it to rear its ugly head.
Good article, Jaffe. I like it when people agree with me!
What do you think?
The information presented in kortsessions.com represents my own opinions and does not contain recommendations for any particular investment or securities. I may, from time to time, mention certain securities for illustrative purpose, names where I personally hold positions. These are not meant to be construed as recommendations to BUY or SELL. All investments and strategies should be undertaken only after careful consideration of suitability based on the risks, tolerance for risk and personal financial situation.