October 2, 2022

Archives for March 2011

Nine Reasons Why You Should Absolutely Not Own Gold

As the mainstream press becomes more aware of gold’s decade long advance, the chorus of reasons for not owning gold seems to become louder ever day.   What if the conventional thinkers are correct?  Is gold an over owned and over priced asset that was run up by uninformed investors who are now on the verge of incurring steep losses?

With an open mind, this writer decided to dispassionately review the reasons for NOT owning gold.  I read numerous articles detailing why gold is a bad investment, why it should not have increased in price and why it is certain to disappoint investors.   At the conclusion of my reading exercise, it became obvious that there are, in fact, reasons why gold should be avoided.

I have listed, in no particular order, nine sound reasons for not owning gold.  If you believe that the following events will occur, there is absolutely no reason to own gold, other than perhaps an occasional jewelry purchase.

  1. The Federal Reserve and other central banks worldwide will institute sound money policies that eliminate inflation and maintain the purchasing power of their currencies.
  2. The world economy is on the verge of a golden era of long term, uninterrupted real economic growth.
  3. The risk of default by over indebted nations, businesses and consumers will disappear as the world economy enters a period of high growth.
  4. The return on competing assets such as real estate, bank savings, stocks and bonds will all exceed the return available from holding gold, a non income producing asset.
  5. The rate of inflation will remain minimal.
  6. The benefit of gold’s negative correlation in a portfolio will become unnecessary due to the elimination of black swan events by world governments.
  7. The price of oil and other commodities will remain stable due to abundant and uninterrupted supplies.
  8. The central banks and other large gold holders will liquidate gold positions to redeploy assets into higher return paper assets.
  9. The belief  that gold has intrinsic value, a concept dating from the dawn of human civilization, will gradually disappear as the glow of world prosperity ushers in a new era of  intellectual enlightenment.

Americans Stubbornly Deny All Time High In Personal Income

American workers should be celebrating the latest numbers from the U.S. Department of Commerce that show personal income at all time highs.  Since taking a rather sharp dip during the recession of 2008-2009, personal income has soared to almost $13 trillion, up from $12 trillion in early 2009.

Getting Americans to believe that their incomes have actually increased is another story.  While the Department of Commerce is reporting all time highs in income,  another survey released by Fannie Mae shows the opposite.

Fannie Mae (FNMA.OB) conducts a National Housing Survey every quarter that polls homeowners and renters in depth about their confidence in homeownership, overall confidence in the economy and the current state of their household finances.

The latest National Housing Survey for the fourth quarter of 2010 polled 3,407 Americans and the results do not reflect the rosy income numbers reported by the Department of Commerce.

The survey revealed that 62% of all respondents believe the U.S. economy is on the wrong track, 60% reported that monthly household income was the same as a year ago and 34% said that their monthly expenses were “significantly higher” than a year ago.  Only 19% of those polled said their incomes were significantly higher.

Keep in mind that Americans do not normally “inflation adjust” their perception of personal income – when respondents say that their income has not changed, it means they are receiving the same absolute amount of dollars, unadjusted for inflation.

Total personal income may have increased but income gains seem to have been limited to a small minority of Americans.

In any event, if most Americans have not seen an increase in their monthly incomes, there is little reason for comfort going forward.  As higher oil and commodity prices work their way through the system, the basic cost of living will increase for everyone.  If that’s not enough, once Fed Chairman Bernanke’s obsession with creating higher inflation succeeds, we are all apt to feel poorer.