|»5 Minute Wrap Up by Equitymaster|
On This Day - 25 APRIL 2012
Should you buy more gold than stocks?
In this issue:
------------------------------- How Gold can make you richer in one other way -------------------------------
Meanwhile, central banks in the US and Europe are not yet done with their money printing exercise. Hence, concerns over runaway inflation are far from being quashed. In such a scenario no asset class other than gold can offer the safe haven security for wealth conservation. There are even talks about some troubled countries moving back to the Gold standard due to the depreciation in their currency value. So is gold the best asset class to invest in?
As per statistics from a business daily, over the last 10 years, the annualized returns from gold has been 6 times that from US stocks (considering Dow Jones index). In fact the returns from gold outperformed stocks over a 50 year period as well. However, if one considers a 30 year period, the returns from stocks were much better than gold. Hence the returns purely depend upon the level of inflation, performance of the economy and corporate over a given time period. Companies in America may fail to keep up with the rise in the value of gold over the next decade. This is given the fact that currencies like the US dollar and the euro may lose value thanks to the excessive money printing.
However, for Indian investors the considerations could be very different altogether. For one, the central bank is extremely conservative about liquidity management. Plus despite relatively lower GDP growth, companies will continue to sustain good inflation adjusted profit growth. Hence the scope for returns from good stocks is much higher than in the US. No doubt the inflation adjusted returns from gold can add value to an Indian portfolio as well. But be in no doubt that there are several stocks that have the same virtue. Hence, take the stunning statistics about the outperformance of gold over stocks over a long period in the US with a pinch of salt. We believe Indian investors would be better off keeping their exposure to the yellow metal limited. In fact a larger proportion of good quality stocks than gold would do much more than keeping your portfolio inflation proof.
What we just did was explain in simple terms the phenomenon that is underway in the western world currently and on a much larger scale. Little wonder, people are worrying themselves sick over the sharp fall in the purchasing power of money. And if this isn't scary enough, experts opine that the phenomenon has just started. Eventually, all the money is likely to vanish into thin air. Businessinsider.com is of the view that the collapse of the monetary system will give rise to alternative system of exchanging goods and gold and silver could also enter into the equation. But before this happens, it is going to be one hell of a turbulent ride we believe.
Having said that, it may have to get ready to face stiff opposition from airport employees. For instance, the AAI had to invest substantially on its own in the modernization of Chennai and Kolkata airports. This is because employees opposed the PPP route. However, the Delhi and Mumbai airports have been modernized through PPP. Not everything is hunky dory with PPP either. The main problem that the PPP model faces is execution delays and cost overruns. But with the AAI strapped for cash, allowing private players to enter this space seems to be the only option.
It is estimated that some students in England will leave school with about US$ 64,200 (approximately Rs 3.4 m) of debt. Compare that with average student debt of US$ 23,300 in the US. What does this mean? For one, graduates will defer buying homes. For the lower income groups, the impact will be even worse. These countries will witness another generation of debt slaves. Though there are a lot of surprising twists as far as repayments are concerned, the biggest problem is debt itself. With job creation in these economies being very lacklustre, such huge debt burdens are nothing but financial bombs of the future. When they burst and how much wealth destruction they cause is just a matter of time.
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