Wednesday, January 5, 2011

How Long Can The SP 500, Precious Metals, & Bonds Rally?

In the fine print of most investment advertisements or in the softly spoken disclaimer at the end of a commercial, we generally read or hear the phrase “past results are not indicative of future performance”. While those exact words may not be written or uttered, something along those lines is found on almost any piece of investment literature or in investment product commercials.

In the 2nd half of 2009 all the way through 2010 a variety of asset classes performed quite well.

Investors who purchased stocks, gold or silver, and bonds anytime in 2009 were handsomely rewarded in 2010 if they held their positions. How long will these assets continue to perform well? How long can gold pump out double digit returns before suffering a bad year? How high can stocks climb when uncertainty seemingly surrounds the marketplace? Price action is never wrong, but history reminds us that a particular asset class does not outperform all other asset classes consistently over long periods of time. Trees do not grow to the sky.

Since 2009 stocks, precious metals, and bonds have all had tremendous performance records. Most economists point to actions by the Federal Reserve as the primary reason because these interventions lowered interest rates to extremely low levels which caused investors to take more risk for better returns. High levels of liquidity paired with low interest rates moved nearly every asset class higher, with stocks and precious metals earning outstanding year over year returns.

With 2011 just starting, will stocks, bonds, and precious metals continue rallying? When looking at probabilities and statistics the odds are not favorable that all 3 asset classes will remain outstanding investments. In fact, it is possible and arguably likely that at least one of the asset classes if not more than one will face headwinds in 2011 and beyond. While Tuesday was only the second day of 2011, precious metals are under significant pressure and the fundamental picture for bonds and stocks is uncertain.

Let me show you just how overbought this market is. Read > How Long Can The SP 500, Precious Metals, & Bonds Rally?


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