Thursday, March 22, 2012

Goldman Sachs Agrees With Our Long Term Investing Call ... Stay Away From Bonds and Buy Stocks

How timely! Goldman Sachs must have seen our blog comments yesterday about preferring stocks over bonds and cash over bonds in the years ahead. See Goldman's Gigantic Bullish Call.

{Just kidding about Goldman following us and then adopting our point of view, of course. That said, it's nice to see them agree with our contrarian call, even if we both should later prove to be wrong. But we're confident about the call, and long ago put our money where our mouth is.}

To repeat what we said on the blog yesterday, the long term outlook for bonds looks bad. We'll try to expand on such a contrary point of view in coming weeks, realizing that this view of bonds as "unsafe" is not exactly mainstream thinking.

In fact, most people would say that we're out in left field. Oh well, what's wrong with playing left field?

While most financial advisors continue to recommend bonds as a fundamentally safe investment, we believe just the opposite will be the result. Even more important, a long term trend is developing which should make stocks a more compelling buy for years to come.

All we need to make this all work out well is to avoid a few really bad breaks and for no worldwide disasters to strike, such as war. And who can plan for that? Not us.

Assuming therefore that common sense prevails (admittedly no slam dunk), cash will outperform bonds in the next several years. And if common sense doesn't prevail, cash will still outperform bonds. Stocks will beat both.

In Goldman Sachs: We Prefer Stocks Over Bonds, Goldman asserts that it's time to say 'a long good bye to bonds.' They also conclude that stocks are a ' long good buy:' Nice play on words.

Here's part of what the article says about Goldman's investing advice:

"Goldman Sachs gave equities a ringing endorsement, saying the asset class is poised to deliver better returns over time than bonds.

Goldman on Wednesday said stocks are preferred over bonds, even though stocks around the world have posted substantial gains this year. Goldman’s call comes amid continued debate about stocks’ prospects, as economic growth wavers in developed nations and has shown recent signs of slowing in developing markets.

“Given current valuations, we think it is time to say a ‘long good bye’ to bonds, and embrace the ‘long good buy’ for equities as we expect them to embark on an upward trend over the next few years,” Goldman’s Peter Oppenheimer and Matthieu Walterspiler wrote in a “Global Strategy Paper” dated Wednesday."

Summing Up

Since it's aligned with the point of view we articulated yesterday as well as several times prior to then, we were pleased to see Goldman's call.

And in brief, here's the investment and economic scene we see unfolding over the next year or so.

Our scenario calls for lower U.S. gas prices over time due to a strengthening dollar along with increased global supply, including North America. The Saudis even seem to have gotten the message and are willing to drill, drill and then drill some more.

Soon our U.S. President, whoever he may be, will go along with the program, too. Why? Because it's the path to economic growth, low inflation and more jobs. In other words, it will absolutely become the right political thing to do, in addition to being the absolute right thing to do.

In addition, a stabilizing and strengthening U.S. economy will cause long term interest rates to rise, thus accelerating the dollar's strength. In turn, this will bring oil prices in dollar terms down more. That will aid U.S. consumers' purchasing power and give a further boost to the domestic economy. A virtuous circle.

Of course, we'll be hearing from the doomsayers and the alarmist inflationistas shortly, but while long rates will increase, they won't become worrisome for at least a few more years. And hopefully not then. So that's the economic picture we see unfolding.

In such an environment of rising rates, it's unsafe to own bonds and will be for at least several more years. But it won't be unsafe to own stocks. To the contrary, it will be the place to be.

More to come on this 30 year admittedly contrarian outlook in future posts. For now, that's my P.

And for those who may not be familiar with the acronym PEGIT, P stands for the reiterative planning process.

Stay tuned as the future reveals itself.

Thanks. Bob.

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