Monday, August 8, 2016

The problem with selling everything is .........

Jeff Gundlach in the US expressed the view that you should sell everything including your children because there is nothing to buy. Philosophically, I agree with his view except the following, let us say you have $10 million and you sell everything, your shares, your property, your bonds, your gold and commodities, what will you do with the money? You can put it in a bank but what if that bank goes bankrupt? Because if you are really bearish about equities and bonds then the chances that there will be a financial crisis is high. 

Say if you have your money with Credit Suisse or Deutsche Bank or any European bank for that matter, there is a risk, including all the US banks. 

So, I say to myself the madness of central banks can go on for long time. The US treasury and Federal Reserve have stopped with their quantitative easing (QE) for now. 

However it has been replaced by the ECB and the Bank of Japan, they essentially bought assets worth $180 billion every month and I am quite sure that QE4 in the US will follow some time when the economy weakens in the one or the form because the treasury departments of countries and the central banks they of course work together. So, in this environment I still want to own some precious metals. 

This year silver has outperformed gold and in the last couple of weeks platinum has outperformed gold and of course the best performing shares were gold and silver shares this year. No group comes even close to it. I would hold some precious metals, I would hold some real estate. I think there are some problems associated with real estate like real estate taxes and so on but in India there is still plenty of opportunities in real estate especially in terms of families owning second home in resort areas. 

Then I would own some equities. When it comes to bonds and cash I agree with people who say US treasuries are unattractive, yes that is correct but what would you rather own? A 10- year Japanese government bonds at negative interest rate or a 30 year Swiss franc bond at negative interest rate or a 10 year treasury at the yield of over 1.55 percent? Treasury is not attractive but relative to other sovereign bonds and $12 trillion worth of bonds trading at a negative yield, relative to these bonds I would say treasuries are reasonably attractive.