What's the Fed's next move
With the stock market up over 50% last year, talk of a V shaped recovery, green shoots, and other aberrations, most analysts expected the economy to resume growing as if 2008 was some sort of unpredictable outlier. With interest rates at 0, and massive government spending programs, the biggest concern for mainstream media was that the economy might grow too fast.
However, it seems evident that even the Federal Reserve doesn't believe in the green shoots theory anymore. Despite government intervention, economic indicators are rolling over, money supply measured by M3 is declining, and financial stress is increasing. Europe is now in an economic crises that could easily spread, and oil is filling the Gulf of Mexico. Risks of a shock to the financial system are everywhere.
Some analysts have been arguing that interest rates must rise to compensate bond holders, however the European crisis has been a gift to the dollar and treasuries so interest rates have remained low. A spike in interest rates appears unlikely in the near term.
If the current trajectory continues, there could be another sharp correction in equity markets globally but US assets may perform the best in comparison, especially treasuries. This could trigger another bout of financial asset deflation and panic. But what can the Fed do now that interest rates are at 0? Will Robert Prechter finally be right after so many years?
Unlikely.
The Fed will never be out of bullets as long as there is a fiat currency - for better or worse. The Fed would probably resume quantitative easing programs on an astronomic scale. And it might even work for a while.
Asset Allocation of Gold and Silver - What is the Right Allocation?
There are a lot of options for you when it comes to investing, like stocks and bonds. So why would you even consider investing in gold and silver? Are they not too risky, especially for beginners in the market, and even for those who are already been trading for quite some time? You can bring down the risk level as long as you have some ideas about proper asset allocation of gold and silver.
Studies have shown that an allocation of an investment portfolio in gold and silver can protect against inflation, hedge against a market downturn, and increase overall performance over the long run. But what is the right mix of gold and silver in your portfolio?
Portfolio experts advise having an asset allocation of anywhere between 5% and 25% in precious metals. Your asset allocation in gold and silver depends greatly on your individual needs, risk profile, and also to a large degree upon the other investments in your portfolio. For example if most of your assets are already real estate, oil trusts, or other commodities, your are also hedged against inflation and may not need a large portion of your money allocated towards gold or silver. On the other hand, if you have no commodities exposure, and hold long term bonds, it may be best to allocate a significant portion towards precious metals.
An allocation of precious metals may be broken down further into equities, such as gold and silver miners, and bullion. From there, advisors also suggest breaking down the allocation between gold and silver. Larger investors may also acquire platinum, but the core holdings should be gold and silver.
Now, is it better to invest in gold, or in silver? While both are good choices, a half and half plan is not necessarily the ideal way to build your portfolio. Gold is much less volatile than silver, investors looking for liquidity in something that they can sell quickly may want to start with gold. However, silver has more upside potential over the long run and will likely benefit more from an economic recovery due to its industrial uses. For this reason, investors looking for a return on capital may want to allocate a larger proportion towards silver.
During a bull market in precious metals, it is better to invest more on silver; perhaps ten percent of your portfolio is silver and five percent in gold. This is because silver rises faster as compared to gold.
One place to build a precious metals portfolio is Tradeplacer.com