Recent comments in Patient Capital’s Q3 newsletter really caught my eye. In it, value investor Vito Maida cites two new asset bubbles that are currently in the making.
Here is what he said,
The current interest rate environment coupled with the belief that interest rates will remain low for some time has created two new asset bubbles; long term debt and gold. In our view both government and corporate long term bonds are the riskiest asset classes today. Investors have flocked into these securities in order to receive some income and as a flight to safety after the recent losses in equities.
At current bond prices we strongly believe prospective returns are very low while the potential for loss is extremely high. If interest rates were to rise to only one half of their historical average fixed income securities would suffer substantial losses! We would recommend only very short term fixed income securities at this time. For those looking for income, high quality dividend paying equities are safer and will likely provide returns that are superior to fixed income alternatives over the next several years.
The rise in the price of gold has been fuelled by the belief that the U.S. dollar will be dramatically devalued as the Federal Reserve attempts to inflate its way out of the current debt crisis and/or the fear that the global financial system is on the verge of collapse. We believe that the former view is overstated as global currency devaluation will keep the American dollar competitive on a relative basis to other major currencies and that the latter view is extreme.
In addition, the fundamentals do not support gold prices at these levels. Supply and demand are approximately in equilibrium, the current price is substantially above the cost of production and today’s gold price is considerably above its long term average. Anecdotal evidence also suggests that gold is in dangerous territory; it has caught the public’s attention, the media is focusing on gold and a plethora of gold related investment products are being created and successfully sold to the investing public. Like bonds, at today’s gold price there is a high probability that the returns achieved from an investment in gold are not likely to produce a return that offsets the risk of substantial capital loss.
Vito Maida’s thoughts on Gold are exactly what I have been saying for a while now. All you can look at is the margin cost of production to give you a clue to the price of gold. But overall, it’s mainly all the hype in the news, on the radio, and even in the vending machines now dispensing gold.
If anyone has an accurate way of valuing the price of gold I would be very interested in hearing it.
Best Regards,
Kevin
[url=http://canadianvalueinvesting.blogspot.com]canadianvalueinvesting.blogspot.com
[/url]
To read the Patient Capital’s Q3 newsletter, Click Here.
Here is what he said,
The current interest rate environment coupled with the belief that interest rates will remain low for some time has created two new asset bubbles; long term debt and gold. In our view both government and corporate long term bonds are the riskiest asset classes today. Investors have flocked into these securities in order to receive some income and as a flight to safety after the recent losses in equities.
At current bond prices we strongly believe prospective returns are very low while the potential for loss is extremely high. If interest rates were to rise to only one half of their historical average fixed income securities would suffer substantial losses! We would recommend only very short term fixed income securities at this time. For those looking for income, high quality dividend paying equities are safer and will likely provide returns that are superior to fixed income alternatives over the next several years.
The rise in the price of gold has been fuelled by the belief that the U.S. dollar will be dramatically devalued as the Federal Reserve attempts to inflate its way out of the current debt crisis and/or the fear that the global financial system is on the verge of collapse. We believe that the former view is overstated as global currency devaluation will keep the American dollar competitive on a relative basis to other major currencies and that the latter view is extreme.
In addition, the fundamentals do not support gold prices at these levels. Supply and demand are approximately in equilibrium, the current price is substantially above the cost of production and today’s gold price is considerably above its long term average. Anecdotal evidence also suggests that gold is in dangerous territory; it has caught the public’s attention, the media is focusing on gold and a plethora of gold related investment products are being created and successfully sold to the investing public. Like bonds, at today’s gold price there is a high probability that the returns achieved from an investment in gold are not likely to produce a return that offsets the risk of substantial capital loss.
Vito Maida’s thoughts on Gold are exactly what I have been saying for a while now. All you can look at is the margin cost of production to give you a clue to the price of gold. But overall, it’s mainly all the hype in the news, on the radio, and even in the vending machines now dispensing gold.
If anyone has an accurate way of valuing the price of gold I would be very interested in hearing it.
Best Regards,
Kevin
[url=http://canadianvalueinvesting.blogspot.com]canadianvalueinvesting.blogspot.com
[/url]
To read the Patient Capital’s Q3 newsletter, Click Here.
