A weak global economy makes stocks a weak investment choice now and gold a strong one, which could push the precious metal to $5,000, says Janet Briaud, CEO of Briaud Financial Advisors in Bryan, Texas.
“Valuations matter,” she told Newsmax.TV Money.
“Over the last 10 years valuations were very high except for a short time in April 2009. Stocks are still very overvalued, and you’re not going to get much return over a long period of time.”
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Briaud has only 10 percent of her clients’ assets in stocks, compared to 20 percent in Treasury bonds, 20 percent in municipal bonds, 5 percent in gold bullion, 5 percent in other commodities and 40 percent in cash.
To raise the equity weighting above 10 percent, Briaud will have to see attractive valuations. “At the end of long-term bear markets, stocks go from very expensive to very cheap.”
She’ll wait for stock dividend yields of 4 percent to 5 percent and price-earnings ratios of 10-to-12 before getting bullish again.
Bear markets generally last 12 to 15 years, Briaud says. So if you mark 2000 as the beginning of the current bear market, it could go two to five years more, or even longer, she says.
So how did Briaud come up with her asset allocation weightings?
The key factor to remember is that you’re trying to beat inflation by 3 percentage points, she says. So with core inflation, which excludes food and energy prices, running at a 0.9 percent rate now, you need only a 4 percent return.
On that basis, Treasuries and munis offer good value. The stocks that she does like are safe ones with high dividends.
Briaud also favors mutual funds that offer long-short strategies much like a hedge fund. She cites Hussman Strategic Growth as an example.
As for gold, Briaud is bullish because of worries about the dollar and global economy. “We see gold possibly going to $3,000, and we wouldn’t be surprised if it goes as high as $5,000,” she said.
To be sure, she sees gold falling back from its present level of about $1,184 an ounce before resuming its rally. Already the precious metal has slipped from June’s record high of $1,265.
“We had a 10 percent weighting and pulled it down to 5,” Briaud said.
Still, “It’s a safe haven investment, and this is what I call the winter of economic seasons. You want to protect self against storms, and gold is one of the protections.”
Gold’s rally will end when everyone feels they must own it, regardless of price, she says. “That will be our indicator that it’s probably overdone.”
On the inflation front, Briaud feels the current low inflation rate will turn into deflation. “You have wages coming down, high unemployment, very low velocity of money,” she said.
“Banks aren’t lending. People aren’t borrowing. It’s just not an inflationary environment.”
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