The Long Term

THE LONG TERM VIEW
My long term view is
1) equities will go down
2) the US dollar will go down
3) commodities and other hard assets (e.g. precious metals, real estate, timber, oil, gas, potash, etc) will go up.

Why?
1)In the end, people buy stocks for their earnings. Bull markets start from undervaluation, and end at overvaluation. Bear markets, then, start at overvaluation and end at undervaluation. The equity market now (11/04) is by no stretch of any historical imagination (price to earnings, price to sales, price to book, dividend yield) anything other than overvalued. The only question is how overvalued. Thus, we are either at the end of a long bull market or the beginnings of a bear market. Over the long term (several years), it is hard for me to see equities in general going up. Certainly, however, the long term is made up of many instances of the short term.

2) Nixon took us off the last vestige of the gold standard in 1971. The smart old guys say that fiat currencies always get inflated away to nothing. We've done okay for 30+ years, but the last 3-4 years the Fed has increased the money supply at a historic clip. Use any measure you want--monetary base, M1-2-3 whatever, they're printing it like crazy. (parenthetically, I sometimes wonder why they bother with anti-counterfiting measures--seems like the criminals are doing the Fed's work for them). This, along with the low short term rates the Fed seems committed to can only mean the dollar continues to go down.

3) Stocks go down, dollar goes down, short term rates are low, what can people buy? Stuff--real estate, gold, silver, oil, gas, timber, copper. It doesn't hurt that China is awakening from a slumber of several hundred years, and needs all this stuff.