Email of the day
Comment of the Day

October 31 2012

Commentary by David Fuller

Email of the day

On recent Comments:
"I have been enjoying your commentaries recently. You provide some structure to my thought process during these crazy times. In addition, I would like to compliment Eoin; he gave a very good presentation recently at Basin Harbor. Many of my fellow delegates were very impressed.

"I attach a recent Dylan Grice article I came upon. There is a lot of wise comment within the note."

David Fuller's view Many thanks for the feedback which is much appreciated. I know that Eoin and Mrs Treacy enjoyed the Contrary Opinion Forum, which is hard to beat for ambiance and good company.

Thanks also for the report by Dylan Grice of SocGen. I liked its measured tone and sensible conclusions. Here are two brief samples for Subscribers:

Our second observation is what constitutes the 'safe haven' changes over time. It's important to remember not only that government bonds aren't always the market's safe haven, but that that there will always be a safe haven somewhere. For all the headlines about the billions wiped off stock market values during market routs, that money had to go somewhere. It doesn't just disappear. It will go into whatever the safe haven is, which in normal times will be bonds. But what happens when government bonds themselves fall victim to the primary ills of the day? In the 1970s, bonds were no place to seek refuge from the inflation and so the safe haven mantle passed to gold (see following chart). This is one reason I remain a gold bull.

And:

So besides gold, another candidate for safe haven status in the event government bonds become unreliable in that department are equity securities in high quality and robust businesses. I therefore remain very bullish of these too. In recent months, some of you have voiced concern that the time might not be right to buy such names because they have become very overvalued. The following chart suggests otherwise. It compares the forward PE ratios on Quality Income equities (shown here using the SGQI) with those of the overall market. While the overall market is arguably attractively priced (certainly more attractively priced than it has been for some time), the SGQI is priced in line with its historical average. That implies that expected returns from here should be consistent with its long-run average return, which has been around 6-7%.

I maintain that gold bullion (weekly & daily) and its sister precious metals have much more upside than downside from current levels. Additionally, Fullermoney continues to view high quality equities - from Autonomies to Dividend Aristocrats, as a safe haven. We also like them for performance, subject to price action which Eoin continues to review on a frequent basis.

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