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Financial Fitness & Life Planning

Precious Metals

I want to focus this month on precious metal investments, a category that I have suggested investors such consider for protection against inflation and weakness in the dollar. After making new highs at the end of last year and the very beginning of this year, gold and silver have been correcting ever since. This should not be alarming since no quotable asset price ever goes straight up. There are always reversal periods of consolidation and pullbacks, sometimes nasty ones, along the way to new heights. 
United States fiscal policy is to run a $1.5 trillion deficit this year, with no end in sight to trillion-plus dollar deficits. There appears to be no real, true political will to change the status quo, only political posturing and references to the need to address the deficit without actually taking any action. I’m afraid words will not translate to action until there is a crisis, and that is what investors should consider preparing for. Furthermore the budget situation is a mess at all levels of government thereby making the pressure that much greater once the drama begins to unfold. Meanwhile, monetary policy continues to be to pay savers nothing and increase the supply of currency at a scale that is unprecedented in our history. The market has already begun to see through it by increasing longer term interest rates dramatically, despite the ironic fact that the Fed is buying treasuries in an attempt to accomplish the exact opposite result. 
It is difficult for me to foresee any result from all of this other than large scale inflation and a debasing of the currency. Indeed serious inflation is already showing up in official inflation measurements in emerging markets and Europe and in food and energy prices all over the world. The unrest in northern Africa and the Middle East is partially attributable to this fact.
As for the stock market, it is reasonable for investors to focus on value-priced quality as long as it is in his or her comfort zone regardless of market conditions. I have serious concerns, however, that the broader market is vulnerable to the aforementioned macroeconomic concerns in the form of profit margin pressures due to rising input costs, higher interest rates and higher taxes. Valuation contraction also usually follows suit after margins decline, creating a double negative effect. 
Michael H. Berlin, CFA, CPA, is the founder and portfolio manager of MHB Equity Partners, a value-oriented private investment partnership. He previously worked at Lehman Brothers, and before that at Ernst & Young. Mr. Berlin holds an MBA from Columbia and a BBA from Michigan.
The information included in this article is not intended to be used as a basis for making investment decisions nor should it be constructed as a recommendation to buy or sell any specific security. Consult your investment professional for additional information and guidance.

Michael can be contacted at and at (631) 629-4928.


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Today is: December 12, 2018 - 3:59pm
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