In this month’s Investment Spotlight, Russell Taylor says between 2009 and 2012 CPI increased by 13.4 per cent while savings returned 6.6 per cent after tax, which amounts to a loss of capital of 6.8 per cent.
Despite brokers encouraging optimism and the US markets selling on price-to-earnings (p/e) ratios of 18 times, corporate profits accounting for 10 per cent of the country’s GDP and equities looking reasonably priced compare to US Treasuries, Mr Taylor says it is a superficial view to buy now and wait for capital gains to compensate for meagre investment income of 2 per cent.
“Congress remains dysfunctional despite major fiscal problems in the US, and the recovery from the 2008 recession remains anaemic,” he writes, later adding, “When – and if – recovery gathers ace, those relative shares of profits and pay will change and profit forecasts will be toned down.”
One major problem, Mr Taylor says, is that ageing populations in the developed world will result in reduced demand for goods, which means lower productivity that will place strains on welfare systems and hamper growth in Europe.
To combat against the grim economic outlook, Mr Taylor recommends holding real assets as a contingency plan. One suggestion is in precious metals and other commodities. “An industrial world cannot do without metals any more than it can do without water and energy,” he writes.