Four reasons this investment strategist likes hard assets (especially gold)

November 3, 2015 02:00 PM

In September, former Morgan Stanley Investment Management Chief Global Strategist Joe McAlinden announced in an interview with The Gold Report that he had reversed his view on commodities. In this interview, he predicts that the gold price could double in the next two year and envisions even more upside for the mining equities.

Joe McAlinden has more than 50 years of investment experience. He is the founder of McAlinden Research Partners and its parent company, Catalpa Capital Advisors. Previously, McAlinden spent more than 12 years with Morgan Stanley Investment Management, first as chief investment officer and then as chief global strategist, where he articulated the firm's investment policy and outlook. He received a bachelor's degree cum laude in economics from Rutgers University and holds the Chartered Financial Analyst designation. McAlinden has served on the board of the New York Society of Security Analysts.

The Gold Report: At the end of 2014 you described yourself as a reluctant bear on the U.S. stock market. Why?

Joe McAlinden: I said "reluctant" because I really don't like being negative on U.S. equities. After all, stocks go up two years out of three, and so the odds are against betting on a big decline. Nevertheless, after five decades at this game, I have come to believe there are rare moments in market cycles when prudence dictates going against the crowd. And the conditions that I observed at the time had me very concerned about the sustainability of this rally without a big correction. For a while that position seemed out of touch as stock prices surged to all-time highs during the first five months of 2015, but the S&P 500's 12% correction from its peak in May now suggests otherwise. Based on extended valuations, lagging small caps and a more hawkish path toward the normalization of interest rates, the really big decline I have been looking for is, in my view, still lurking dead ahead.

TGR: If your prediction is true, how can investors protect themselves and their portfolios?

JM: There are always some things that go down in a rising market or up in a falling market. . .or at least go up or down by less. Value stocks, for example, have performed very poorly relative to growth stocks for eight years, but we believe this is in the process of reversing. More recently, there are sectors of the markets that have declined significantly more than the broad list of U.S. equities: Energy has been clobbered along with other industrial materials, and precious metals have been annihilated, with the price of bullion down 40% and gold miner stock prices down 80%.

TGR: When we talked in September, you said you were turning into a reluctant bull on hard assets, particularly precious metals and especially gold. Why?

JM: Decades of experience have taught me that trying to catch a falling knife is a dangerous undertaking. Nonetheless, there are a number of reasons why overweighting hard assets like gold looks to me like the right decision at this juncture.

Click "next" to see our four reasons:

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