What you should buy now

By MoneyWeek Editor John Stepek Sep 25, 2009

John Stepek

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The stockmarket's in a bubble. But don't worry – it's a rational bubble. That's what hedge-fund manager Crispin Odey reckons. Writing in the Financial Times this week, Odey – who called both the peak and the bottom of the markets, and so is worth listening to – pointed out that as long as the government is pumping cheap money into the system, investors will convert that money into assets.

Odey's view makes some sense. However, it doesn't entirely explain why it's the cyclical stocks – those most dependent on economic growth – that have shot up so rapidly. Odey himself states that "we are not in a sustainable recovery". So as soon as the money-pumping stops, those firms are the ones that will suffer most. That makes me reluctant to stick money into the market indiscriminately.

The good news is that, as David Rosenberg of Gluskin Sheff and Associates points out in his latest bearish missive to cross my desk, the best value sectors right now are also those that are arguably best placed to survive any further downturn – defensive plays, such as consumer staples and healthcare. I'd rather invest in sectors like these, which are cheap and generally paying very attractive dividends, than chase the broader UK market 'bubble' higher.

One asset that's certainly not in a bubble is gold. That might surprise you. After all, the yellow metal's been drawing its fair share of attention recently. Full-page advertisements in the broadsheets exhort you to buy gold coins. We've heard all about the 'tupperware'-style parties where you can sell your gold in the comfort of your own home. And let's not forget the tales of gold vending machines at German airports. So when I asked this week's Roundtable experts for their views on gold breaching $1,000 an ounce, I expected at least some sort of reaction. Yet it's fair to say that the attitude displayed was, at best, one of sceptical indifference.

The fact our men in the City could barely muster the enthusiasm to talk about the one asset that is still trading near its all-time high (not adjusting for inflation) hardly smacks of an investment mania. I'm not saying gold will spike anytime soon – it may even sell off along with the markets when we see a correction – but with both the dollar and the pound looking ever-more wobbly, I'm more convinced than ever that it's worth having some gold in your portfolio.

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