Lawrence Summers, the White House economics czar, paints a fuzzy
picture of a social compact between Wall Street and Main Street, an
agreement based on speed limits and guardrails, overseen by Washington,
with the goal of limiting risk and encouraging growth.
In my StreetTalk column for Forbes.com, "Larry Summers Has A Dream, But No Details," I noted that Summers lacks specifics and that such symbolic moves as limiting
compensation for a tiny group of executives at bailed-out banks is not
going to restore public confidence.
A more noteworthy Summers point: his prediction that "the incidence of
financial crises may be greater over the next 25 years than the past 25
Yes, that means a return to the days of the 1987 crash in the stock
market; the liquidation of Long Term Capital Management; the default of
Russia and Argentina on their sovereign debts; serial monetary crises
in Asia, Latin America and emerging markets;
and the dot-com meltdown and the global subprime disaster that froze
financial markets, requiring trillions in taxpayer bailout money.
So what can an investor do? For advice, I sat down with Marc Harris of RBC, one of the few large banks that maneuvered a clear course through the economic turmoil. In the first part of our video interview, we discussed financial stocks.
Harris singled out Bank of America (BAC), KeyCorp (KEY), and Boston Private (BPFH). There will be more consolidation, Harris predicted, and Bank of America is going to be one of those making acquisitions: "It's time to buy it," he said, citing a single digit multiple on depressed earnings.
The co-head of global research for RBC Capital Markets, Harris is also high on gold. He noted in the second part of our video interview (Green Light For Gold) that RBC as lead booker just raised $4 billion for Barrick Gold (ABX) and added that RBC has a buy rating on the stock.
"The way to buy gold it to buy it through the equities," Harris added, emphasizing the importance of chosing the right operators.
The other factor to keep watching: the dollar.
As I said in my StreetTalk column about the inverse relation between the dollar and the stock market (Dollar"s Depreciation Inflates All Assets):
Gold and oil, especially, have an inverse relationship to the dollar, underscores Frank Holmes, CEO and chief investment officer of U.S. Global Investors (GROW), a mutual fund empire headquartered in San Antonio, Texas, that focuses on hard assets. "When gold is up, the dollar tends to be down, and vice versa," says Holmes. "Looking at weekly data going back 20 years, this relationship occurs nearly 70% of the time."
Holmes, manager of the U.S. Global Investors Gold and Precious Metals (USERX) fund, believes gold mining stocks are cheaper than bullion. "If the price of bullion goes up 10%, gold mining shares like Freeport McMoran, Anglo Gold and Newmont Mining (NEM) should rise by 20%."
Summers will keep dreaming, but smart investors know that dreams alone offer scant protection in rough seas.
Watch: More Robert Lenzner StreetTalk interviews with top investors. Click here.