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RISK VS. RISK
[August 23, 2010]

A classic definition of investment risk is not just return on capital but return of capital, and clearly government bonds will return your capital on maturity. But, from current insignificant after-tax, inflation-adjusted returns, we submit that long-term government bonds could be classed as speculations not investments, no matter received wisdom. And, especially with the risk of even higher inflation, threatened by potential monetary accommodation as contemplated in the recent Fed minutes. And really especially, compared to the alternative in the excellent values currently afforded in equities, even blue-chip, safe dependable equities—almost all with earnings yields substantially higher than government bond yields, many with regular dividend yields higher than bond yields, and the potential for meaningful capital gains. Over the medium term, stocks are the place to be, the safest place, risk vs. risk, all things considered, and with the best potential, risk vs. reward. [more]