Stock market is a zero sum game. Close to it, anyway. Dividend paying stocks are okay, anything else is prone to bubbles.
It’s the same story as with houses. Long term houses are good investments but it does not mean that you should drop everything and buy a house in Carmel Valley. Long term, stocks are even better investments. With any bubble, if you get in at the peak, you stand to lose much more (and faster) than you stand to gain from normal growth of the asset.
Right now there are bubbles of varying degrees in most foreign stock markets. Shanghai composite index is up 6x in two years. Is that because of world economy growth?
Currencies are _not_ good investments long term. They are temporary solutions when you think that market correction is likely. Euro CDs and bonds give you guaranteed 5% a year. Stock markets historically give 10% on average. In any given year they might give you 20% and might give you -25%. Given deflating global housing bubble, credit problems, and American consumers rapidly running out of money, which one do you think is more likely?
Myself I’m mostly in cash, gold, and TIPS, with a few speculative bets against the American consumer (SCC, retailer put options). My expectations include continued dollar decline, falling discretionary consumer spending during the winter gradually developing into recession, eventually second round of credit crunch, this time driven by mass defaults in Prime/Alt-A sectors. When the dust settles, time will come to buy a house and move into stocks.
