THE STOCK MARKETS have had another remarkable week, and, beyond the private celebrations, there are good public reasons to welcome it. Through the 1970s, as people struggled to protect their money from inflation, they stuffed it anxiously into real estate and tangible goods that are, as economic investments, sterile. A bar of gold sitting in a bank vault may go up in price or down, but in either case it doesn't do much for the rest of the economy. Now, with the decline in the inflation rate, wealth is flowing back into the more conventional stock and bond markets, where some of it will help expand production and employment.
Salomon Brothers, the investment banking firm, has just published its annual computation of rates of return on various kinds of investments. What holdings were most profitable over the past 15 years? Oil, as you might expect, leads the list. The barrel of Saudi crude that went for less than $2 in 1968 now brings $29. U.S. coins and stamps come next--ahead, incidentally, of gold and silver. Chinese ceramics did very well over those 15 years, better than real estate. Houses, as everyone knows, stayed comfortably ahead of the inflation rate, although not quite so comfortably as farmland did. But the only financial assets that would have given you a return after inflation over that period were Treasury bills. The 15-year return on stocks and bonds was, on average, notoriously below the inflation rate.
But over the past several years, that order of profitability has almost exactly reversed itself. In the year ending June 1, bonds and especially stocks did spectacularly well, while the prices of oil, stamps and farmland all fell. Gold and especially silver appreciated over the past year, but as the author of the report, Robert S. Salomon Jr., points out, that has something to do with a fluke of timing--a year ago metals prices had fallen into a sharp trough. Anyone contemplating a flyer in silver needs to be aware that silver prices hit a peak in early 1980; the investor who bought then and sold this month would have lost three-fourths of his money.
It is not coincidence that the returns on standard investments in stocks and bonds are now improving while the markets for ceramics and old masters sag. A business recovery is gathering momentum, productivity is rising and prices seem likely to remain --at least by recent years' standards--relatively stable. The desperate hunt for shelters from inflation is over.