Richard from Wilmington asks…Is the stock market getting ready to crash again? Should I sell my stocks?

The short answer is: I don’t know. No one can predict the market’s unique behavior in the short-term.

The long answer is: No, I don’t think the market is about to crash again. True, it has taken no prisoners since its corrective dive from the recent April 23 peak. The S&P 500 is down 12 percent since the peak and all gains for the year have been wiped out. All is not lost; let’s not forget that despite this current volatility, portfolios are at much higher levels than in 2008.

The markets frequently do not act rationally to events and this is a good example of that. Economists and analysts have continuously been debating whether or not the domestic economy has been truly slowly healing or instead masking continued sickness.

Greece’s debt problems, and by extension the weakening of the European Union’s Euro currency, has been a perfect foil for market bears to take profits and run for the hills. The fear is that Greek and possibly Spanish and Portuguese sovereign debt failures will spread globally and affect the balance sheets of large banks. The worst case chain of events would go like this: large banks with European debt exposure would seize up again and restrict lending, struggling companies that can’t borrow would cut expenses or even fail, jobs would suffer even more, consumers would revisit recessionary spending patterns, companies and their earnings would suffer from weak demand, and stock prices relative to their earnings would look really expensive again.

Greece is not the only issue spooking the markets. The financial reform bill has a lot to do with it. The bill that Congress is dealing with has elements that could hurt large banks’ income in a variety of ways, such as from higher capital reserve requirements and loss of derivative income.

The Gulf oil spill is also hurting market sentiment. Energy is a large sector of the economy (10 percent of the S&P 500) that is under a microscope and deep water drilling activities are temporarily suspended.

It is true that things are less than perfect. But, this is certainly not 2008 all over again. Banks are healthier, housing indicators are rebounding, and first quarter corporate earnings were the strongest they have been in several years. While it is possible that Greece’s problems could have a spillover affect on global debt markets, I don’t see it as a high probability event.

The bottom-line is that following the sell-off of recent weeks, the market is oversold by just about any measure. I expect the markets to remain bumpy for a while, but if you are a long-term investor try not to be influenced by short-sighted reactionary selling.

Dave from West Chester asks…Gold seems to be a safe haven investment right now. Are there risks?

Yes! There are risks to buying gold at its all time high. Gold as a safety net is a mirage. When large investors decide to sell the asset it will drop like a rock and the little guys won’t know what hit them. I believe gold is our latest speculative bubble where the greater fool theory is alive and well. The greater fool theory is when perennially optimistic investors keep buying as long as they think they can find greater fools who can pay more for their overvalued asset!

Demand for gold has been strong for the last five years, most dramatically so over the last two years. Global crises and debt issuance and, up until recently, a weak dollar, have intensified the lure of gold as a safety net. Gold no longer backs any currency and, beyond its limited value in jewelry, electronics, and medicine, has little intrinsic value. It is worth only what investors speculate it is worth.

Contrary to popular belief, gold is not an exceptional hedge against inflation. Sure, if you time it right you can make a boatload of money, but we can say that about most volatile investments. Gold has been publicly traded since the late 1970s. It lost half its value in the 1980’s and lost 25 percent of its value in the 1990s. Treasury-inflation protected bonds do a better job with a lot less volatility. The stocks of well-managed companies that have pricing power do an even better job at protecting against inflation.

Gold has a mystique and an allure, but it is a speculative investment. The party may continue for a while but it’s too late to make an entrance.