I gave a 45-minute presentation on Yield Purchasing Power at American Institute for Economic Research in Great Barrington, MA on October 14, 2016. I am grateful to the Institute for recording video of my presentation plus extended Q&A.
The problem with being a contrarian is the determination of where in a market cycle the “herd mentality” is operating. The collective wisdom of market participants is generally “right” during the middle of a market advance but “wrong” at market peaks and troughs. There are plenty of warning signals that suggest that investors should be getting more cautious with portfolio allocations. However, the “herd” is still supporting asset prices at current levels based primarily on the “fear” of missing out on further advances.
The economy has gone suicidal. It is working against the very people who need its energy to survive. It is collapsing on its own weight, and the weight of literally incalculable levels of toxic debt. And it is going to create the greatest disaster of our time, if the warnings from the world’s most powerful bankers are any indication.
“The market appears to be waiting for earnings to ‘correct up’ rather than prices down.” As earnings increasingly refuse the license, markets are left contemplating that which was thought impossible; that the economy and fundamental environment as represented by earnings is at best stuck in a protracted and very real form of stagnation (I call it depression). At prices that are far too often valued comparable to only dot-com levels, this is a huge problem...
As the quarterly ritual of the earnings season approaches, executives and investors would do well to remember the words of the then-chairman of the Securities and Exchange Commission Arthur Levitt in a 1998 speech entitled “The Numbers Game.” “While the temptations are great, and the pressures strong, illusions in numbers are only that—ephemeral, and ultimately self-destructive.”
With Saudi devaluation bets soaring, Chinese money-market rates popping, 2 debates and an election looming, and the most systemically dangerous bank in the world flashes the reddest of red warning signs, HSBC's Murray Gunn's conclusion bears paying attention to. Between wave-trending signals and disturbing technical trading patterns, Gunn warns of "ominous shades of 1987" for the markets.
Regardless of how many times we discuss these issues, quote successful investors, or warn of the dangers – the response from both individuals and investment professionals is always the same... “I am a long term, fundamental value, investor. So these rules don’t really apply to me.” No, you’re not. Yes, they do.Individuals are long term investors only as long as the markets are rising.
In the market, extreme optimism results in price bubbles. One of the real-life manifestations of extremely positive social mood is the construction of enormous buildings. Market tops and skyscrapers often seem to emerge simultaneously, because both phenomena are the result of the illusion of infinite prosperity. But extreme psychological conditions do not last very long...
Just as there’s a scheme to pay old investors with new investors money (aka a Ponzi.) There’s another part of the scheme that rarely gets talked about: i.e.,The narrative that fuels the scheme to begin with.Much like the original structure which involves money, this too needs an ever-growing amount of gullible, willing participants. However, the currency here is narrative.
We recently re released our comprehensive silver interview with Jan Skoyles in which we discuss many of the key fundamentals alluded to by Rory Hall. Nothing has changed and arguably the fundamentals are even more bullish today than they were then.