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“The great Art Cashin once said that he was counseled as a young man “not to plan for the end of the world as it is a one-off event”. As we try to divine our investment future, it is helpful to keep that sage advice in mind.
When I started my career in the early ‘70s, my singular goal was to graduate from a certain business school. It was the crowning achievement of my young life. Graduating in 1973, I took a job with an investment firm, eager to learn the business. Unfortunately, I parachuted right into one of the worst bear markets in history. It was so bad that we were forced to retreat to libraries to read books about how to invest.
The answer, though, was simple. Everything was going down. It did not matter what theory one employed. The Dow Jones had peaked in January of 1973 at 1067, and dropped like a stone to finally bottom out at 570 at the end of 1974. Needless to say, my eagerness and budding love of the business was greatly diminished.
I thought it was cruel that I had achieved the crowning achievement of my young life only to find out that the world was going to end. This was the age of the long gas lines. To even get gas, one had to have a friend who knew a friend. You then had to get in line, usually when nobody was looking....
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“It turned out the world did not end. In fact, there was huge rally from the low that regained all of the ground lost in the ’73-‘74 bear market despite the pall of pessimism that pervaded the Country and the financial markets.
Peaking once again in early 1976, the Dow plunged back down to the low 700s in early 1978. Another epiphany. The world was now truly going to end, it had just been deferred another couple of years. As we know, it did not.
The point of this and the wise advice relayed by Mr. Cashin is that the world never ends. What happens is a massive transfer of wealth from those who panicked and lacked courage to those that stepped forward with the conviction of experience and history.
Great fortunes are lost and made at these turning points. Spanning my career, I have endured many of these “end of the world” moments. It never happens. The smart money simply loads up on what everyone else is foolishly throwing away.
It is conventional wisdom that properly functioning markets anticipate change. What we are sensing in the last week is that the markets are sending a message. The message is that change is in the wind. Positive change. There remain massive structural, economic and political problems. We all know that. What the markets could be telling us is that the process of reform, repair and renewal might be in our future.
Other than the looming resource scarcity, the remainder of our problems are not in the physical world. Massive printing, unfunded promises, a broken education system are human creations. Given only unpleasant options, humans have a way of working things out. The markets could be sending that message.
If so, the result could very well be a significantly higher equity market. While stocks have held up relatively well, the earnings estimates and the multiples are not historically out of line. There is room for expansion in both that would translate into much higher prices.
The debt market is problematic. Interest rates should be dramatically higher than where we are at the moment, but the rates cannot be allowed to spike to such levels without creating chaos for budgets. Therefore, if we are going to make economic and political progress, we do not see rates being allowed to rise until budgets have been returned to a sound track.
Resources are a different matter. We believe that we are approaching a great transition period that marks the end of cheap and abundant resources, at least for the current generations. The burgeoning population of the past 200 years is reaching a critical level at the same time the resources are becoming depleted and more expensive to acquire.
The prices of such key industrial commodities such as oil, copper, and iron ore are going up. It is simple arithmetic to see a manifold increase in prices within the next 10-15 years. The key is to prosper from the healing global economy by investing in technology, energy, food and commodities. There will no doubt be massive printing and currency destruction along the way, so preserve the portion of your portfolio not invested in equities in precious metals.
Avoid fixed income. Real rates are negative, and most fixed income will prove to be toxic to your future and your retirement. We are not out of the woods by any stretch of the imagination, but keep your ear to the ground. The markets are speaking.”
© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. However, linking directly to the blog page is permitted and encouraged.
The interviews with John Embry, Egon von Greyerz, James Turk, Dr. Stephen Leeb, John Hathaway and legendary Art Cashin ($612 billion UBS) are available now. Also, be sure to listen to last week’s line-up of other KWN interviews which include Gerald Celente, Don Coxe ($538 billion BMO) and Eric Sprott by CLICKING HERE.
Eric King
If The World Is Ending, Here Is What Smart Money Is Doing
Today 40 year veteran, Robert Fitzwilson, wrote the following piece exclusively for King World News. Fitzwilson, who is founder of The Portola Group, put together a fascinating piece which covers everything from Art Cashin, the 70s, and what the smart money is doing right now. Below is Fitzwilson’s piece.
© 2012 by King World News®. All Rights Reserved. This material may not be published, broadcast,
rewritten, or redistributed. However, linking directly to the blog page is permitted and encouraged.
August 8, 2012
