On the heels of more weak economic data releases from the United States, a legendary chairman & CEO overseeing more than $170 billion, who is one of the most respected men in the financial world, issued a dire warning.
Eric King: “Rob, you are a legend in the business and your firm Research Affiliates now oversees more than $170 billion. The KWN global readers are very concerned about what’s happening in the world today. I’m talking about the irresponsible actions of Western governments. You’ve warned about this for years but now it’s even more out of control. How do you protect your clients if the U.S. launches QE4 and there is even more synchronized money printing all over the world? What do you tell them during dangerous times like that? Because things can spin out of control very quickly.”
Late-Stage Bull Markets Are Brutal
Robert Arnott: “Well, I think the first thing that’s needed is diversification. People know that diversification feels wonderful in a bear market, but if feels painful in a bull market and brutal in a late-stage bull market.
People should recognize that diversification is most urgently needed when it is least wanted. In a late-stages bull market, nobody wants diversification. But that is exactly when it is most required. And diversification means going into markets that are out of favor.
The Dark Side Of A Bull Market
The dark side of a bull market is that it leaves you with lousy forward-looking returns. Which markets have had a huge bull market around the world? U.S. government stocks, bonds, TIPS and REITs are an example. What markets are priced to offer lousy forward-looking returns? Those same markets.
What markets have had lousy returns? Emerging market stocks, bonds, commodities and European stocks. What markets are priced to offer respectable to excellent forward-looking returns? Maybe that same list?
The Art Of Being A Contrarian
Well, that’s interesting and so that represents an opportunity or at least a tool kit for people to think about in terms of diversifying. But people don’t think that way. Instead they want to chase what’s done well in the past. Hardly anyone says, ‘Oh, this market has done great — get me out of it. And this market has done terribly, I wonder if that’s now a bargain?’ We’ve all heard the saying, ‘Buy when there’s blood in the streets.’ Well, there’s blood in the streets in these countries and they should be buying there but people don’t think that way.”
The 1970s Was A Hairy Time
Eric King: “Rob, when we look back at the cycle of the 1970s, there was tremendous chaos and inflation. That was a hairy time. Things were out of control. But the concern that savvy people have today is things are even more out of control when they look at ticking time bombs like derivatives. There is a mountain of derivatives out there and firms can evaporate overnight, just like we saw with Lehman Brothers and others. When you look at what happened in the 1970s and contrast that chaos to what’s still in front of us, surely there is going to be a day of reckoning. How crazy will it get this time?”
Rob Arnott: “I don’t want to seem like an alarmist, but I would say there is more risk exposure today than was present even in the 1970s. The degree of leverage is quite simply unknown and unknowable, and that is alarming. Things were pretty hairy back in the 1970s. I wasn’t in the business until 1977, but I remember the chaos of the 1970s awfully well. As you said, it was a ‘hairy’ time.
Academics Playing Unprecedented And Dangerous Multi-Trillion Dollar Games
But the problem today is that conditions now have us playing games that have never been played before. For example, central bankers are no longer bankers, instead they are academics. And they are academics applying finance theory models on a multi-trillion-dollar scale. Well, when they see the models are not working, they simply assume they need to execute their plans in a more aggressive manner because their models have to work. Meaning, they gamble on an even bigger scale.
Well, what if the models are wrong? This experiment could end in disaster. But that doesn’t seem to enter into their thinking. And so we have some incredibly dangerous dynamics at work here that are very, very different from any previous cycles of turmoil, including the 1970s.” ***KWN has now released the tremendous audio interview with legendary Robert Arnott and you can listen to it by CLICKING HERE OR ON THE IMAGE BELOW.
***ALSO JUST RELEASED: Gold And Gold Mining Shares Acting Like Chinese Stock Market Prior To 100% Surge! CLICK HERE.
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The audio interviews with Robert Arnott, David Stockman, Chris Powell, Andrew Maguire, Rick Rule, Bill Fleckenstein, John Mauldin, Michael Pento, Gerald Celente, Egon von Greyerz, Dr. Paul Craig Roberts, James Turk, Dr. Philippa Malmgren, Eric Sprott, Marc Faber, Felix Zulauf, John Embry and Rick Santelli are available now and you can listen to them by CLICKING HERE.