Wednesday, January 19, 2011

"Comparisons With the 1930's are Ludicrous. We've Gone Far Beyond That."

Note the words by former regan budget director david stockman.


If the markets don't turn and head south very hard within the next 90 days or so, then we are going to have to look very hard at the idea that we are headed for an inflationary/hyperinflationary event.


If that is the case, my advice is to avoid bonds. Taking out long term, low interest debt (like a mortgage) will be a good bet, but only if you plan on staying in the house for the long term. investments should be oriented towards physical things, like commodities. In a deflation you want to be holding money instead of things because things are plummeting in value relative to money and things will cost less money. in an inflation you want to be holding things instead of money because money will be plummeting in value relative to things, and things will cost more money.



PETER BRIMELOW

Peter Brimelow

Jan. 10, 2011, 9:39 a.m. EST

Harry Schultz’s last testament

Commentary: Letter gives final investment allocation recommendation

By Peter Brimelow, MarketWatch

NEW YORK (MarketWatch) — After 45 years, Harry Schultz has just published the last issue of his International Harry Schultz Letter. He’s superbearish but opportunistic.

Schultz, now 87, is one of the legendary characters of the investment letter industry: a hard-driving promoter who specialized in bold, radical high-concept stands. ( See Sept. 16, 2010 column.) I named him Letter of the Year in 2008, because he indisputably predicted the Crash (a “financial tsunami”) although paradoxically failed to benefit very much. ( See Dec. 28, 2008 column.)

But Schultz is also a trader, with a great respect for short-term trends. In this respect, if no other, he’s like the Aden sisters, to whose Aden Forecast he will be contributing occasional columns. ( See Dec. 30, 2010 column.)

The International Harry Schultz Letter has been something of a tsunami itself, with dozens of recommendations and opinions on an amazing range of subjects. Its relationship with the Hulbert Financial Digest’s monitoring system has been complex and sometimes strained.


In his last issue, Schultz does not attempt a grand summing-up. But he does observe this:But one thing is clear: In recent years, HSL has done brilliantly. It’s the third-best performer over the last past 12 months, up 39.65% by Hulbert Financial Digest count, versus 17.16% for the dividend-reinvested Wilshire 5000 Total Stock Market Index. Over the past ten years, the letter was up an annualized 8.94%, versus 2.5% annualized for the total return Wilshire 5000.

“Roughly speaking, the mess we are in is the worst since 17th century financial collapse. Comparisons with the 1930’s are ludicrous. We’ve gone far beyond that. And, alas, the courage & political will to recognize the mess & act wisely to reverse gears, is absent in U.S. leadership, where the problems were hatched & where the rot is by far the deepest.”

He writes favorably of investment advice given in a recent interview by former Reagan Office of Management and Budget Director David Stockman:

“Stockman replied (to my huge surprise, coming from a former top government official) ‘Get some gold, beans, water, anything that Bernanke can’t destroy. Ron Paul is right. We’re entering a global monetary conflagration. If a sell-off of U.S. bonds starts, it will be an Armageddon.’”

About gold, Schultz retains his long-term bullishness. He quotes the respected Seeking Alpha service:

“For gold to match the growth in US M1, M2, public debt & budget deficit, gold will have to reach $1,800, $2,400, $7,800 & $13,200, respectively. While I can’t imagine gold going to $13k, these numbers tell me that calling gold a bubble is a bit premature. In my view, money supply, public debt & the budget deficit are in a bubble, not gold, not yet.”

Schultz’s comment: “Wake me up at $2,400 gold.”

But Schultz also retains short-term flexibility. Looking at a chart of iShares MSCI EAFE Index ETF (CONSOLIDATED:EFA) , he notes:

“It’s a stock market index for Europe, Australasia and the Far East. Chart shows massive bullish base. If it breaks upside, these areas are where we should buy some new investments. Some modest pre-emptive buying in stocks there, having good chart patterns, is justified.”

Schultz’s final investment allocation recommendation:

• 5-10% Stocks (nongolds).

• 15-20% Commodities: via futures, commodity stocks &/or physical assets.

• 50% gold stocks & bullion: 15% blue chips, 5% junior, 5% bullion via futures, 25-35% in physical bullion.

• 0% currencies (“Close out ALL fiduciary time/call deposits, money market funds & municipal bonds, pension funds…”)

• 1-5% Cash in hand. (“Stored privately.”)

• 0-5% bear stock market protection via ETFs like ProShares UltraShort Dow30 (CONSOLIDATED:DXD) .

• 15-20% Government notes/bills/bonds (“In 3-6 month T-Bills/bonds only — buy these only in Swiss Francs, Australian dollars, Canadian dollars, Brazilian reals, Singapore dollars, Chinese Yuan only).”

Harry Schultz’s final words: “Good luck to us all.”