Let’s keep things in perspective. None of this is rocket science, but it is easy to get carried away by fear and greed. Those who win are those who keep their wits about them.
Here are some probable events that we are looking forward to.
1. The U.S. dollar will continue to fall. It will fall in an orderly manner, and while it will not fall to zero, we do expect it to fall more. Eventually, the U.S. will have more exports and fewer imports, so the balance of trade will be a little better.
2. Gold will rise. We expect gold to rise substantially, but it will not soon go above $1,650 an ounce. Who cares if it doesn’t go above that? $1,650 is a great deal higher than where it is now…and we will all make a lot of money when it happens.
3. While U.S. stocks have risen in the high single digit percent on average for many decades, it has been done with an economy that is a slow grower by today’s global standards. Why then can’t fast growing countries provide much more than 8 percent growth? The answer is they can…and they will.
4. Fast growing markets like India and China are attractive long term, but they can have sharp corrections at any time. In fact, India recently began to correct when the finance minister made an unpopular announcement. He later publicly recanted part of it and explained it, and the market is now rising again. It is our strategy to buy on the dips and sell some on the rallies.
5. If China gets a decline…as it does most every year or so, we will be ready to buy. The Chinese market will go much higher in coming years and any good declines are buying opportunities.
6. We believe that the Indian and Chinese economies are going to grow very fast for many years to come, and if you want to make money go where corporate profits are growing fast. Corporate profits are the fuel that feeds the stock market engine in each country. European and U.S. corporate profits are growing slowly. India’s and China’s corporate profits are growing fast. It is pretty simple.
THE GLOBAL CREDIT CRISIS WILL MOST LIKELY BE PAID FOR BY THE TAXPAYERS
There is a global credit crisis…created in Europe and the U.S. The bonds that guys at the major banks bought are worth a lot less than they are on the books for. Will the banks mark them down and eat the loss? That is very doubtful. Will they cook up a scheme like the $100 billion fund to buy the best quality bonds at a small discount that U.S. Treasury Secretary Henry Paulson is promoting? Probably. Then, we would expect lower quality, more worthless bonds will be bought by a fund made up of money from the world’s biggest stickees (taxpayers), mainly the U.S. taxpayers…who in recent years have been the designated ‘bailer-outers’ of major speculation gone wrong.
Remember the savings and loan crisis? When savings and loan executives became billionaires and multimillionaires by wheeling and dealing with government insured money, who go stuck with that bill? When the savings and loan execs did stupid things and the loans could not be repaid, who paid the tab? The guys who got rich on the savings and loan boom? Nope…the stickees were the U.S. taxpayers. Sure, some people went to jail, but eventually the U.S. taxpayers got stuck with the bill.
Now, we can be wrong, and it may not happen as we see it…but we are willing to bet that this current debt crisis will be the same type of thing and the stickees will not be the Wall Street group who made many billions syndicating and selling the bonds that have gone bad. It will be interesting to see.
Thanks for listening.
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