One would expect investment professionals to avoid succumbing to alarmism, but if Palin can get an audience in front of an eager crowd of investment professionals, it shouldn't be a surprise to see a similar crowd eating whatever "market pundit" Marc Faber is feeding them.
Dr Faber, who advised his audience to pull out of American stocks one week before the 1987 crash and was among a handful who predicted the more recent financial crisis, vies with the Nouriel Roubini, the economist, as a rival claimant for the nickname Dr Doom.
Speaking today, Dr Faber said that investors, who control billions of dollars of assets, should start considering the effects of more disruptive events than mere market volatility.
“The next war will be a dirty war,” he told fund managers: "What are you going to do when your mobile phone gets shut down or the internet stops working or the city water supplies get poisoned?”
(Times, U.K.)
He is urging gold and rural farmland on those with ears to hear his wisdom, but one should take his admonitions with the seriousness of a mother's advice, who forever gives you the same advice no matter your age or situation.
(You: "Mom I got fired" Mom: "Go to church. You need more Jesus". You: Mom, there is this weird spot on my scrotum. Mom: "Which is why you should go to church and get more Jesus" You: "Hey, did you know Fry's supermarket is way cheaper than Albertson's? Mom: "In church, you get Jesus for free". Eventually one day will come when all hell breaks lose, and you will actually need more Jesus, and she will be vindicated momentarily, until the moment passes, and you decide that now that you are out of the troubles, you maybe don't need so much Jesus after all)
Eventually by mere coincidence she will be right. Most doom sayers have moments of right, or almost right, because if you stick to the theory of something going wrong all the time, invariably real life will harmonize for a moment with your long running delusion. Then reality will decouple from your fixation and you will be the forever loon, crying in the wilderness and waiting for your moment to come round again, years passing, opportunities missed.
Not saying Faber is wrong, per se. But if things go the route of people needing rural land, or gold, it's not really the type of thing you need to plan for. In fact, if things get really bad, your gold will do nothing for you, and unless you are armed to the teeth and have a mini army, your rural compound, properly stocked with preserved yummies (mmmm, strawberries) will quickly be overrun by the fleeing and roaming hoards. The highways and byways will be filled with a 200 million somewhat dubiously immoral Mad Maxes (your former neighbors, and scarier types, like those black people you saw once on the subway), all panicked, frenzied. Your rural hideaway and pile of gold will do you no good. They will beat you with your gold brick and eat your brain.
I contrast this with a profile of Michael Burry in Vanity Fair. As a money manager, he saw the housing collapse as early as 2005. People, even his own investors, were not thrilled with his flier on buying credit default swaps on tranches of mortgage backed debt. He saw the signs of trouble and loaded up, with firms like Morgan and Goldman selling him insurance for products he did not own. We can ask ourselves whether the regulatory disconnect between buying insurance and owning the underlying asset is a good thing, but it was the ability to find a way to bet on the downside of mortgage backed assets that made certain individuals and firms a ton of money. This also exacerbated systemic risks.
Burry made the people who invested in his words and wisdom a ton of money. We are not so sure of the historical profitability of listening to Faber, but in parlous times, who we listen to can make all the difference. Faber's seems the all or nothing path, where it takes the collapse of the world system in order for you to possibly remain whole (and we doubt the efficacy of most "survive the end of the world as we know it" strategies). The wiser path is to see the patterns in the world that are more likely to play out. Burry did not need a housing market collapse to make money. He needed movement of just 7% in underlying assets to see massive gains through his CDS positions. He didn't need, or see, total collapse or seek solace in extremes.
The key is to ignore the near impossible, the least likely extremes, and the loudest voices, and chart your own invisible path. The world has many countries, and billions of people, and cannot be reduced down to Haiti or bliss.
Other News:
- Postal troubles continue, to the tune of $7 billion in possible losses, and the desire to dump off Saturday delivery due to declining first class mail. Also, unlike private and public companies everywhere, they are required to pre-fund retirement costs, instead of paying as employees "goeth" into retirement.
- We watch the home builders, by way of trying to understand where the economy is at. We don't expect them to get back to some lofty sales level from the past, but we take note when they can pull profits out of a hat, or see slowly improving metrics. In the case of Hovnanian, revenue has fallen from the year ago 1st quarter, but profits have risen. Yay moment. Then again, profits have risen due to a tax benefit. No yay moment. But cancellations are dropping. Yay moment again.
- Republican Senator Jim Bunning has finally touched earth, though it took a while for him to climb down from that really high horse. He will personally be showing up at your door to give you that extended unemployment check he was busy holding up. Funds are now free to flow to other projects that were stalled out due to Bunning's sudden commitment to financial probity.
- Don't bluff. The teacher's union representing high school teachers in Central Falls, Rhode Island had their bluff called. The district was seeking Federal education funds, but it required reforming a low performing school. They had options, including converting the school in question to a charter school, firing half the teachers, or closing the school. The fourth and least restrictive option included adding 30 minutes to the school day and a 90 minute weekly meeting. The union said, "No way!" The district fired them... all of them. Again, don't bluff unless you can handle being called.
- I am disappointed I didn't get to see A Serious Man at the theater, and now it is already moving to dvd. This review asks questions about the questions the film raises.
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