Volume III, Issue 4 / April 2009
Welcome Letter
Welcome back. We have repeatedly preached to the point of evangelizing that equity and debt markets often poorly represent a country’s economy. Typically, a nation’s currency is a proxy for its economic health… but not always. Exogenous economic events like central bank antics, carry trades, and forced repatriation of capital frequently cause distortions.
While we are confounded by how strong the world’s stock markets have rallied despite evidence that economies are crumbling, we think it is merely a matter of time before the broader sell-off continues. Many of you have written to ask if the world’s markets have bottomed and if now is the time to buy. Our answer is a resounding no.
We are in a bear market rally, which you should use to liquidate positions in U.S. dollars and U.S./European equities (except for select shares chosen for bad times or long-term holdings). While we wait and watch, always looking for good investments punished for market reasons not economic or company-specific reasons, we turn our focus this month to a darker side of economic calamity: social unrest and internal violence, which always leads to geopolitical tension and sometimes to war.
Social unrest is on the rise throughout the world and not just in places like Thailand, where they have a coup or two every Tuesday, whether they need it or not. Our “Eat the Rich” predictions are already starting in the U.S., Canada, as well as in France, Germany, Ukraine, Hungary, and several other “civilized countries.” The U.S. Army is training for domestic emergency operations, including civil unrest. The IMF, not our favorite institution, sees social disorder and violence as the leading threat to the G20 economies.
When these threats become realities, governments will not hesitate to take decisive action; we find this concept of larger, more controlling governments to be frustrating, of which we have been quite vocal in this publication. One essay, titled “We didn’t leave our country, our country left us,” anticipated the deterioration of social order, as well as the search for someone to blame. Things are right on schedule, as we explore in this month’s Pulse and Over the Horizon.
As governments take increasingly draconian steps, democracies around the world will allow it to happen. It is ironic to us that the legitimacy of government has yet to be truly questioned, at least in the West. Roger Boyes of the Times effectively phrased our concern when he wrote on January 21st of this year,
“Governments have so far managed to deflect attention from their role in the crash, their slipshod monitoring, by declaring themselves to be indispensible to the solution. This may save the skins of politicians in wealthier countries who can credibly and expensively try to prop up banks and sickly industries. But it does not work in countries that are heavily indebted, with bloated and exposed financial sectors.”
We are hoping for real change we can believe in, but we’re not holding our breath. After all, hope is not a course of action but taking individual responsibility is; please don’t mistake us for Chicken Little types – we’re usually pretty optimistic guys. Our assessment of global trends, however, is based on calculated analysis and is grounded in the reality of seeing the evidence first-hand during our world travels.
As optimists, however, we stress the need to prepare, not to panic. In fact, for an interesting perspective on being prepared in times of crisis, see the interview in this month’s BIG GOLD that Fitz conducted with two wealthy South Americans; their experiences in previous Latin American meltdowns is quite interesting, and we will reprint this in our own publication upon request.
We are pleased to see so many of you as we travel; Without Borders subscribers are a unique group of people – sophisticated and global minded, willing to look at big-picture trends for profit and personal opportunity without regard to artificial constructs. And since we like meeting with you all so much, we normally try to publish our whereabouts for at least the next month… but this month we’ll have to refrain and fill in the blanks with “undisclosed location” for the next 30 days. We hope you’ll enjoy the fruits of our trip once we return.
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