Sintesi del Crash - gz
By: GZ on Mercoledì 11 Settembre 2002 18:39
Questa è una sintesi delle interviste che Bob Prechter ha tenuto di recente. Per chi si collegasse ora Prechter è stato negli anni 80 probabilmente il più influente con i suoi commenti di borsa avendo indovinato l'inizio esatto del mercato toro nel 1982 e il crash del 1987. Vendeva 30 mila del suo report nel mondo. Ha avuto un eclissi essendo andato negativo sulle borse nel 1994, ma ha insistito in modo coerente (o ostinato) che eravamo alla fine del ciclo iniziato DUE SECOLI FA che il crash in arrivo era così storico e epocale che non valeva la pena di fare altro che cominciare a proteggersi a tutti i costi.
Come si vede leggendolo Prechter è ora al punto da offrire consigli su quali banche non falliranno e consiglia di evitare tutte le banche americane e usare solo alcune banche svizzere. Si tratta di un personaggio geniale che ha indovinato in modo incredibilmente esatto a volte e altre ha sbagliato completamente. Ma è ancora molto seguito e il suo libro sul crash è il best seller finanziario da due mesi in america.
La cosa che mi impressiona sono questi seminari per spiegare in quali banche svizzere rifugiarsi per non essere travolti dal crollo delle banche mondiali che propone
Prechter has been doing a lot of interviews lately about the current market environment and his latest book, Conquer the Crash. The following excerpts are taken from four of Bob’s recent interviews with the following individuals: Robert Barker, Business Week; Jim Puplava, host of Financial Sense Newshour; Kathryn Welling of Weeden & Co. and John Dobosz, Forbes
In your book you talk about depressions. When do depressions occur and what causes them?
Well, a depression occurs when the economy contracts. That happens when there is decline in the demand for goods and services at current prices. In this case, we are facing exactly that sort of thing. Because when you have a situation where people can’t save, they’re spending more than they’re making, we know that they’re going to have to cut back on their spending eventually. When people are trying to pay off debts at a very high rate of interest and their income slips, which as we’ve been seeing unemployment has been edging up to new highs with each passing quarter, that means they’re going to do less spending as well. So I expect to see a decline in the demand for goods and services in this country. That is going to be the beginning of a depression.
That’s why when I see these economists talking about these 3% and 5% growth rates for the economy in the 2nd half and then this miracle of corporate earnings going up 30% and 40%. You kind of wonder what are they looking at? I mean, do consumers go out and go into a –5% or –6% savings rate? I just don’t think that’s going to happen.
I think most of that, although they would never admit it, is from hope. Because they say the only way the stock market can hold up – and the only way any of this debt can get paid off – is if corporate earnings start soaring and people’s incomes start soaring at some massive double-digit rate. So then now they’re saying, well I guess that’s what’s going to happen. I think the burden of debt is piled up so high that it’s not only impossible, but that is the reason why we need to be looking in the other direction.
Isn’t there also a problem during the 90’s where many industrial companies – like IBM or General Electric – many of these companies morphed themselves into finance companies? They were making more money on finance than they were actually making things.
Oh yeah. General Electric just really transformed itself from perhaps the premier manufacturing company in the world in the 1950’s and 60’s to what I call a house of cards right now. It’s all about manipulating credit, manipulating debt. They’re lending, they’re borrowing, they’re shifting money around, they’re shifting credit around. We put out a special chart on General Electric in the first couple days of October 2000. We said this Bull Market is over. It’s up 100 times from its low in 1974 and it’s over. It’s since been cut in half and I think it’s, frankly, just the beginning. They’re not Enron, but they have that type of financial company where, ultimately, the trend in investments and finance is going to be the trend in that company’s fortunes. It will be a slower decline than Enron and there’s certainly less in the way of accounting gimmicks, but they use them anyway and people have noticed it. I think it’s going to take a long time for them to return to a solid company that’s producing things that people really want.
Hasn’t most of the world already experienced some degree of deflation in this cycle?
The worldwide trend began on the last day of 1989 in Japan and slowly spread across the globe. Southeast Asia had its deflationary collapse in 1997-98. That’s not over, either. South America is beginning to go through that now: Argentina collapsed last year into deflation. Uruguay is in trouble now. And the United States and Europe together are the blue-chips of the world in terms of their economies. And they are peaking last.
Asset allocation might be a bit tricky when the value of everything is falling. What do you do with your money during a deflation?
Step one is to get out of all of the investments that have traditionally gone down during a deflation. The first one is the stock market. The second one is the real estate market. The third is the market for risky bonds—bonds that have been issued by debtors who are less than pristine in terms of their long-term ability to pay the interest and the principal. Those are the areas that most people are invested in and are dangerous today. Some people are over-invested in fringe areas like collectibles and commodities, which also go down in deflations.
Number two: get into safe cash in a safe depository. I think there are two primary depositories for most Americans. They are Treasury bills in a Treasury-only money market fund. Another option is one of the safer banks. I also think that U.S. banks in general are not as safe as some jurisdictions in the world, notably Switzerland and Singapore, so if you’re really serious about safety, you need to investigate those areas.
Number three is only for certain people—people who really feel that they are seasoned investors or speculators and who understand risk and are willing to take it. Those people have been cleaning up in this bear market by being invested in instruments that make money on the downside. The amazing alchemy of a bear market and a deflation is that if you’re positioned properly, you’re making money at the same time the money itself is going up in value. It’s a double whammy. You can make money if you’re invested in, say, the Rydex Ursa Fund, which goes up as stocks go down, or a market-neutral managed fund that’s split between a bullish and a bearish manager, both exercising his stock-picking ability.
So you see a crash as imminent – is that the right word?
I think we’re in one now, but we’re in the very early stages. The same thing is true of a depression. People say, well, we’re not in a depression, and there are no bread lines and all that. But those are symptoms of the end. And the time to understand what’s coming is closer to the beginning, and that’s where I think we are.
How should people invest then?
The main message I would like to get across is get safe. Be safe. If you talk to virtually anyone else out there today, you will get [a message] that is, in a nutshell: Rush out and take a huge risk.
[Stocks are] risky in normal times, but when you have a historical view of valuation, it’s close to financial suicide to be putting your money into a bull market that has already run its course, that is one of the biggest in history in terms of overvaluing shares.... [You] should be in something that’s very unpopular right now – cash.
Why is cash important in the midst of deflation or a depression:
Well, cash is the only thing that goes up in value during a deflation. The reason is the credit which is considered by most people to be money, although it’s actually credit, begins to decrease and therefore the total amount of purchasing power in the economy is going down. Anytime money supply (and I’m using that term loosely to include the credit supply, contracts) there’s less of it, people can understand when the government creates money and the Fed creates credit, and there’s more and more of it, we get what we call inflation. And the value of the dollar or the purchasing unit goes down. Therefore, prices of goods go up and up and up. People are used to that. They have to realize that it can work in the other direction. When the total amount of money and credit contracts, the prices of goods will actually start falling and that makes each unit of money, each unit of money or credit that survived that is, worth more. The key is to be in something that will not be destroyed. If you owned a bond of a corporation or a municipal government that defaults, you’re at zero. But, if you have money that does not disappear, then suddenly you have more buying power than you did before. And a lot of my book is to steer people into areas where they will be able to put their cash and keep it safe. And believe me, there aren’t many places in the world. A lot of places that people think their money is safe are anything but.
Let’s talk about the positive side of all of this. If the crash takes place, which I believe is coming and the depression that follows it, those who are liquid are going to have some of the best buying opportunities of a lifetime. I can think of, Bob, the story of Warren Buffett’s 1968 meeting in La Jolla, California with Ben Graham. Ben Graham lost half his clients’ money during the stock market crash. They were looking at the stock market in the late 60’s and basically Ben told him to get out. Buffett went back, disbanded his partnership and stayed in cash. But when the ’73/’74 Bear Market came, he loaded up and bought, I think, what was it, 10% or 20% of the Washington Post for $10 million. He had the buying opportunity of a lifetime and much of the Buffett fortune was made as a result of that buying.
That’s right. Then you have stories of the Kennedy’s and Bernard Barruch and people who did the same thing in 1932. That is when you can make money. If you’re going to buy a stock at $112 a share and hope it goes to $200 that may sound like big money to you, but it’s not. The real money is made when you can buy stocks at 25 cents, a quarter of a point, and watch them go up to $19. That’s real money and that’s the kind of money that the super rich people can make. But you can only do it if you’re in cash and you get out at the top and you protect that money all the way down. Then, when the last stock owner despairs, you’ll be his friend by buying those shares from him. At that point, when the market finally turns around, the multiples are unbelievable. That’s the massive magic wealth of wealth in the stock track record and I’d be happy to put it up against those. I follow my own advice. I don’t want to rope anybody into doing something they’re not comfortable with. I think they need to read the book, and as I say at the very end of the Foreword, read all the evidence, then the responsibility is yours. You make up your mind one way or another.
The real estate boom has clearly encouraged people to continue to leverage up-
I don’t understand it but, yes, people are taking out second mortgages to buy things that they want.
For consumption, not investment.
Yes, they are consuming their homes and turning over the ownership to the banks-
At least that means the banks have some hard assets.
Maybe. But now they are utterly dependent on the value of these real estate parcels that they own so much of, and that is dangerous. I think that real estate prices are going to go way down, very similar to the way they behaved in 1929-’33. Or 1835 –1842. I just don’t think banks should depend on those values-but they are. We will have to see what kind of decisions are made by banks in human terms. In other words, if the real estate market is falling, do they kick people out of their houses and try to sell them, or at what point do they decide that it is not worth it?
Your book makes specific suggestions about ways for investors to find shelter from the bear market/deflation/depression you see?
Exactly. I don’t just say “go to cash,” because the questions today are what cash and where do you keep it? Two incredibly important questions. We know from history that at the bottom of major market crashes, they tend to close banks.
Let me guess, you don’t suggest a safe deposit box in a New York City bank.
No. The fireplace would be safer in the winter. In fact, the book lists the two safest banks in each state. Also, some of the safer banks in the entire country. None of the major money center banks made those lists. The safer banks tend to be small. They tend to be rather conservative. They tend to have a lot of Treasury bills in their holdings because, believe it or not, some bank managements actually are somewhat concerned and not willing to speculate in derivatives and lend out all of their money to questionable enterprises.
I want to talk about safe banks. Certainly, people remember the bank holiday during the midst of the depression when the banks were closed. The first thing that comes to mind, Bob, is I look at some of the large bank portfolios, particularly the derivative books of our largest banks. They’re looking more like hedge funds than they are the safety of a prime bank.
Absolutely. Do you know, it was actually shocking to me to find out, that for nearly two centuries, the courts in the United States have upheld an interpretation of deposits to mean, not money that you’ve delivered for safe keeping, but money that you have lent to your bank? That means that if they go under, it’s sorry Charlie. Well, you know you lent it. It was your risk. Too bad. You have no recourse. You can’t sue them. They didn’t promise to safe keep your money. They said thank you for the loan, now we’ll go out and lend it again and try to make more money than we’re paying you for it.
Now, the key here is you need to have your money in a bank that isn’t about to go under because it’s loans are so at risk. Unfortunately, today in the United States, most banks by far have lent out a tremendous percentage of their deposits. In some cases, even more than 100% of what they have on deposit. The slightest run or demand by depositors could cause these banks to shut their windows. Now, we all know about the FDIC and we can talk about that too, but the point is these banks are lent out to the hilt. They lent your money out. The only way to get safe is to put your money either in a bank that has extremely high liquidity, and there are a few in the world, a few that exist only to safeguard your money. Or, and I think this would be the second best solution, is to take it out of the banking system and, at least for the time being, lend it directly to the U. S. government by buying treasury bills.
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Edited by - gz on 9/11/2002 16:46:36