Saturday was the anniversary of the October 19,1987 stock market crash. I spent the day at an investment conference in L.A.,where a group of extraordinary minds asked:Could it happen again? Could it happen anytime soon? These are important questions,and I want to share what I learned with you.
The man who organized the event,Dr. Mark Skousen,also opened the conference. Skousen famously warned his investment newsletter subscribers to sell all their stocks just before the 1987 crash,which proved to be a moment of genius. He saved himself and his subscribers millions of dollars in potential losses.
Unfortunately,Skousen sees dark clouds on the horizon unless the budget deficit and debt problems in Washington are fixed. I told him that I’m not optimistic for a fix until we see some faces change in D.C.
Dr. Skousen spoke to us about Austrian economic theory – which believes that the subjective choices of individuals are the underlying force behind all economic phenomena. Skousen believed that this theory could improve investment returns,specifically by using an inverted yield curve. The yield curve is the difference between long-term and short-term interest rates. The curve is inverted when short-term interest rates are higher than long-term rates – a scenario that has preceded all of the recent bear markets in stocks.
Currently,the yield curve is healthy,and no inversion is likely until the economy heals more. Consequently,Skousen believes that stocks should trend higher in the short term. He was pounding the table for stocks that pay – and have a record of increasing – dividends. Cash distributed to shareholders is important at this point in the recovery cycle.
After Skousen finished,I listened to Adrian Day,a top-performing international and precious metals equity manager with one of the best records in the precious metals sector. He said that times are so difficult in the resource sector that some mining companies will likely fail. Day believes that other companies have become so cheap that buying their stocks is more akin to buying a “call.” He recommended carefully looking through the wreckage for stocks that will rocket higher as gold and silver prices move up over the next few years.
Following Adrian Day was Bert Dohmen,the mastermind behind The Wellington Letter. Bert was one of the few who predicted the 2007-2008 global crises. His recommendation now is to have a very short-term time horizon for investing. Look to make profits in the market between now and the end of the year,but always keep your finger on the sell button because he,like the other panel experts,sees rough waters ahead.
The final speaker of the day was John T. Reed – and he scared the daylights out of me. Reed is a no-nonsense West Point graduate and former Army officer who also has a degree from Harvard Business School. He’s best known for his successful real estate investments.
Reed recently completed an exhaustive study of hyperinflation in Germany,Austria,Argentina,Zimbabwe,and Venezuela. He believes that hyperinflation is coming to America next,and he made a compelling case arguing this point.
Every investor needs to have insurance against the likelihood of a debilitating dollar collapse. The most important move for investors,Reed says,will be preserving assets – even if it’s hard to believe that a dollar collapse is coming. After all,you have fire insurance even if you don’t expect your house to burn down. For insurance against hyperinflation,Reed recommended opening a saving accounts abroad in foreign currencies not likely to hyper inflate,such as the New Zealand,Australian,and Canadian dollars and the Swiss franc.
Reed believes that hyperinflation in the United States will last 18 to 24 months;and in that time period, the value of our current currency could go to zero. The best defense is to get out of dollar denominated assets and get into real assets. Real estate is one of the assets Reed recommends,but he also reminds us to keep enough cash to pay property taxes and expenses.
The comment Reed made that I found most interesting was a reminder that hyperinflation is an emotional and psychological phenomenon. It can come in an instant when people lose faith in the U.S. dollar. It’s important,therefore,to have barter goods,food,and medical supplies in case of such an event. You don’t want to show up at the supermarket when the parking lot is full and the shelves are empty. Reed believes that hyperinflation will come in a flash;and when it’s over,the U.S. dollar will be no more.
This commentary originally appeared at CapitolHillDaily.com and is reprinted here with permission.