The Casey Files - Crisis?
What Crisis?
By David Galland, Managing Editor,
Casey Research LLC
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November/December 2007
| To be something
less than politic, I find myself wondering how those who think that destroying
the dollar is a free pass to a bright tomorrow, and back up that view with
their investment dollars, could be so stupid?
My sincere belief – formed by my
interactions with the breed while a partner in a mutual fund group some
years back – is that the disconnect with what seems to be so obvious to
us, but not to the “Street,” has to do with the herd mentality of mainstream
financial analysts. And, by extension, the people who actually tune into
mass media for their investment advice (which, to my way of thinking, is
like going to McDonald’s in the expectation of enjoying fine dining).
It is this herd mentality that makes
them slow on the uptake.
For the simple reason that the worst
possible calamity that can befall a money manager is to be found underperforming
the peer group averages when quarterly portfolio review time rolls around.
Don’t get me wrong, it is of no concern if you lost your client’s money
in great gobs over the previous 3 months… as long as everyone else has
also lost their clients’ money in more or less the same proportions.
But underperforming your peer group
for two or three quarters in a row, that is another thing altogether. In
that sad event, you could find yourself called to the captain’s quarters
for a good old-fashioned thrashing and possibly, heavens forbid, a reduction
in income so severe you might have to give up the 8,000-square-foot cottage
in the Hamptons (a fate, I am told, worse than death).
Given the dire consequences of underperformance,
therefore, the Armani-loafered herd walks largely in lock-step -- and very
gingerly at that -- especially when confronted with what appears to be
a seismic shift in the global economy and investment markets. Consequently,
they won’t move until they are “certain” that they are not just right,
but that everyone else is shuffling in the same direction at more or less
the same pace.
The price action of gold of late,
which saw gold nudging $743, gives me some hope that the scales are falling
from the eyes of the broader investment universe.
That view is supported by an Op-Ed
penned for the New York Times by the highly respected and often contrarian
(for a main street analyst) Stephen Roach, chairman of Morgan Stanley Asia.
Here’s an excerpt…
Moreover, the more the Fed under
Ben Bernanke follows the easy-money Alan Greenspan script, the greater
the risk to the dollar. |
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Why worry about a weaker dollar? The
United States imported $2.2 trillion of goods and services in 2006. A sharp
drop in the dollar makes those items considerably more expensive — the
functional equivalent of a tax hike on consumers. It could also stoke fears
of inflation — driving up long-term interest rates and putting more pressure
on financial markets and the economy, exacerbating recession risks. Optimists
may draw comfort from the vision of an export-led renewal arising from
a more competitive dollar. Yet history is clear:
no nation has ever devalued its
way into prosperity.
So far, the dollar's weakness has
not been a big deal. That may now be about to change. Relative to the rest
of the world, the United States looks painfully subprime. So does its currency.
I probably don’t need to tell you
the importance of this sort of breaking away from the herd. Others look
at Roach and wonder if maybe he could be right… then broach the topic delicately
over martinis down at the local watering hole. Once the feedback loop confirms
that the Fed, and the global economy, is indeed trapped squarely between
a rock and a hard place, the stampede will begin for the sectors we are
positioned in, especially gold stocks.
While gold stocks took a hit along
with the broader markets in the early August rush for liquidity – understandable,
given the fact that gold had not yet begun to move – as you can see from
the chart below, they have begun to catch the attention of the larger investor
herd. This rebound is nothing less, in our view, than a preview of the
portfolio protection and upside profits that the better-managed gold producers
will provide.
Sharp corrections make for quick turnarounds,
especially when the underlying commodity – in this case, gold – is in a
strong bull market. The trend is our friend.
| David Galland is the
Managing Editor of BIG GOLD, the highly acclaimed monthly publication dedicated
to keeping investors closely in touch with opportunities in the precious
metals producers and near-producers with larger market capitalization,
the very stocks that institutional investors gravitate to during periods
of crisis. Large volume makes these easy-to-buy, easy-to-sell stocks ideal
for investors looking for the extraordinary upside of gold stocks in a
gold bull market, but without the more speculative risks from junior exploration
stocks. Learn
more by clicking here now. |
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