Further to my piece yesterday about potentially too many bears and the history of economies and markets, I offer this piece I picked up at Business Insider over the weekend.
David Stockman (what a last name!) was a budget hawk back in the Reagan days, he then moved onto corporate buyouts:
But spend time with him and you discover this former wunderkind of the Reagan revolution is many other things now — an advocate for higher taxes, a critic of the work that made him rich and a scared investor who doesn’t own a single stock for fear of another financial crisis.
Stockman suggests you’d be a fool to hold anything but cash now, and maybe a few bars of gold. He thinks the Federal Reserve’s efforts to ease the pain from the collapse of our “national leveraged buyout” — his term for decades of reckless, debt-fueled spending by government, families and companies — is pumping stock and bond markets to dangerous heights.
This is super bearish in a way that I am not, but I do confess that while an impending global melt down that makes Lehman look like a walk in the park is not my base case it is probably a 10%+ probability.
My favourite quote form the Q and A section is:
Q: No munis, no stocks. Wow. You’re not making any money.
A: Capital preservation is what your first, second and third priority ought to be in a system that is so jerry-built, so fragile, so exposed to major breakdown that it’s not worth what you think you might be able to earn over six months or two years or three years if they can keep the bailing wire and bubble gum holding the system together, OK? It’s not worth it.
I’m still happy to trade this market, buy AND sell, but I get what he means.
Anyway the full article is here and I would recommend reading it even if you disagree.
All the best.
Gregory McKenna
www.twitter.com/gregorymckenna