In our last Bl9og, we talked about the current downturn in the market and the ever climbing Wall of Worry.
We referred to the never-ending economic cycles that have always existing and always will exist. They mirror the fluctuations in human emotions, which range from higher highs to lower lows, always exceeding in either direction the reality of the situation.
The stock market mirrors human emotions.
One of the great fears currently enveloping the world, is the financial problems in Europe. Germany wishes the debts paid down, while politicians in other countries have recently been turfed out of office for supporting the economic malaise caused by radical reductions in spending.
I will simply repeat our Blog of May 17, 2012 which explains that moderating spending and deficits is the only way to deal with the situation. In essence, this policy allows economic growth to cause the deficit problem to pale in comparison. Time heals the problem. Radical solutions cause world wide depressions.
Some Comments from the New York Hard Asset Show Speakers About Reining in the Deficit
A Keynote Address was from Mr Dennis Gartman. He stated that there was a parallel to 1933 when the US decided to deal with a recession by cutting spending, reducing debt and removing currency from circulation. The result created The Great Depression.
Mr. Gartman felt that if politicians in the USA followed a policy today of taking similar action, of cutting spending, of reducing debt drastically, and reducing the amount of currency in circulation, the result again would be disastrous.
He feels that simply limiting future increases in spending would allow the economy to grow and in a few years, the deficit would be gone by simply letting the economy grow.
Cymorfund Has Repeated This Obvious Fact a Number of times Over the Past Two Years
I refer you to our commentary on numerous occasions over the past two years, when we repeated that the way to solve the debt crisis was to arrest the continued increases in spending, and run small current account surpluses, or just spend what you take in.
The Canadian Example
Canada had an enormous debt problem in the 1980′s and although successive governments have claimed credit for wrestling this debt down, in fact no political party did anything except limit the future increases in spending.
As years passed, what was an enormous debt in comparison to the GDP of that time, became less and less of an issue as the GDP grew every year. In recent years, Canada has been held up as a model society which conservatively managed its debt, unlike the rest of the world. What utter nonsense.
Politicians are politicians everywhere. Canada’s politicians didn’t have the courage to do anything, so Canada did nothing to solve its debt crisis. The natural growth of the economy solved the debt crisis.
So essentially that is specific proof that Mr Gartman is correct in his analysis of how to deal with this debt.
Commodities are Needed and Demand will Grow
If one examines the price of commodities and compares it on a graph to the growth in the number of people enjoying economic prosperity, there is a remarkable similarity. As economies improve, and the striking example is China currently, more people are demanding goods and services.
This demand paralleled the increase in commodity prices. More People. More demand. Quick simple actually.
Compare the price of commodities before China began its enormous growth of the last 10 years. Commodity prices were but a small fraction of today’s prices.
Now consider that in 2007 we had a Money Market Meltdown, in 2008, we had a world wide economic storm, repeated in March 2009, and being repeated now. Credit is hard to get, imports and exports have fallen dramatically, new home purchases are down dramatically, and on and on.
In spite of all of the economic malaise, commodity prices are still somewhat closer to the tops they reached, rather than where they started. If you follow the logic of the doomsayers, the prices of commodities should have fallen dramatically. But they have not fallen dramatically.
Demand Has Grown, and Supply Has Not. Commodity Prices Have Risen and Remain Higher
Does this make sense to you? Once again, I repeat that the current instant communication around the world of the tiniest bit of news or opinion, is a massive distortion of our senses. Instant news is almost an over-abundance of information and blinds us to the reality of the long term trends occurring around us.
What to do with Stocks that Have Lost so Much Value
Investors should remember the quote of Baron Rothschild – “Buy when there is blood in the streets”. Warren Buffet said, “Look for Value, and Buy if there is value, even if the stock market shuts for the next 10 years.”
There are some really great bargains out there. Companies that are now selling for a fraction of their value. It is times like this that the brave make fortunes and fools sell at depressed values.
The views expressed in this blog are opinions only and are not investment advice. Persons investing should seek the advice of a licensed professional to guide them and should not rely on the opinions expressed herein. This blog is not a solicitation for investment and we do not accept unsolicited investment funds.