We begin with a famous quote from Warren Buffet
“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”.
Recently, Mr. Buffet confirmed that he has been a buyer of equities during the current period of weakness.
Another famous quote from Baron Rothschild
“Buy When There is Blood in the Streets.“
The Current Situation – Paralysis
The US government is paralyzed by bitter infighting, and a determination by the Republicans that they will court the Tea Party and block any legislation brought forward by the Democratic President.
China looks like it is slowing down economically, their true reserves are thought to be substantially less then previous estimates, and they have internal strife.
The European Union is in never ending negotiations to solve debt crisis in Greece, Italy, Spain and contagion elsewhere.
The media is full of doom and gloom. People are fearful and afraid of imminent financial collapse.
In reaction to all of this, world stock markets have plummeted, and in particular junior resource stock have seem much value evaporate.
Fear Mongering
If you read the financial press, it seems as if there is no alternative to a meltdown of the markets in Europe and America.
As if to add pessimism to the mix, the Fed came out with a very negative report, some of which is reproduced below.
“(FED) FOMC Statement September 21, 2011
Information received since the Federal Open Market Committee met in August indicates that economic growth remains slow. Recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has been increasing at only a modest pace in recent months despite some recovery in sales of motor vehicles as supply-chain disruptions eased. Investment in nonresidential structures is still weak, and the housing sector remains depressed. However, business investment in equipment and software continues to expand. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable.
And so on ……………………….. “
However if You Read Further, There Are Some Very Significant Bright Spots
“The Committee continues to expect some pickup in the pace of recovery over coming quarters but anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. ……………….”
The Reality of the Current Stock Markets
As they always do, rather than the markets being a forward looking gauge of reality, the markets have reacted severely and dramatically to the downside. Their resemblance to normality or accuracy in forecasting the future, in non-existent.
The markets have dramatically overreacted to the slew of negative news, and every sector has seen dramatic weakening. In particular, junior resource stocks have suffered quite significantly.
Our Economic Reality
It is true that the world has economic problems and those problems are real. But it also true that in every cycle in recorded history, there has been a period of economic cleansing that follows over-exuberance (to quote Alan Greenspan, former Fed Chairman) and it is also true that these cleansing periods are full of negativism and of pundits who prophecy doom and gloom.
This particular cycle is more vicious than most in the past because of Mr. Greenspan who flooded the market with easy money every time it looked as if the cycle was ending.
What he did instead, was make the cleansing at the end of the cycle that much more prolonged, that much more vicious, and that much more dramatic.
The ‘genius’ who was applauded in the US House of Representatives and Congress, turned out to be the person that caused more harm to more people, than many of the great tyrants in history.
A Period of Recovery is Commencing
In Europe, resolution of the debt crisis is progressing, albeit at a slow pace. This is not cause for alarm.
The slow pace of reform in Europe is absolutely necessary so that attitudes can change, and reality can set in. Unlike the USA, where Mr. Bush rushed in with trillions to save the banks, Mr. Obama followed suit, and the result was pain and more pain, as the ruling class simply rewarded themselves with massive bonuses because they had outwitted the politicians so effectively, Europe is being much more rational about it.
In order to be bailed out, debtors have to accept some blame and have to mend their ways.
This is a very good thing.
How To React Now
Look around yourself. Stores are still selling. People are still buying. Cars are still driving. Economic activity is growing.
The stock markets are full of bargains at underwater prices. Buying bargains, as Mr. Buffet continually tells us, and as Mr. Rothschild told us before him, is a smart thing to do.
In every downturn, there are naysayers, doom and gloom artists, and media dramatizing events. Look through the fog of misinformation.
The world is recovering. Billions of new middle class consumers are looking to buy goods for their status. New innovations are here and more are coming. Growth will continue, even if there are bumps in the road.
We may or may not have positions in the securities we name. In making an investment decision numerous factors must be considered including portfolio balancing, timing, cash and capital reserves, asset allocation and other factors. Readers are strongly advised to do their own research. Matters discussed contain forward-looking statements that are subject to risks and uncertainties and actual results may differ materially from any future results, performance or achievements expressed or implied.
Views expressed are opinions and not investment advice. Persons investing should retain a licensed professional to guide them and not rely on the opinions expressed herein. This report is neither a solicitation nor a recommendation to buy or sell securities. We are not a registered investment advisor nor a broker-dealer. The information contained herein is based on sources which we believe reliable but is not guaranteed as being accurate or a complete statement or summary of the available data.
