I'm putting this page up in the fall of 2008, after the now widely recognized financial crisis is well underway. What's funny (strange funny, not humorous funny) is that so many of the things I've believed for quite awhile, things that couldn't be spoken of in polite company without people thinking you were some kind of nut case, have now gone mainstream. Things like market crashes and depressions and buying gold. Everyone talks about them now.

As a bit of a backdrop, I'll offer that I'm far from the eternal pessimist that I'm often accused of being. Quite the contrary, for most of my investing career I was 100% invested in the stock market. I believed then, as I still do, that the stock market is the best place to make money... most of the time. That "most of the time" qualifier is the key.

Most financial prognosticators look at technical valuations of firms and markets when determining whether to buy or sell. That's important, of course, but in so doing they often miss some broader aspects of the economic environment that may influence the success - and thus the price - of those firms and markets.

I don't believe anyone can consistently and successfully time the markets over long periods of time. I certainly can't. But if you study the history of financial markets you'll see certain clear trends emerge. Over broad swaths of time these secular market trends - distinct from the much shorter cyclical trends that most people concentrate on - are in my view the key to success. That sounds easy, but it's not. It requires that one be a contrarian much of the time, to be willing to leave the party when it's at its grandest and most glorious; and conversely to be willing to smile and put down one's money when there seem to be nothing but dregs to be had.

There is a conventional wisdom which attaches to most financial thinking these days, borne of the historic bull market that existed over most of the last two decades. Most of the economists and financiers who promote that conventional wisdom know nothing else. They are too young to have experienced a secular bear market. They are now receiving an education.

A secular bull market raises all boats. Simply by virtue of being in the market, one is bound to experience success. Much of the brilliance attributed to certain financial experts and vehicles and strategies is more due to that simple fact than to any particular genius. It actually takes a bit of work to lose money in a secular bull market.

So where are we today? What lies ahead?

No one really knows. But in my estimation we are entering a secular bear market. Which is why I do not believe that the current difficulties - notwithstanding the significant hit that markets have already experienced - are due to end anytime soon. I expect we're in for quite a few years of grinding, difficult economic times. It will be much longer, deeper, and more painful than people today are imagining.

Thus it is with any secular bear market. As unpalatable as that may sound, it is a normal aspect of any capitalist economy.

There's more, though. I believe the very fabric of our economic structure is at risk. That has nothing to do with the secular cycle and everything to do with the unique excesses which propagated during the last bull phase. The levels of debt held by individuals, communities, states, and countries. The international arbitration of wages which has prompted economic flight from rich countries to poor ones. The intergenerational divide which has been laid down (notice how in all the discussions of the various bailouts there has been no talk of how to actually pay for them - as the Iraq war before it; the reality is we are expecting our children and grandchildren to pay for these, not us). And the obscure world of derivatives contracts which bet on all this - with notional values over ten times global GNP - and for which counterparty exposure and ability to pay is wholly unknown.

What's the old Chinese saying... may you live in interesting times.


Of Hope and Hubris and Silver Wheaton

(January 2011)

This was originally published on my blog (January 14, 2011). I wanted to also post it here on my main website in order to retain its accessibility.




(February 2009)

When we start talking about trillions of dollars this and trillions of dollars that, it quickly becomes lost on most people. The numbers are so gargantuan and so abstracted that we lose the frames of reference that normally provide some perspective. Sometimes it's helpful to just look at it from the viewpoint of a single family...



The Hubris of a Generation

(September 2008)

I wrote this to my family during the third week of September, 2008 (ergo, the quote at the beginning, after a tumultuous up-and-down week in the markets, ending up about even).