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Below is a repository of our comments and predictions during the past five
years and a link to our archives, giving you access to more of our work.
January 2012
Where to invest in the year ahead? The only thing we can say with certainty is
that 2012 will be a key year. Forced by
political, social and economic turmoil, Europe will need to decide on a roadmap to
stability or face disintegration. In the U.S., the economy is doing better, but a
deteriorating fiscal position is posing ongoing risks, which could easily be accentuated
by flare-ups in partisan rhetoric as we approach the presidential election. Fortunately,
the outlook for the emerging economies is better, with growth likely to stabilize and
recover. But that one positive could easily be offset by geo-political conflict. Our
largest fears concern the escalation in Iran’s hostile attitude and its growing
regional dominance, especially in the wake of America’s withdrawal from Iraq. As Yogi Berra once said,
“The future ain’t what it used to be.”
As long as all these
uncertainties persist, we will stick to our conservative multi-asset strategy. We remain
committed to top-quality equities (quality meaning global scope, squeaky clean balance
sheets and superior dividend support), a robust holding of investment grade corporate
bonds, and a mix of first-rate commodity and emerging markets proxies. And, because
governments will be forced to keep real interest rates super-low, we advocate a healthy
holding of physical gold.
December 2011
The current correction in the gold price is a
direct consequence of Europe’s severe liquidity crunch. As the survival of key
European banks is questioned and the Eurozone’s stock markets swoon, everything is
being liquidated. Yet the crisis that’s playing itself out is precisely what will
extend and significantly boost gold’s fortunes, because the only way to stabilize
Europe’s economy and banking system will be continuous and massive bailouts. A
recovery in European stock prices will be the signal that the liquidity crunch is
receding; it will also mark the resumption of gold’s uptrend.
November 2011
Gold will continue to benefit as the world’s
key currencies are debased and uncertainty deepens. The U.S. dollar, the Euro, the
Swiss franc (which is now pegged to the value of the Euro), the British Pound and the Yen
are all currencies that we would rate as fundamentally undesirable. Together, they make up
a huge percentage of the world’s currency float. When we search history for
comparisons to the current monetary ease, there is no precedence, particularly because the
scope of today’s experience is so global. But history does teach us that the
debasement of money is eventually followed by an explosion in real asset prices. We
believe that gold is for now the most logical proxy; real assets that have less liquidity
will follow later.
November
2011
The recent run on Italian debt vindicates our
negative view on Europe. Italy is Europe’s third largest economy; it is both too
large to fail and too large to be bailed out. Unless Europe’s politicians soon come
up with a plan both bold in scope and size, the crisis will deepen further. Unfortunately,
decisiveness is not Europe’s hallmark, which means that a healthy dose of skepticism
is justified. Are European assets cheap? Absolutely. Would we buy them? No, because we
believe the chaotic conditions on the continent will go on for a long time and will
severely limit the rebound potential. We prefer top-quality Canadian and U.S. assets,
which are not inexpensive, but at least fairly priced. While the U.S. faces some serious
fiscal challenges too, the economic conditions are at least stable and valuations are
fair.
October
2011
The EU’s latest decision to back a far larger stability fund and to leverage it adds
to the global debasement of money. Since 2008, numerous stimulus packages and QE1 and QE2
have seriously undermined the integrity of the dollar. In the past few weeks, both the
Swiss National Bank and the Bank of England have introduced their own versions of
quantitative easing, and now the EU is going down much the same path. In our view, if a EU
bailout if actually possible, it will take between $2.5 and $3.5 trillion. If such an
effort is not made, the European Monetary Union will implode. Sadly, if $3.5 trillion were pumped into the system to
“stabilize” the crisis, things wouldn’t look much better. This is because
the money would be used to prop up cascading bond prices and bail out banks, while the
real part of the economy would be subjected to severe austerity. All this will do is
turn a financial calamity into political turmoil, which will before long threaten the
tradition of democracy itself.
August
2011
Europe is now rapidly becoming the focal point for
investor disenchantment. During the past decade, in numerous published articles, we
have steadfastly criticized the concept of unleashing a common currency on vastly
divergent cultures without simultaneously introducing a joint fiscal regime. The results
of this grand folly are now becoming apparent to all. Unless EU politicians manage to
contain the debt crisis to small economies like Greece or Portugal, Europe and the world
economy will spiral toward a repeat of the 2008 crisis.
August
2011
Investor
sentiment continues to be tormented by acute uncertainty. It is
important to understand that those directing
monetary and fiscal policy in the U.S. and the European Union are no longer in
control—they are forced to react to market forces which are, in turn, overwhelmed by
a steadily mounting economic challenges. In Europe, there recently were comprehensive
attempts at stabilization, but the huge structural uncertainties that have beset the EU
for some time were left unaddressed. In Washington, meanwhile, debt negotiations continue,
but even if there is an accord severe longer-term problems remain. In this climate, we believe it is prudent to minimize bond exposure
and concentrate on equity investments in three areas: globally active companies with good
sales exposure to the emerging markets, solid balance sheets and good dividend support;
select emerging markets stocks; and high-quality commodity producers. In addition, we
continue to like physical gold.
July
2011
Gold continues to be in a sweet spot. The
global economy is once again slowing, which is not a climate in which interest rates will
be raised. And as to central banks, we believe they are far more likely to add to gold
reserves than dispose of them. China, Russia, Brazil and a host of other countries who are
accumulating foreign exchange reserves, have not only stated that they will add more gold,
but have actually done so during the past months. Finally, investors the world over are
losing confidence in the U.S. dollar, the Euro and the Yen—and these three currencies
comprise a huge part of the global currency float. We
project continued strength for the yellow metal, as we look ahead at an economically and
politically difficult period.
May
2011
Will a weakening in the U.S. economy push down
commodities? We offer five thoughts on this topic:
-While current U.S. fiscal and monetary trends are clearly unsustainable, we believe fears
of an imminent swing toward austerity are overdone. As Fed Chairman Bernanke reiterated in
his late-April policy comments, his institution is committed to provide continuing support
to the economy, to keep its recovery on track.
–When it comes to commodities, it is important to note that the sector enjoys massive
medium and longer-term structural advantages. Supply uncertainties will continue to be
aggravated and coincide with steadily growing demand from the emerging economies.
-Many segments in the commodity spectrum are sporadically influenced by factors like
weather (agriculture), geopolitics (energy), or financial dislocations (gold). These
factors can significantly boost prices at any time.
-We advocate investing almost exclusively in the stocks of companies producing natural
resources, not commodities themselves (notable exception: gold). Our belief is that the
valuations of most stocks we own are not reflective of current elevated commodity prices,
but instead discount a return to more moderate price levels.
-We emphatically believe that high-quality physical reserves of raw materials will
continue to be seen as a hedge against the debasement of most major currencies.
Given this confluence of positive fundamentals, we
feel the prudent thing to do is to maintain a robust exposure to the natural resources
sector.
January
2011
We believe the emerging markets complex will be a
big winner because growth there will average at least three times what can be expected
in the developed world. That should benefit companies that have a solid presence in the
emerging economies or supply what these economies need. Providers of natural resources
will continue to play a key role in this dynamic.
December
2010
Geithner’s decision not to seek confrontation with China for currency manipulation is
prudent. Not only is there global consensus that what has happened in the U.S., the
European Union and Japan is not China’s fault, it is also clear that the largest-scale manipulation
of a currency in world history is being conducted on U.S. shores—by the Treasury and
the Federal Reserve.
October
2010
The fortune of the United States during the postwar
period has been that whatever chaos ill-guided policies in Washington created, Europe and Japan
could be counted on to do even worse. And so it is again this time. The European
banking system is in worse shape than America’s and the EU’s fiscal challenges
are every bit as bad. Japan’s government, meanwhile, is even more deeply indebted
than America’s or even Greece’s.
October
2010
Governments have created money on such a scale that
the currencies of most major economies are inherently untrustworthy. Moreover,
governments from the U.S. to Europe to Japan have vowed to fight further threats to their
economies with quantitative easing, i.e the creation of more money. No wonder then, that
gold, an asset who is not backed by someone’s promise but is tangible, universally
recognized, mobile and liquid, is highly sought after by a concerned public. There are
other reasons for gold to hold its value or move even higher. Central banks (particularly
those with high foreign exchange reserves, like China or Brazil) are net buyers of gold,
the mining supply of gold is shrinking, and there are hundreds of millions of emerging
markets consumers who are joining the ranks of potential buyers.
July 2010
At the most fundamental level, investors can no
longer plan for the medium or even longer term. We are destined to live in a world
where the focus is firmly on today and almost anything is possible tomorrow. Similarly, concepts like “capital preservation” are
becoming meaningless. In a world where formerly speculative holdings like gold, oil or
fertilizer producers arguably offer more integrity than the bonds issued by governments
and some of the biggest banks, how are investors supposed to behave? The answer is
probably that diversification is still a major guidepost to prudent investing, but due to
the constant change, portfolio composition will need to be adjusted much more frequently.
July
2010
We now have several parts of the world economy in disarray. In the U.S., Europe and Japan,
we also have numerous social policy segments in chaos. Health care, social security,
education, the justice system, immigration, environmental sustainability (to name just a
few), are all financially challenged and in need of massive overhaul. In today’s
interconnected world, we will increasingly see one
crisis in a given sector or part of the world trigger another, with the result that
volatility will pose ever larger threats to social, political and financial stability.
May
2010
We are becoming even more bullish on gold. The
main reason is that the global economic situation continues to deteriorate—most
industrialized nations are now all in a horrendous fiscal mess, which is likely to get
worse at a fast clip. The countermeasures instituted by various governments and central
banks, meanwhile, border on the fraudulent. The U.S., Europe and Japan have lost their
ability to raise interest rates without plunging their economies into even deeper chaos.
These are fundamentally superb preconditions for a continued rally in gold.
January
2010
From a global viewpoint, the world can now be divided into two pods. On the one side, America,
Europe and Japan, which are fiscally and economically impaired; on the other, emerging
markets and commodity exporters, which are fiscally and economically strong. We must
always remember that the macro trends that made this happen are still young. The weakening of the mainstream economies and the
concurrent strengthening of places like China, India, Brazil, Australia and Canada will
unfold over a period of decades.
May
2009
The policies being implemented now will guarantee a
sharp decline in the value of the United States dollar. The most likely currencies to
appreciate sharply over the next year or two: The Australian and Canadian dollars and the
Brazilian Real. Gold, too, will be a major beneficiary.
April
2009
The odds that the Federal Reserve will be able to
steer the U.S. economy into sustained recovery without massive debasement of the currency
and significant inflation are receding fast.
March
2009
Obama’s and Geithner’s assessment that only those who got Wall Street into such
trouble could get it out of trouble marks the wholesale betrayal of their constituents:
the democratic voters. What will follow now is that
the very predators who nearly brought down the country will end up enriching themselves
once more, this time in the name of recovery.
January
2009
Much work needs to be done to put in place the cornerstones for a sustainable recovery,
and of course an enormous amount of money will have
to flow from ordinary citizens to the coffers of government to pay for all the damage.
Still, the vital mission, to prevent a free fall in prices and economic output—a
Depression—has by all appearances been accomplished.
October
2008
The meltdown in financial markets does not come as a surprise to our clients. But it is
nonetheless tragic. The reckless practices by U.S. and European banks will now lead to the
wholesale destruction of those who behaved most
ethically—millions of workers who practiced what capitalism’s founding fathers
preached: production and thrift. Worse, when the world economy recovers from chaos, it
will find itself amidst a huge demographic challenge. Japan and Europe are in the worst
position.
July
2008
Banks are far too leveraged, mostly so in the
United States and Britain. Also at tremendous risk are the large Swiss banks, whose
balance sheets surpass the GDP of the country. The safest banking system is Canada’s.
August
2007
A major financial dislocation appears imminent.
I have extensively written about the three catalysts that could unleash calamity:
-the reckless granting of low quality real estate loans;
-the intransparency of trillions of dollars in outstanding derivatives;
-and the lack of regulations of hedge funds.
I have no idea on which of these fronts the crisis will be unleashed, but the odds of a
crisis are mounting.
Spring
2007
Avoid debt wherever you can. The “debt is
your friend” mantra that characterized much of the past fifty years is about to end.
The new reality will be “debt destroys!” And, while I’m at it, avoid real estate. I am not talking about your
ownership of your house, but the mentality that real estate is a good place for
speculation. The coming debt crunch will devastate that notion and wipe out hundreds of
thousands of excessively leveraged second and third homeowners, along with the banks that
hold the mortgages.
October
2006
The most frequent question I receive from clients is this: “Why hold a cash
position?” Unfortunately, today’s investor is so used to large and trouble-free
returns that the idea of capital preservation is scoffed at. The question I would ask back
is, “Why, with so many uncertainties on the horizon, would you not want to hold a
meaningful cash reserve?” Remember, cash is an
asset class. And when things turn bad, it is the most important asset class.
Peter Cavelti's essays have been printed and quoted in countless papers,
magazines and newsletters in several nations, including The Wall Street Journal,
Barron's, The Financial Times, the Financial Post, The Globe and Mail,
Money, Personal Finance and World Link.
Until 2006, we published Perspectives, a weekly internet-based review of geopolitical,
economic and social policy developments. Perspectives was designed to benefit
charity—in lieu of paying us a fee, subscribers had to support Doctors Without
Borders. We had many thousands of subscribers in 41 countries.
Click below to check out the best of Peter's comments--from travelogues and social
criticism to economic commentary and financial advice.
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