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I spent last week in Vancouver at the 11th annual Agora Financial Investment Symposium, put on by the folks of The Daily Reckoning newsletter. This was a truly wonderful event, for a couple of reasons. One, while beneficial, debate conducted impersonally over the Internet has a tendency to turn unproductive. When people debate face-to-face, it's a much more rational, orderly affair. Two, the speakers were first-rate. I was able to profile David Walker, Vitaliy Katsenelson, John Mauldin, Andrew Lowenthal, Marc Faber, and Bill Bonner -- all respected experts in their fields.
But there were many others I wasn't able to fully profile (I can only type so fast). In this article, I want to share a few of their thoughts I was able to jot down.
Barry Ritholtz on market cycles: Everyone says the market went nowhere from 1966-1982. But that isn't true. There was tremendous volatility. There were 40% sell-offs followed by 75% gains.
It's no different this time. During the 2008-2009 market crash, stocks fell 55% over 17 months. That was faster than usual, but not atypical. If you look at a composite of 29 bear markets, there's a clear pattern:
- During the initial drop, markets fall an average of 56% over 29 months.
- Next comes a recovery rally, with markets surging 70% in 17 months.
- Then comes a second fall, with markets dropping 25% in 13 months.
- After that, you get range-bound markets, trading in a range that's 52% wide and lasts 5.6 years.
Your goal today should be to preserve capital for the next bull market, which will probably start around 2017, or something like that.
Frank Holmes on international opportunity: In countries that are extremely poor, there is hope. And when there is hope, there is tremendous upside. You go to India, and it's so poor. But the people are so optimistic. You go to Europe, and it's nothing but fear. Same in the U.S. The most dangerous situation is when people become humiliated. Their confidence becomes destroyed, and then they want to get even. They become bitter, not better.
Frank Holmes on changing international landscapes: In 1998, Russia blew up, and Greece was a very strong country. Today Russia is strong, and you know about Greece. Indonesia was a basket case 10 years ago. Today it's one of the best economies in the world. It all changes so quickly. These countries have learned from their mistakes and they're ready to thrive.
Right now, China has a real estate bubble. It will crash. But the key difference between China and America is that the Chinese hardly have any mortgages. So prices will fall, but then jump right back to all-time highs. You can have a quick recovery if you don't have a huge debt load.
America produces more sports trainers and lawyers than engineers. When things like that get out of whack, you get problems. You get bubbles.
Frank Holmes on market volatility: It's a nonevent for stock markets to swing 15% peak-to-trough every year. That's the average. For emerging markets it's 40% per year. Same for gold stocks. That's what you should expect. It's just what markets do: They fluctuate. This scares so many people. But it's important to realize that when they fall, mean reversion becomes a powerful force. The big money to make is when markets are down. Growth is three times greater in emerging-market economics, but there's three times as much volatility. Don't let that scare you. It's normal. Use the volatility to your advantage. Don’t become bitter. Become better.
Addison Wiggin on government intervention: We don't have a beef with social justice, but we ought to be able to pay for it. And we need to have a way for price-movers, small businesses, to create the jobs. We do need government: to enforce contract laws, for security, etc. But I don't believe the government needs to be making decisions for us at the base level.
Byron King on the oil disaster: The insurance industry rated the risk of a large deepwater rig [like the one associated with BP (NYSE: BP ) and Transocean (NYSE: RIG ) ] sinking at zero percent. Zero percent! It was just like Titanic, or the Space Shuttle Challenger. People thought it could never happen. It was a failure of imagination.
Doug Casey on the Great Depression: Our future will not just be worse than the Great Depression in the 1930s. It will be much worse and much different. This will be the biggest thing since the Industrial Revolution. It's that big.
How can I make that assertion? It's a shocking assertion. But let’s look at the Great Depression. There was very little debt in the world back then. Importantly, there was almost no consumer debt. There were no credit cards. If you wanted to buy something, you used the layaway plan. Today there's a huge amount of consumer debt. During the Great Depression, real estate fell 90% in some areas. But real estate taxes were de minimus back then. Banks required 20% down for mortgages back then. And these were five-year mortgages -- not 30-year mortgages like we have today.
Even the government had very little debt back then. You know how it is today. It's out of control. And I'm not even talking about Social Security's unfunded liabilities. I'm talking about debt needed to bail out the FDIC. Debt we'll need to bail out SBA loans. Guarantees for General Motors, Fannie and Freddie. There are scores of debt promises that will all come due. There also weren't any wars in the 1930s. Now we have two major wars. That's a drag on the economy we didn't have back then. There were also hardly any income taxes to speak of back then. There were no sales taxes. Now we're talking about a VAT tax. The government today is sucking the productive life out of the economy in ways we couldn't dream of back then.
[Please note: Doug Casey has been essentially saying the same thing for 30+ years. He brings up interesting points, but his track record should be kept in mind.]
Me, thinking to myself: The main gripe at this conference are deficits caused by runaway entitlement benefits. Fine. But the average attendee is at least 65. How many of these folks used their Social Security check to come to an event to complain about Social Security checks? Makes me wonder. Long live the Tragedy of the Commons.