The media's been having a field day tracking the rate of home mortgage foreclosures.
Gasoline and diesel fuel prices are the highest in U.S. history. The worry-worts
and fearmongers are having a holiday.
I tend to ignore short-term economic hiccups and focus on the long term. In
other words, "what goes up must come down," or vice-versa.
However, a letter from Jean-Marie Eveillard, one of the most brilliant mutual
fund managers today, caused me a great deal of concern. Now, the individuals I
mention above who've nothing better to do than worry have said things similar to
what Eveillard said to his shareholders in a letter dated May, 2008:
This is the worst financial crisis since the Great
Depression.
Now, of course, Mr. Eveillard made it clear that the problems in the U.S. and
financial world markets are certainly not as great as they were during the
Great Depression. However, he did make it clear that it's time to pay the
piper. In other words, after a 25-year credit boom, the cherry on the top of
which is the sub-prime mortgage situation, we're in for some significant fiscal
bad news. Fannie Mae and Freddy Mac, the New York Times reported today, are
teetering on the edge of needing rescue by the government.
Eveillard, a brilliant economist, goes on to say:
The lesson here is the monetary authorities should have
paid attention to the writings in the 1930s of the Austrian School of Economics
pointing to the financial excesses of the 1920s as the leading cause of the
Great Depression.
Never one to cry over spilt milk, Eveillard cited the extremely long-term
decline in equity prices in Japan as an example that we could be worse off than
we are.
His outlook is that we'll have to turn to emerging, volatile, unpredictable
markets in India and Asia. Investment in gold as a generator of profit is no
longer that; it's insurance against what he calls "extreme outcomes."
One of Eveillard's funds, First Eagle's Global Fund, has a track record of
>15% annual earnings over the life of the fund. Even this superb long-term,
low-risk investment is falling prey to market volatility. Just when we turned
around from a loss position in the third quarter, fourth quarter predictions are
that we will endure a loss for 2008; the first time the fund's shown a loss
since 1990. This from a fund that yielded 18.17% on average over the last five
years. Well, I guess what goes up must indeed come down.
It's time for belt-tightening. I'm struggling with the fear of the unknown. I
hate it.