Serious Analysis

sitka-pacific For those of you who are thinking about how to tackle the current economic situation, I have got two pieces of analysis. A serious one and then a rather crazy, but still serious one (although serious in a different way).

The first one is by Mike ‘Mish’ Shedlock of Sitka Pacific Capital Management (found via Big Picture). This is probably the best piece of investment analysis I have ever read. But then I don’t read many of them and am easily impressed. The Analysis is entitled: “Peter Schiff Was Wrong”:

There are numerous YouTube videos, articles, and references to Peter Schiff being “right” rapidly circulating the globe. While Schiff was indeed correct about the US imploding, most of the praise heaped on Schiff is simply unwarranted, and I can prove it.

First, let’s start with a look at the claim being made. Peter Schiff concludes many of his articles, books, etc. with the following statement.

Mr. Schiff is one of the few non-biased investment advisors (not committed solely to the short side of the market) to have correctly called the current bear market before it began and to have positioned his clients accordingly.

I would like to see some proof of that statement. Specifically I would like to see the average returns posted by EuroPacific clients for 2008.

I have talked with many who claim they have invested with Schiff and are down anywhere from 40% to 70% in 2008. There are many other such claims on the internet. They are entirely believable for the simple reason Schiff’s investment thesis was flat out wrong.

Read the whole, fascinating article here…

The next analysis is this YouTube video. You have to watch this. Very serious stuff.

Found via Mitch’s blog, by the way. Unbelievable.

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Peter Schiff: Right On The Crisis, Wrong On Investing? (usnews.com)
Peter Schiff: Oh, he saw it coming (money.cnn.com)
And Also Peter Schiff May Want to Run For Senate . . . (usnews.com)
Peter Schiff was Right^H^H^H^H^HWrong (paul.kedrosky.com)

Being a tech start-up in 2009

dow-jones As the CEO of a tech start-up, it is part of my job to think about how the current macro climate affects our business going forward. One of the things that worries me is that the current generation of managers and advisers have never really managed anything in anything resembling a real recession. I think that is a very dangerous situation.

What makes me think this way is the chart below. It shows the year-on-year development of the Dow Jones Industrial Average from the first trading day of each year to the first trading day of the subsequent year.

dow-jones-historic1

What the chart shows is that the 1980s and 1990s and 2000s have been great times to be in business. You may notice that the ‘stock market crash’ of the late 1980s doesn’t even register. What people think of as ‘bad’ has only really been somewhat uncomfortable. I think that even if you have been in business for 30 years, you have actually not seen really bad times. The last time it was bad was in the 1960s/1970s. Everything since then has been smooth sailing, including the burst of the dot.com bubble.

What confirms my thinking are statements like the one by the CEO of Deutsche Post (the world’s third largest logistics company): “I am expecting a sharp recession that will be over very quickly. […] ”

Really? Amazing. Could be famous last words. How does he know?

Looking at the chart, I am preparing for anything. In 1930 the stock market fell some 35%. It fell by an additional 55% the next year. And an additional 20% the year thereafter. There were 15 (that is fifteen) years of literally no value growth in the 1960s/1970s. Fifteen years. That is a very long time.

Hope for the best, be prepared for the worst. I hope it is going to become better soon. But I am preparing myself for the worst. And the worst could easily be ten very tough years being ahead of us.

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