By Peter Brimelow, Wall Street Journal Market Watch – June 10, 2010
Harry Schultz’ International Harry Schultz Letter was one of 2009’s top 10 performers because it ran with the rally. And I named it Letter of the Year for 2008 because it undeniably did predict the crash.
Over the past five years, the letter has achieved an 11.39% annualized gain, vs. 1.02% annualized for the dividend-reinvested Wilshire 5000 Total Stock Market Index. Over the past 10 years, it has achieved a 6.12% annualized gain, vs. 0.22% annualized for the total return Wilshire.
Schultz specialized in grand theorizing, and his current Big Idea, based on pure intuition as far as I can see, is that stocks and the economy will head down, then up, in two 10-years swings, complicated by counter-trend rallies like that of 2009-10.
As 2009 showed, Schultz is capable of great tactical flexibility. But right now, all his flexibility appears bearish.
He comments: “Red alert if the S&P500 breaks below 1,035.” (It closed Wednesday night at 1,056). On gold, he writes: “I said the next target will be $1,400. I’ll stay with that forecast.” Schultz says his eventual gold target is $6,000 — the highest I’ve seen him mention.
One reason for Shultz’ skittishness: what he sees as the extraordinary precariousness of the world financial system.
He writes: “We (collectively) are poised at a heart-stopping moment in economic times. On the one extreme side, the world is on the edge of massive deflation and depression. At the other extreme … hyperinflation. My view is: Both of these extremes are possible. Certainly deflation is, on balance, in play today and gaining ground as money supply is actually declining!
Hyperinflation seems impossible when there is not much inflation in most economies. But … hyperinflation is a monetary event, not an economic one, and will happen on an overnight basis, not via a general uptrend in inflation data.”
Overnight?
Schultz added this late comment: “Meantime, as I write, gold is holding very near its high, as most stock markets are bungee jumping. This implies the unexpected hyper is pending, because if it were exclusively deflation ahead, gold action would be less buoyant.’
Schultz’ current recommended asset allocation:
30-40% government notes/bills/bonds
8-10% stocks (non-golds)
10-15% commodities
40-50% gold stocks and bullion
0-5% bear stock-market protection via inverse exchange-traded funds
All Things Considered- John’s Commentary:
This gentleman is a legend. I believe he is 87 years old and still very much kicking. One thing to note about his recommended allocation, when you hold gold in this environment, you are really holding an alternative to cash, with both upside potential and downside risk, albeit, the upside potential is heavily favored.
Action to take: Take a position if you haven’t already. Mr. Schultz sees $1,400 by year end. The individuals I have followed for years as well as my own opinion is $1,320 to $1,640 this year. Silver will catch up and start to outperform gold looking for a 50:1 ratio silver to gold or better.
What to buy: Gold: US Arts Medallions are a very under-appreciated and low cost form of gold bullion. Minted for a few years in the 1980’s, I have owned these coins and consider them a tremendous value. Silver: Peace Dollars in Brilliant Uncirculated are good to have. I have found more clients of late who are interested in them.
Quote of the day: “The history of paper money is an account of abuse, mismanagement, and financial disaster.” – Richard M. Ebeling
