Grumpy Old Men

Investment advice from the world’s most experienced investors: Two votes for gold. One vote for high-yielding stocks. One vote for currencies outside the dollar. And more…

It hit me late last night as I watched George Soros being interviewed…there are the Grumpy Old Men…and then there are the Elite Old Guys. The Elite Old Guys are the investors you’d REALLY want to have on your side.

The Grumpy Old Men are the folks that have been bearish their whole lives. There are thousands of these guys – smart and poor – because they never stepped up to the plate to buy.

Then there are the Elite Old Guys – and these are the guys worth listening to. To carry any credibility with me, you have to have said both "buy" and "sell" in your investment life.

Sounds simple, I know. But you’d be amazed how short the list of Elite Old Guys is – the list of investors that are concerned about making money rather than being proven right.

Let’s take a look at the most credible investors on Wall Street – that small handful of Wall Street old-timers that have actually survived horrible bear markets, that bought stocks heavily when prices were low and nobody was willing to buy, and are still around today and are still relevant.

Wall Street Old-Timers: Richard Russell

Richard Russell is 79 years old. He’s written his Dow Theory Letters newsletter since 1958. He is incredibly bearish today. He has nearly all his assets in tax-free municipal bonds. But he’s no Grumpy Old Man. When nobody believed stocks could go higher, Russell put all his assets AND all the money he could borrow into the stock market in 1958. He held tight through 1966, then sold it all, catching one of the great runs in stocks in history.

Today, he sees the big money in gold and gold shares, his largest position outside of his bonds. He cites Newmont Mining as his favorite in his latest newsletter – a name familiar to Daily Reckoning readers, I’m sure.

Wall Street Old-Timers: David Dreman

Then there’s David Dreman. Last week, I read the original 1980 version of his book, Contrarian Investing Strategies. Wow was Dreman bold…In the 1960s he was frustrated with how expensive stocks were. He recounted in his book: "When I was a student reading the newspapers of the 1930s, 1940s and 1950s, I was amazed by the value so abundant in the stock markets…I felt a little cheated because I thought the great days of investment coups all lay in the past."

But then 1980 came. Stocks were cheap, and Dreman became a mega-bull, saying in his book…"Since the 1930s [with the exception of the 1974 market] stocks have never been as totally washed out as they are today…the stock market appears cheap by nearly every historical standard."

"The Death of Equities" was the headline of BusinessWeek magazine at the time. Yet Dreman was buying with all he had. These days, Dreman manages billions of dollars and writes a column for Forbes. He’s been recommending financials and smoking stocks.

Wall Street Old-Timers: George Soros

George Soros, the most successful investor alive – including Warren Buffett – needs no introduction. Lately, the 74-year-old’s biggest trade is betting against the U.S. dollar (you may recall he famously made a $1 billion dollars betting against the British pound). Soros is doing this by buying other currencies (euro, Aussie, and NZ dollar) and buying gold. He told CNBC "…I now have a short position against the dollar because I listen to what the secretary of the Treasury is telling me."

Wall Street Old-Timers: Mark Mobius and John Neff

Mark Mobius, the youngster in the group in his sixties, still travels to bizarre places looking for investments for you and me 300 days a year. Mobius sees value everywhere today – everywhere that most people are afraid to look, especially emerging markets – like Korea, South Africa, Russia, etc.

And lastly there’s John Neff. Neff called the bottom in stocks on the cover story of Barron’s in September of 2002. His personal portfolio is loaded with homebuilders…interesting to note.

Two votes for gold. One vote for high-yielding stocks. One vote for investing in currencies other than the dollar. One vote for emerging markets. And one vote for homebuilders. That’s the favorites list of the Elite Old Guys.

It’s hard to argue with decades of extraordinary success. These guys haven’t cared what anyone else has thought. They’ve done it their own way. These are the guys with real credibility.

I hope your portfolio isn’t too far from what the most credible investors in the world are doing.


Steve Sjuggerud
for The Daily Reckoning
March 17, 2004

Editor’s Note: Dr. Steve Sjuggerud has worked in the investment world as a stockbroker, the vice president of a $50 million global mutual fund, an international hedge fund manager, and the director of several research departments. An international currency expert, he is also a member of the Oxford Club advisory panel.

With high-yield plays, gold plays, outside-the-dollar plays, emerging markets plays, and homebuilders, Dr. Steve Sjuggerud’s recommendations in his monthly letter, True Wealth, are right in line with the Elite Old Guys’ recommendations.

To learn more, see: True Wealth


We were being interviewed yesterday by a French financial publication and had been asked to explain why we were so ‘negative’ on the U.S economy.

"Debt levels are too high. The last time it was so cheap to borrow money – back in the Eisenhower era – total debt in the U.S. was less than 150% of GDP. In fact, it was almost always under 150% of GDP…except during bubble periods. Now, it’s higher than it’s ever been, at more than 300% of GDP. The New York Times tells us that the average family’s debt went up by 50% over the last 13 years…from $54,000 to $79,000. And over the last 18 months, the Feds have been adding to the national debt at the rate of $2 billion per day.

"Of course, many economists – including Alan ‘Bubbles’ Greenspan himself [more on this in Friday’s essay] – pretend to see no problem. They seem to argue that you can continue to borrow forever. But we all know it’s not true. At some point, lenders refuse to lend more…and/or the debtor himself can no longer afford to keep up with his interest payments.

"Just think about it…if you really could increase your debt indefinitely, who wouldn’t? Borrowing is now a whole lot easier than working for a living. Inside work. Clean. No heavy lifting. Try to imagine a man who uses mortgages and credit cards…increasing his debt year after year…Or a family that, generation after generation, merely lived on a expanding line of credit…Or a nation to which the rest of the world lent more and more of its savings…

"No happy examples come to mind. Because they don’t exist. People try to live off of credit, but they usually end up disgraced…or blow their brains out."

"But here in France we are great admirers of the U.S. economy," replied the reporter. "The U.S. GDP is growing faster than in Europe. And surely you have some of the best people in the world working at the Fed. They must see the problems. They must have a way of managing them…"

"Ah," came our ready response. "All over the world, people think that the world economy is a machine and that economics itself is the science of how to make the machine run properly. They conclude that the good scientists at the Fed – such as Professor Bernanke from Princeton – will make the proper adjustments. The trouble is, the world economy is not a machine and economics – if it is a science at all – is a human science, not a hard science. If you heat up water to 212 degrees Fahrenheit, depending on pressure and so forth, it boils. Every time. But human responses are impossible to predict. They depend on whatever fool idea humans happen to have at the time.

"Imagine that you do your maths (as they say in England) and that you come to the realization that – as a scientific observation – stocks produce greater profits than bonds. If this were accepted as scientifically valid…it would be irrational for investors to put their money into anything other than stocks. Stocks would, then, rise dramatically – convincing even diehard skeptics, who would then buy stocks, too. Stocks would be hot…while bonds would cool down and ice over. Pretty soon, bonds would yield 10% or more (in 1978 you could get 15% from a U.S. government bond!)…and stocks would produce no yield at all…and no hope of capital gains, for all the world’s money would be already invested in them.

"But the observation that stocks outperform bonds is based on investors’ attitudes and reactions from a period when investors did not believe that stocks were better investments. Stock prices from the period – much lower – reflected the belief that stocks were, on the contrary, risky…and that investors needed a greater return to make up for the risk.

"And so it doesn’t take long for the sharp, cynical investor to see that the ‘stocks are always better than bonds’ idea is flawed. The smart money pulls out of the boiling stock market…just as Buffett, Soros, Rogers, Templeton, and Grantham have largely done already [More on these ‘Elite Old Guys,’ below…]. Later, the mob of lumpeninvestors catches on…and may, in a moment of sudden panic, realize that its goose has been cooked. Stocks crash. In effect, this generation of investors rediscovers the risk that their fathers and grandfathers always knew was there – the kind of risk that ‘science’ can’t measure…the kind of risk the Feds can’t protect you against."

Alan Greenspan sees no problem. But Americans are not so sure. Consumer confidence dropped in the latest period.

The economy is in full ‘recovery,’ say the experts. But mortgage foreclosures, personal bankruptcies, and late payments are at record levels. White-collar workers are having a hard time finding new jobs. Blue-collar workers’ real earnings per hour have been going down for the last 30 years.

And now the bear market rally of October 2002-March 2003 seems to be rolling over. Stocks bounced back yesterday…. but the trend seems to be down. And just when it looked like they might go up forever!

*** The Paris HQ is mysteriously silent today. We’re told the weather has finally turned and the sun is shining, which might help to explain things. In any event, we trudge along…alone.

*** The press release from the FOMC meeting yesterday was a "non-event." Bonds rallied within minutes and yields tanked, but nothing much else happened. The euro gained half a centime against the dollar – which, by session’s end, changed hands for two less yen than the day before.

*** What must Mr. Mizoguchi be thinking? Despite spending a third of a trillion dollars trying to keep the dollar up, yesterday it fell again – over 1% against the yen. Surely, he must be wondering if he has wasted his countrymen’s money. Surely, he must be thinking about alternative uses for Japan’s savings. Surely, he must be twitching…

*** "Where are the jobs?" asks a Business Week headline. But the poor newsmagazine seems to have no clue. Jobs are disappearing, it says, not because of Kerry’s ‘Benedict Arnold CEOs,’ but because of ‘productivity.’ To this we can only give a Mogambo-style reply – hahaha. Productivity rises with the advance of technology and material progress. We’re trying to get this straight, in case someone asks us…let’s see…the more prosperous and productive we become, the fewer jobs there will be, right? According to this theory…if progress continues as it usually does, soon none of us will have jobs! Ha, ha, ha…

But don’t worry…we’ll think of something, says Business Week (presumably, something not subject to productivity gains!):

"History has shown time and again that jobs follow growth, but not necessarily in a simple, linear fashion. America has a dynamic, fast-changing economy that embodies Joseph A. Schumpeter’s ideal of creative destruction. We are now experiencing the maximum pain from the wreckage of outmoded jobs while still awaiting the innovations that will generate the work of the future. While America’s faith in its innovation economy has often been tested, it has never been betrayed. Given the chance, the economy will deliver the jobs and prosperity that it has in the past."

Ha, ha, ha, ha…

*** Terrorist attacks in London are "inevitable," say the English papers. London’s mayor said it would be "miraculous" if the capital avoided a Madrid-style attack.

*** "Have the wars against Afghanistan and Iraq really made the world safer?" Europeans are asking themselves.

"The whole thing seems mad," said an English journalist at dinner last night. "We suffered IRA bombings in London for many years, decades in fact. We knew they operated out of Ireland…but we didn’t declare war on the Irish. Osama bin Laden might have been captured and brought to justice by now if we hadn’t gone off on this grandiose ‘War on Terror’ thing. I mean, nation building…clashing civilizations…what nonsense. There are always dreadful people doing dreadful things. You need to track them down and bring them to justice…not stir up every crackpot and malcontent against you.

"Someone asked Margaret Thatcher what she would have done. Would she have taken the British to war in Iraq? No, she said…it was ‘too uncertain.’ Smart woman. But she’s a real conservative. These neo-conservatives who seem to be in charge of American foreign policy are really something else altogether.

"I knew Richard Perle [a top neo-conservative idea monger] when I was a correspondent in Washington. Delightful, charming man. But completely mad."

[Ed note: In a related vein, Doug Casey passes on some rather startling observations from a correspondent "in country" in Iraq…in an article on the Daily Reckoning website. You don’t want to miss it:

On The Ground In Iraq ]

*** Pity the poor prosecutors. They were all set to bring an aging Nazi to justice for his role in the murder of Italian civilians in 1994 when the old man, 95, died. We can only hope the trial goes on…but at a higher court.

How different this ‘War on Terror’ is from the old-fashioned kind. Yesterday marked the 60th anniversary of the ‘Great Escape,’ from Stalag Luft III in Germany. The breakout by 76 POWs was celebrated in the film of the same title with Steve McQueen and James Coburn. Typically, Hollywood made the Americans heroes…but there were no Americans involved. They were mostly RAF airmen. And contrary to the film account, very few actually got away. Hitler personally ordered the execution of 50 of the captured soldiers, to set an example.

Only six of the original escapees remain alive. Two of them who gathered at the British Imperial War Museum yesterday to mark the occasion had actually escaped a second time. Late in the war, German guards – regular soldiers, not the SS – helped them get away.

Bill Bonner,
The Daily Reckoning

P.S. By the way, we will be speaking at the Money Show in Las Vegas on May 10-13th. The event promises to be a rewarding one…Sir John Templeton and Louis Rukeyser will also be speaking, and more than 200 workshops on pressing investment issues are planned.

Also, same place and nearly same time, from May 13th-15th, Mark Skousen will be hosting his annual FreedomFest conference. We’ll be there too. So if you want to come and chat, pick up some investment ideas or just enjoy the Bally’s and Paris resorts and gamble, we’ll see you there.

P.P.S. "It’s hard to argue with decades of extraordinary success," argues Steve Sjuggerud (below). "When the world’s most successful investors make dramatic investment moves, it’s probably worth paying attention…"

The Daily Reckoning