A Market Warning From Legendary Investment Consultant Harry Schultz

by: Rolf Norfolk

Legendary investment consultant and trader Harry Schultz has been publishing his financial newsletter since 1965. He has just retired with a sombre finale that is rapidly circulating on the Internet. Peter Brimelow at Market Watch gives us some extracts from that last letter, e.g.:

Roughly speaking, the mess we are in is the worst since 17th century financial collapse. Comparisons with the 1930s are ludicrous. We’ve gone far beyond that. And, alas, the courage & political will to recognize the mess & act wisely to reverse gears, is absent in U.S. leadership, where the problems were hatched & where the rot is by far the deepest.

I think we are now clearly beyond the time when bearish commentators can be dismissed as melodramatic alarmists. Harry Schultz is no Chicken Little blogger but has appeared in the Guinness Book of Records as the world's highest-paid investment consultant. Maybe that makes him a Chicken Big.

The 400-year timescale in the extract above chimes with the ideas of D H Fischer's "The Great Wave" and other theorists who see very long term cycles in economics. But they are largely cycles of human social behaviour, so can we still break out? Santayana warned, "Those who cannot remember the past are condemned to repeat it," so maybe knowing how it's played out before will help.

Schultz is not alone. He himself quotes a former financial officer of Ronald Reagan as saying recently: "We’re entering a global monetary conflagration. If a sell-off of U.S. bonds starts, it will be an Armageddon." In that context, Schultz does not see gold as being in bubble territory yet.

For Schultz's shorter-horizon defensive investment advice, see below as quoted by Brimelow; longer-term, we may have to seriously consider what to do in the event of a major disruption to normal living.

Here's what Schultz says for the boys still absorbedly playing the high-stakes card game in the first-class saloon of the Titanic (or the Laconia, or the Lusitania - whichever one gives you the bittersweet spine-tingle):

  • 5-10% Stocks (nongolds).
  • 15-20% Commodities: via futures, commodity stocks &/or physical assets.
  • 50% gold stocks & bullion: 15% blue chips, 5% junior, 5% bullion via futures, 25-35% in physical bullion.
  • 0% currencies (“Close out all fiduciary time/call deposits, money market funds & municipal bonds, pension funds…”)
  • 1-5% Cash in hand. (“Stored privately.”)
  • 0-5% bear stock market protection via ETFs like ProShares UltraShort Dow30
  • 15-20% Government notes/bills/bonds (“In 3-6 month T-Bills/bonds only — buy these only in Swiss Francs, Australian dollars, Canadian dollars, Brazilian reals, Singapore dollars, Chinese Yuan only).”

Disclosure: None. Still in cash, and missing all those day-trading opportunities.