Commentary: 'Pretend an emergency is coming, because it may be'
By Peter Brimelow, MarketWatch
Harry Schultz hasn't changed his mind: Run for the hills.
His International Harry Schultz Letter (HSL) first came to fame in the 1970s, prophesying dollar doom and a great gold market.
Although wild and woolly in style, HSL was actually drawing on a serious tradition of free-market economics which, in an intellectual revolution, was indeed about to dethrone the then-dominant Keynesianism. And Schultz proved to be a shrewd trader, switching back into financial assets as the crisis passed in the early 1980s.
For the past few years, Schultz has been doing very well as the economic conditions that he first flourished in seem to be returning. I named him Letter of The Year in 2005 (not the past year, as he implies on his website). See Dec. 29, 2005 column
Currently HSL is up 6.4% over the past 12 months according to the Hulbert Financial Digest, vs. negative 2.63% for the dividend-reinvested Dow Jones Wilshire 5000. Over the past five years, HSL is up 34.7% annualized, vs. 7.9% annualized for the total return DJW.
But success hasn't softened Schultz. Even I was startled by the apocalyptic tone of his December letter. It said flatly: "A financial tsunami is upon us."
See Dec. 13 column
The Dow Jones Industrial Average ($INDU:12,337.22, -10.99, -0.1%) has been down some 2,000 points since then. So I checked to see if Schultz is any cheerier.
Answer: No.
Schultz writes: "It's a derivative crisis, stupid !... 9,000 U.S. banks failed in 1929-1932; look for new records ... Hyper-inflation is a distinct possibility; stay awake!"
Among his more colorful recommendations: "Buy a few local non-rare gold coins of whatever country you are in for emergency/barter use, smallest denominations ... Keep 6-12 months cash at home/ office/ lawyer-doctor office. Pretend an emergency is coming, because it may be."
Schultz has also begun recommending the traditional inflation hedges familiar from the 1970s: "Art, commercial property that yields certain income, farm land."
The HSL section called Actions To Take - In A Nutshell" epitomizes Schultz's combination of sensational and shrewd. It begins: "The global derivative/credit crisis is nearing breaking point. Take immediate measures to safeguard your assets before it becomes too late, due to sudden (bank/government) restrictions on cash withdrawals, wire transfer limitations, the loss or recall of credit facilities, frozen fund redemptions, foreign exchange controls, etc ..."
But then HSL continues: "Global stock markets are short-term oversold. Place, or tighten profit stops on short sales to protect against a potential rebound ... Interest rates will rise sharply long-term, but are generally destined to fall before they rise. Move some funds from short-term government paper (90 day T-bills) into a mix of six-month to two-year government paper (Swiss Franc, Euro, Australian dollars, Canadian dollars) to lock-in current interest rates and hedge against short-term rate declines.
"Exposure to gold shares and bullion should be a minimum of 35-45% of your total portfolio, with at least 10% in physical gold bullion and coins (preferably held in boxes outside of U.S.) ... If not already done so, use the current U.S. dollar mini-rebound to exit U.S. dollars and/or hedge dollar-denominated assets via futures and/or bank forward contracts."
And Schultz is putting his money where his mouth is. Or rather his subscribers' money. The current issue of HSL announces that the "life subscriptions" that the service has long offered have been discontinued. It explains: "The unremitting fall of the U.. dollar has made them unprofitable as most of our overhead is in euros. For the moment, we'll continue offering four-year subscriptions, but probably not for long, depending on the U.S. dollar."
Four-year email subscriptions to HSL currently cost a mere $1,172.