October 7,2011


“A man who is a master of patience is a master of everything else.”
-George Savile


Investor Focus

I beleive investors should primarily be focused on three things.  Over the mid and long term, it’s inflation.  For the short term, it’s market volatility.

And overall, that Bull Markets are designed to throw people off.

It’s my opinion the long-term secular bull market in what historically does well when paper money dies is not only in tact, it’s just in the second phase of a three phase 16-20 year run which began in 1999.

Inflation Over the Mid and Longer-Terms

I believe heavily indebted governments of the developed world have, at this point in time, no option but to print/debase/water down the currencies they must pay their massive debts back with.  The debt is just too high.  With increasing likelihood of large-scale sovereign bailouts required in Europe – and the potential of bank bailouts/nationalization in both Europe and the U.S., the monetary printing presses could be running red-hot.  If this scenario does indeed continue to unfold, as I believe it will, investors may benefit from owning what historically does well when paper money dies.

Shorter-Term Volatility

I believe we are still in a long-term secular bear market in broad-based equities, which seems to be reestablishing itself.  Volatility is high in many stocks.  For the short term, caution reigns.

Bank of America, Citi and Morgan Stanley shares dropped to levels not seen since March 2009, and the cost of insuring their debt via credit default swaps rose dramatically.[1]  A second bailout is being considered for the Franco-Belgian bank Dexia a mere three months after passing European Union stress tests.[2]  A faceoff looms between Greece and European Union (EU), European Central Bank (ECB), and International Monetary Fund (IMF) over the next bailout payment.[3]  Without it, Greece may run out of money in 2 weeks.[4]

As I’ve said before, if an Olympic Swimmer gets too close to the Titanic when it goes down, he or she will get dragged down with it — no matter how many gold medals/world records. I view the broad-based equity markets as potentially the Titanic.  They can also be viewed as a hurricane.  Even if you’ve got a fantastic boat (mid-long term strategy) – it’s wise to pull into a safe port in the face of uncertain weather.

In other words, we’re potentially in a period where investment strategies proper for the mid and longer-terms (including owning what does well when paper currency is debased) can be temporarily altered by immediate, chaotic conditions to the downside. To varying degrees, caution.


I believe attempted stimulus and resulting currency debasement will continue in spades. However, world central bankers could act too late as they tend to do — and, not in time to avert another 2008-like mega-slump (when the Fed acted LATE).  In my opinion, it’s better to wait for more central bank easing/money printing/intervention to have it’s causal effect (currency debasement and rising prices as happened post 2008 Fed money printing).

I believe stimulus/money printing will come en masse.  It could come very soon — or it may take longer.  Politicians and central bankers seem to be delaying as long as possible to avoid showing their hand.  In the meantime it pays to watch and wait to make the right moves at the right time.  It’s my opinion the bull market in what does well when paper money dies has a long way to go.

I believe current circumstances are providing yet another opportunity.


I maintain a positive outlook. That outlook is based on my belief that a bear market in one thing is often a bull market in another.

As we enter this critical time – now, more than ever – we believe investors need to focus on their investment strategies. Those readers who are clients are fully aware of the strategies we’re implementing in light of unfolding economic circumstances. Others may feel free to contact us to learn more.


Stephan R. Ernharth, JD
Vice President
Ernharth Group

Go to www.ernharth.com/economic-commentaries to read past articles from our Economic Commentary series.

1.  Telegraph.co.uk, “US Markets Hit Year-Low, As Greece is Warned it Will Have No More Concessions” October 3, 2011
2.  Bloomberg, “Dexia Rescue Moves Bank Crisis From Europe’s Perhphery to Core” October 4, 2011
3.  Telegraph.co.uk, “US Markets Hit Year-Low, As Greece is Warned it Will Have No More Concessions” October 3, 2011
4.  Ibid