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The year
2008 produced stock
markets that were among the three worst in
the last 130 years.
On December 2, 2008, Harvard
University President Drew G. Faust and
Executive Vice President Edward C. Forst ’82
informed the deans that Harvard
Endowment’s lost $8 billion or 22% for the
four months from its fiscal year-end on June
30, 2008 when the almost $37 billion
endowment --- the largest in higher
education, if not the world --- suffered the
largest decline in modern history.
This is momentous due to the fact that
Harvard’s $8 billion (22%) decline is larger
than the endowments of all but four other
universities – Yale, Princeton, Stanford and
MIT.
Further, it should be noted that the
announcement did not tell the whole story as:
“The estimate of 22 percent may not fully
capture the actual losses from this period.
Forst said in an interview yesterday, as some of
Harvard’s money is invested with external
managers that have yet to report their latest
figures. Faust and Forst wrote in yesterday’s
letter the University should plan for a 30
percent drop-off in endowment value for the
year ending June 30, 2009.” The Harvard Crimson – 12/2/2008.
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Yale, not to be outdone, announced its
endowment had declined by 25% over the
same four month period.
“From June 30 through Oct. 31, Dr.
Levin (Yale’s president) said the endowment’s
marketable securities had fallen 13.4%. But the Yale endowment is
heavily invested in illiquid securities, such as private equity and
real estate. The 25% decline takes into account an estimate of those
securities’ declines as well.”
These words from the heads of
Harvard and Yale support our belief that the
financials and performance figures for
accounts owning these types of assets have
not been accurately reported to the public or
in their annual reports for many years. But
that is another story for another time. The
Bernie Madoff fraud also provides an
excellent example of investors and authorities being given
inaccurate financial statements for many years.
In other words, the reality is that the
amounts of losses in these funds are not
determinable because of numerous extremely important problems. Yale
and Harvard like other institutions, hedge funds, and retirement
systems holding toxic waste,
derivatives, real-estate (residential and
commercial) and private equity, to name only
a few “sophisticated asset classes,” 1) do not
know what they have, 2) do not know what it
is worth and 3) do not know where it is --- but
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other than
that, everything is OK. We have
been looking at incorrect financial figures for
years!
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We invite you to visit our Web site
www.HamiltonAdvisors.com. Under
Commentaries you will find one titled
“Chickens Coming Home to Roost – Credit
Crisis” written on August 16, 2007. We
believe you will find it to be relevant and
interesting. Copies will be sent upon request.
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On January 9th of the New Year 2009,
there was, as usual, some bad news and some
good news. The bad news was that job losses
in December alone were 524,000 resulting in
an unemployment rate of 7.2% versus 5.5%
not too many months ago.
The good news was that the job losses
were not in the estimated 700,000 to 800,000
range with some estimates going as high as
1,000,000. These estimates by so-called
“experts,” as you can see are about as useful
as security analysts’ estimates for corporate
earnings, and economic outlooks.
In good old 2008 a total of 2.6 million
jobs were lost with 1.9 million of that coming
in just the last four months. This country now
has 11 million unemployed, the highest since
June 1983.
We do not believe these figures and
look for December’s figures to be revised
sharply upward next month just as October’s
and November’s were on January 9th.
October’s job losses were revised from
320,000 to 423,000 while November’s losses
were revised up to 584,000 versus the
previous 533,000.
Mr. Obama is now saying that his
economic recovery plan will create or save
three to four million jobs. We hope he is
right.
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The
credit/economic outlook is not
good. And despite the “talking heads” on TV
and the all-knowing experts who put their
words into print, nobody in the world knows
how far we are into these problems or how
they can be fixed. This country and the world
have never dealt with a crisis of this type
before. The governments and central banks
(the Federal Reserve in this country) do not
have a clue, but at least they are doing
something in hopes that with luck they may
stumble onto actions that could be helpful.
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In the bond
markets we have seen
Treasuries trade to a zero percentage return
– all time lows - while municipal bonds are
trading, often at huge premiums, over
Treasuries and some corporate debt. The
outlook for much previously highly-rated
municipal debt is so grim that some are
offering twice the return of the 30-year U. S.
Government bond. As business contracts, the taxes received by states and
municipalities are severely reduced while the demand for services
continues and even escalates as the states are looked upon as the
saviour.
It’s ironic
that the one piece of really
good news, lower gasoline prices, results in
much lower taxes collected on that product
by the states.
It’s also
ironic to us that one of the
major causes for this country’s and the rest of the world’s finding its
collective self in this
mess is as a result of unrealistically cheap
money, i.e. the low costs of borrowing, and
the excessive spending by almost all
inhabiting the planet – people and
governments.
Now the
solution to these problems
seems to be exactly the same --- the cheapest money in history and
the most spending in history resulting in the biggest public and private
deficits in history. Will that be the solution? |
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Knowledgeable people around the
world are trying to figure out where to put
their money --- the U. S. dollar, the Euro, the
Japanese yen, the English pound, the Swiss
franc, the Chinese yuan and renminbi. Forget
about Iceland’s krona; it and Iceland’s banks
are gone.
Paper money is highly suspect
because of the feared inflation that will follow
all major countries’ – and many minor
countries’ – turning up their printing presses
to pump trillions of units of paper currency,
fiat money, into the world economy to solve
the present problems. We do not believe these oceans of paper money will
solve all the
problems.
Our thoughts over the last several
years have once again turned to gold.
Gold, the one currency man finds
most difficult to debase or destroy, is<
becoming more and more important as an
investment in this scenario. Gold, of course,
pays no dividend and it is generally inedible.
Nevertheless, the demand for physical
gold has been increasing exponentially. We
understand the gold refineries in Switzerland
are running five to six months behind
schedule.
When President Bush took office in
2001, gold was $285 per ounce. On March 17,
2008 gold traded at $1,014. Since then it has
come back to today’s high of $867.
Again, we invite you to visit our Web
site and under Commentaries look for “David
McCullough, Gold and the Dollar” written on
February 16, 2007 when gold was $670 per
ounce. Copies will be sent upon request.
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Oil prices are the bright side, at least
temporarily. Oil’s price illustrates the human |
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frailty of trying to
forecast the future. Who
could have predicted when oil was $140 last
summer that it would be around $40 today?
With a smile we remember the
German word “Schadenfreude” meaning
enjoyment obtained from the troubles of
others.
That word and three characters in
particular come to mind when we think of
how happy the three must be with $40 oil as
the markets teach them once again that “what goes around comes around.”
• Vladimir Putin
(Russia)
• Mahmoud Ahmadinejad (Iran) and
• Hugo Chavez (Venezuela and 100%
owner of Citgo)
WHERE’S THE
OUTRAGE?
John W. Hamilton
January 11th, 2009
John W. Hamilton
jwh@hamiltonadvisors.com
Deborah J. Hamilton
djh@hamiltonadvisors.com
J. Brock Hamilton
jbh@hamiltonadvisors.com
WEB SITE
www.hamiltonadvisors.com |
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PRIVATE WEALTH MANAGEMENT SINCE 1980 |
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This article contains the current opinions
of Hamilton Advisors and does not represent a recommendation of any
particular security, strategy or investment product. Such opinions are
subject to change without notice. Information contained herein has been
obtained from sources believed to be reliable, but is not guaranteed.
This article is distributed for educational purposes and should not be
considered as investment advice or an offer of any security for sale. ©
2009 Hamilton Advisors, Inc. All rights reserved. Tel: 203 629 1112.
Fax: 203 629 1469
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