As I look back on that 1998 crisis, which we all thought was so huge at the time, it brings a smile. We were talking hundreds of millions that had to be ponied up by each of the big banks, several billions of dollars total. It was manageable within the private system. Just 10 years later, in the 2008 crisis triggered by the housing bubble, we were talking hundreds of billions if not trillions in losses, and the private system was not capable of dealing with it.
If we don’t handle our debt problem, the crisis into which we’ll plunge will resolve the debt in one way or another – and the ensuing turmoil will make 2008 look as minor as 1998 does today.
I do not want to my children to wake up in a world where we are frog-marched to the edge of the abyss and forced to look over. We still have the opportunity to secure the future for our children, but only if we seize the moment. If we don’t, it will be unusquisque pro se – every man for himself.
A few thoughts on investing in an environment like this (since investing in the economy is supposedly what this letter is mostly about). With all the current and emerging challenges we face, investing will still be difficult even if we deal with our debt issue, but those challenges will be far more agreeable than the extraordinarily difficult choices we’ll be left with if we don’t handle the debt. With the tools and strategies that we have available to us today and with even more powerful tools being developed for the future, I think investors who are properly prepared can figure out what to do in either scenario. But average investors who are expecting the future to look somewhat like the past? They’re going to be severely damaged. Their retirement futures are going to be ripped from them. And they are going to be profoundly unhappy.
None of that has to be, of course. Things might turn out just fine. But I have a strong suspicion that the massive move we are seeing from active management to passive management strategies in the past year is going to turn out to be one of the all-time worst decisions by the herd. But that’s a topic for another letter.
Howard Ruff, RIP
I was truly saddened to learn this week that my old friend Howard Ruff had passed away. He was 85 and suffering from Parkinson’s. Howard Ruff is a name that my younger readers (under the age of 40) will likely not recognize, but those of us who were around for the investment world of the ’70s and ’80s were certainly influenced by Howard. He was one of the true founders of the investment publishing world and was clearly the rock star in the ’70s and ’80s. His main newsletter was called the Ruff Times. This title was appropriate, as his first three books were Famine and Survival in America (1974), How to Prosper During the Coming Bad Years (1979 – NYT #1), and Survive and Win in the Inflationary Eighties (1981) – all solidly in the gloom and doom camp. Howard believed (as of his 1979–1981 writings) that the United States was headed for a hyperinflationary economic depression and that there was a danger that both government and private pension plans were about to collapse. His mailing list grew to over 200,000 subscribers (unheard of for a newsletter at the time), and he had a following that was amazing. He was part of the hard-money crowd and rode the wave of gold and food storage, preparedness for the coming crisis, throughout the ’70s and into the ’80s. He made a series of remarkable calls, and people thought he knew what he was talking about. I think that sometimes even Howard himself did. (You can read a fuller reminiscence by our mutual friend Mark Skousen here. (Also includes a link to a New York Times piece on Howard.)
I remember the first time I saw him. I was at an investment conference in New Orleans (the “gold conference” which in its heyday would have 4,000 attendees and was founded by another legend, Jim Blanchard), and I noticed a small crowd (100 people or so) focused on an individual in a hallway. It was Howard holding court, answering questions, just being his entertaining self. And people leaning in to listen – enraptured. I saw that scene repeated at other times during that and other conferences, all throughout the ’80s.
And then things changed. The markets changed, and Howard’s message didn’t. His subscriber list began to shrink. The crowds got smaller (and older). You have to understand, Howard was a complicated man. He went through multiple bankruptcies and came back to make millions. He was passionate about everything he did. The business setbacks were simply opportunities to move on to something else. Onward and upward. He was always upbeat.
He was a devout Mormon who had 14 children, 79 grandchildren, and 48 great-grandchildren at the time of his passing.