By Dr. Stephen Leeb
“The time to buy is when there’s blood in the streets.”
That well-known adage is attributed to Baron Rothschild, a British financier and member of the famous banking family, who reportedly made a fortune buying in a panic following the Battle of Waterloo.
The phrase is essentially a contrarian battle cry, though when it comes to real-life situations where it may apply, acting on it can be a rather difficult and counterintuitive proposition. After all, when everyone around you is running away or holding back in fear, it takes a lot of nerve to charge ahead.
Of course, a further complication is that you have to be sure that it really is blood that you’re seeing.
Our view at the present time is there may not actually be blood in the streets now…though there is in the headlines.
And as we have observed before, the turmoil isn’t limited to the financial markets, but has spread far beyond.
This Sunday’s New York Times had a story on what’s called “the near-poor” in this country. Permit me the liberty to describe many of the people in this category as former 2-car suburbanites living in what used to be considered the typical American fashion, with vacations, good public schools, eating decent food at home and regularly enjoying meals at restaurants. Many of these people have now experienced such a decline in income that they are now among the near-poor, who are just scraping by.
In our last Market Update we talked about the bottom 20 percent; it seems clear that what were formerly conditions faced only by that bottom 20 percent are now affecting the bottom 40 percent, or 60 percent or…who knows how far it could extend?
Conditions in the United States are hardly unique, though to be sure they may still be better than in much of the rest of the world. We’re not going to belabor the state of living conditions throughout the world today, but clearly here in the developed world we have taken a step back.
China and the developing world, of course, are in better shape in the sense that their living standards are not falling. And that’s a big difference. By way of analogy, a stock priced at $10 can give you a great feeling if you bought it at $5; but owning that same $10 stock can make you feel miserable if it has fallen from $20.
In this sense, though the nations of the developing world are still going through the growing pains of development and are still trailing the more mature economies in many ways, they are actually better positioned to survive the current turmoil.