Chapter One 

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Just a rally? Most people are still trying to catch the bottom.

Right. People always say bearish is bad. First, I don’t believe that, philosophically. But okay. Say you are a bull and you like stock bargains. Can you imagine the opportunities that you would have had if, in December of 1968, you had exited the stock market and done absolutely nothing but collect interest until October or December of 1974? By then, stocks that had previously been selling at 85 were down to three-quarters of a dollar. After that, when they went to 19, you made real money. In the 1990s, people would try to buy stocks at 140 and hope they went to 190—which was not exactly a great return from a percentage point of view. But if you can buy extremely undervalued stocks, at or near the lows of a major debacle in stock prices, you can make more than enough for you and all your progeny. And thereby, of course, ruin their characters. There are several historical examples

of wealthy dynasties founded by people who held cash through the Crash of ’29 and after, finally buying in 1932 or 1933, and building fortunes that lasted through generations. I would not necessarily recommend that but it is better to make money than lose it.  

But that (horrors!) implies doing more than a little market timing.

Well, let me cross my fingers and ward off the vampire.  

But will that work on all the academic studies saying timing is a crock?

They were all done in the late ’90s  

Using data going all the way back to—

1982, generally. But if they were done by real historical types, they might have used data back to 1949. Just outrageous. There actually are some studies coming out now that show market timing is doing pretty well. My interest is in the social psychology of this, and you can generally say that when markets go down or sideways for a long period lasting years, market timing becomes popular and cycles become an important topic among people. Harvard economics professors issue statements such as, “The most important economic tool in the history of the world is the Kondratieff Wave Cycle.” But then, after long periods of advances in bull markets, you get the opposite. People say, “Cycles don’t exist. Market timing is a waste of energy. You should only buy and hold.” Those are phenomena that are

part and parcel of where you are in the cycles. Anyway, it was in October of 1982 that I said we are going to have to switch from a timing mentality to a buy and hold mentality. Little did I know that I should have held a lot longer—but at least I had the idea at a good time.  

If only you had paid more attention to your own advice.

Well I got a lot out of it, but yes the bull market went a whole lot further and longer than I thought. But I don’t know that I should have to be defensive. I don’t remember anyone else coming out with big number predictions about the bull market until the Dow crossed about 5000.  

Now your prediction couldn’t be more opposite. And your book makes specific suggestions about ways for investors to find shelter from the bear

market/deflation/depression you see?

Exactly. I don’t just say “go to cash,” because the questions today are what cash and where do you keep it? Two incredibly important questions. We know from history that at the bottom of major market crashes, they tend to close banks.  

Let me guess, you don’t suggest a safe deposit box in a New York City bank.

No. The fireplace would be safer in the winter. In fact, the book lists the two safest banks in each state. Also, some of the safer banks in the entire country. None of the major money center banks made those lists. The safer banks tend to be small. They tend to be rather conservative. They tend to have a lot of Treasury bills in their holdings because, believe it or not, some bank managements actually are somewhat concerned and not willing to speculate in derivatives and lend out all of their money to questionable enterprises.