That's the question posed by Theodore Roosevelt Malloch, former board advisor of the John Templeton Foundation, in this American Spectator article. And the question deals with what Templeton would say about the current financial mess.
That's speculation, of course. But the interesting thing about this article is the author reveals a memo John Templeton wrote more than 3 years ago:
MEMO
Subject: Financial Chaos
By: John M. Templeton
Date: June 15, 2005
Increasingly often people ask my opinion on what is likely to happen financially. I am now thinking that the dangers are more numerous and far larger than ever before in my lifetime. Quite likely, as we near the end of the first six months of 2005, the peak of prosperity is behind us.
In the past century, protection could be obtained by keeping your net worth in cash or government bonds. Now, the surplus capacities are so great, that most currencies or bonds are likely to continue losing their purchasing power.
Mortgages and other forms of debts are over ten-fold greater now than before 1970. This can lead to manifold increases in bankruptcy auctions.
Surplus capacity, which leads to intense competition, has already shown devastating effects on companies, which operate airlines, and is now beginning to show in companies in ocean shipping and other activities. Also, the present surpluses of cash and liquid assets have pushed yields on bonds and mortgages almost to zero when adjusted for higher costs of living. Clearly, major corrections are likely in the next few years.
Most of the methods of universities and other schools, which require residence, have become hopelessly obsolete. Probably, over half of the universities in the world will disappear as quickly in the next 30 years.
Obsolescence is likely to have a devastating effect in a wide variety of human activities, especially in those where advancement is hindered by restricted bureaucracies or by government regulations.
Increasing freedom of completion is likely to cause many established institutions to disappear with the next 50 years, especially in nations where there are limits on free competition.
Accelerating competition is likely to cause profit margins to continue to decrease and even become negative in various industries. Over ten-fold more persons, hopelessly indebted, leads to multiplying bankruptcies: not only for them, but also for many businesses that extend credit without collateral. When this occurs, voters are likely to insist on rescue-type subsidies, which transfer the debts of governments, such as Fannie Mae and Freddie Mac. Research and discoveries in efficiency are likely to continue to accelerate. Probably, in as quickly as 50 years, as much as 90 percent of education will be done by electronics.
Now, with well over 100 independent nations on earth and rapid advances in communication, people with superior educational backgrounds are likely to progress more rapidly than others. These people with more advanced education are likely to be true innovators.
Comparisons show that prosperity flows toward those nations having the greatest freedom of competition. Especially, electronics and computers are likely to become helpful in all human activities, including even helping persons who have not yet learned to read.
Hopefully, many of you can help us to find published journals and websites and electronic search engines to help us benefit from accelerating research and discoveries.
Not yet have I found any better method to prosper during the future financial chaos, which is likely to last many years, than to keep your net worth in shares in those corporations, which have proven to have the widest profit margins and the most rapidly increasing profits. Earning power is likely to continue to be valuable, especially if diversified among many nations.
JMT/nl
Subject: Financial Chaos
By: John M. Templeton
Date: June 15, 2005
Increasingly often people ask my opinion on what is likely to happen financially. I am now thinking that the dangers are more numerous and far larger than ever before in my lifetime. Quite likely, as we near the end of the first six months of 2005, the peak of prosperity is behind us.
In the past century, protection could be obtained by keeping your net worth in cash or government bonds. Now, the surplus capacities are so great, that most currencies or bonds are likely to continue losing their purchasing power.
Mortgages and other forms of debts are over ten-fold greater now than before 1970. This can lead to manifold increases in bankruptcy auctions.
Surplus capacity, which leads to intense competition, has already shown devastating effects on companies, which operate airlines, and is now beginning to show in companies in ocean shipping and other activities. Also, the present surpluses of cash and liquid assets have pushed yields on bonds and mortgages almost to zero when adjusted for higher costs of living. Clearly, major corrections are likely in the next few years.
Most of the methods of universities and other schools, which require residence, have become hopelessly obsolete. Probably, over half of the universities in the world will disappear as quickly in the next 30 years.
Obsolescence is likely to have a devastating effect in a wide variety of human activities, especially in those where advancement is hindered by restricted bureaucracies or by government regulations.
Increasing freedom of completion is likely to cause many established institutions to disappear with the next 50 years, especially in nations where there are limits on free competition.
Accelerating competition is likely to cause profit margins to continue to decrease and even become negative in various industries. Over ten-fold more persons, hopelessly indebted, leads to multiplying bankruptcies: not only for them, but also for many businesses that extend credit without collateral. When this occurs, voters are likely to insist on rescue-type subsidies, which transfer the debts of governments, such as Fannie Mae and Freddie Mac. Research and discoveries in efficiency are likely to continue to accelerate. Probably, in as quickly as 50 years, as much as 90 percent of education will be done by electronics.
Now, with well over 100 independent nations on earth and rapid advances in communication, people with superior educational backgrounds are likely to progress more rapidly than others. These people with more advanced education are likely to be true innovators.
Comparisons show that prosperity flows toward those nations having the greatest freedom of competition. Especially, electronics and computers are likely to become helpful in all human activities, including even helping persons who have not yet learned to read.
Hopefully, many of you can help us to find published journals and websites and electronic search engines to help us benefit from accelerating research and discoveries.
Not yet have I found any better method to prosper during the future financial chaos, which is likely to last many years, than to keep your net worth in shares in those corporations, which have proven to have the widest profit margins and the most rapidly increasing profits. Earning power is likely to continue to be valuable, especially if diversified among many nations.
JMT/nl
Spot on, to say the least. And the linked article goes on to describe Templeton's appearance at the Morgan Stanley conference in Lyford Cay a couple of years ago:
When Sir John spoke the room fell
deafeningly silent, like in those old EF Hutton commercials, you
could actually hear a pin drop. When he said he would "short" the
financials, autos, airlines, housing, the QQQ, and Wal-Mart it
was like a bomb had gone off and people (in this case the largest
hedge funds and asset managers in the world) gasped for air. You
see, Sir John was not known to normally -- go short. One person
who runs the world's largest private equity fund asked
sheepishly, "Is there nothing you would buy?" Sir John's quiet
but sure answer I will always remember. He said, "No, because
nothing is cheap yet, but they will be shortly."
I hope the author is right about 2009 being a tremendous buying opportunity. (I think anyone with a truly long-term horizon will be rewarded, FWIW.) In the meantime, we can cherish that 2005 memo.
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