No one can say that Bob Hoye of Institutional Advisors didn’t see the future clearly and in time to take advantage of a once in a generation market dislocation when he declared in October 2007 that:  “A credit tsunami the likes we haven’t seen in generations is about to hit”. 

 

Certainly each of the 500,000 listeners who heard Hoye’s warning on Michael Campbell’s Money Talks radio show had he opportunity to either get out of the way of the oncoming speeding economic/market train, or profit handsomely shorting the greatest market drop since the 1929 collapse. 

 

Bob Hoye was back on Money Talks a few days ago with some additional advice, some of which is pretty unnerving,  nevertheless Hoye was again very clear that we are now at another critical point in the markets and that its now time to either save your capital and get out of the way, or make some money. Whole interiew here beginning at the 24:30 mark or summary below {mp3}michael_campbell_sept_23-2011{/mp3}

 

First the background. Hoye thinks that there is no way that the Federal Reserve or other Central Banks around the world can overcome the Worldwide deflationary pressures. In other words no inflation as “the credit contraction is, and will continue to overwhelm interventionist Central Bankers” who “are not issuing credit that pushes prices up“. Why? Bond vigilantes in a word. 

 

As the Central Banks in Italy and Spain have found out they have to raise interest rates on their bonds to attract investors, and when interest rates rise Governments and businesses alike “cannot service the debt that is out there”.  Worse Hoye sees that the the latest recovery from March of 2009  “in North America  is rolling over, probably as we speak. Its already dead in Europe where they’ve had two quarters of negative GDP growth which defines a recession, and also perhaps really slowing down in China which shows up in your basic commodity prices.” With the economy contracting there is “nothing that government economists and Central Bankers can do to issue credit that is going to overwhelm the natural tendency for credit to contract.”

 

Hoye also uses history to prove his point there are situations where Central Bankers cannot generate inflation in Post Bubble contractions. Citing  John Law’s attempts to thwart the aftermath of the 1720 South Sea/Mississippi Bubble by replacing solid coinage with paper money he generated on 8 printing presses going in Paris at the time. Despite John Laws Central Bank effort he was unable to prevent the credit contraction he was trying to avoid. 

 

What does this all mean to today’s investors? 

 

 

In short Hoye thinks that real estate is not going to recover in this post bubble economy. Worse, very high real estate in places Vancouver are going to experience a fall in pricing like US Real Estate. Hoye points out that after the 1980 boom “British Properties in West Vancouver and and high end properties in Toronto fell to 1/3 of their 1980 highs. Hoye again cites history to support his post bubble real estate argument by looking back to a farm price index after the 1873 bubble in England.  That index of farmland values hit 58  at the height of the bubble in 1873  then fell consistently for the following 20 years down to 38.  In other words it was just a long bear market in land values after a typical post bubble economy. 

 

 

Buy Gold Stocks. “Just looking at the Gold Shares now, we have an index in Gold Shares going back to 1900 and there has been only one other time were it has been this oversold and that was in 1924. So one could say that this is about the most oversold you can get, and our advice on Gold Shares a few weeks ago  is that people should be accumulating good quality Gold Shares into weakness. It might take another week to set the low in here, but then the performance out of this oversold should be rather good. I am content buying either good exploration stocks where you know the story, or some of the senior Golds or Gold share ETF’s”.