A prophetic letter from legendary investor John Templeton has apparently surfaced on the Internet. (I say ‘apparently’ because I can only find it on a couple of websites, both of which seem to be connected – and which are unfamiliar to me).
Assuming it’s not a hoax… in writing to his son in 2005, the emerging market pioneer and contrarian’s contrarian predicted the recent financial chaos:
Increasingly often, people ask my opinion on what is likely to happen financially. I am now thinking that the dangers are more numerous and larger than ever before in my lifetime. Quite likely, in the early 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 and bonds are likely to continue losing their purchasing power.
Mortgages and other forms of debts are over tenfold greater now than ever before 1970, which can cause manifold increases in bankruptcy auctions.
It gets even bleaker as you read on, which is quite depressing when you consider how right Templeton was about the mortgage banks (writing in 2005, remember):
Over tenfold more persons hopelessly indebted leads to multiplying bankruptcies not only for them but for many businesses that extend credit without collateral. Voters are likely to enact rescue subsidies, which transfer the debts to governments, such as Fannie May and Freddie Mac.
On the other hand, Sir John was a very old man, and even the most far-sighted of us can be prone to excessive gloom in our final days, for pretty obvious reasons.
Also, the man who took American investors overseas seems to discount the extra demand being brought in by billions more consumers. There’s an environmental nightmare to be solved, certainly, but not obviously a need for less capacity.
(Source: Full Templeton letter on NewsMax via Richard Beddard)
