One of the more perplexing news items was when Bloomberg.com reported that
"Princeton and Harvard are leading US colleges and universities in a new wave
of bond sales after market losses cut the value of endowments by a quarter in
the past six months, according to Moody's Investors Service."
Harvard, for example, said that its endowment had fallen 22%, and Bloomberg
reports, "the average college endowment has lost 25 percent to 30 percent since
June 30, the end of most schools' fiscal year."
Now, ordinary people like me don't suffer a loss of 25% (or more) in their
endowments/savings and then think to themselves, "I'm such a hotshot investor
that I need to borrow some money!"
Instead, we start drinking heavily and blaming our families for all
our troubles, and then we discover that things at work are starting to fall
apart, too, and pretty soon the situation is hopeless, whereupon we withdraw
into a shell, hiding in the closet under the stairs, whimpering and making
intricate plans for revenge.
But apparently, if you are a college or university, you don't act so weird.
Instead, you borrow money to "build liquidity and flexibility" so that one can
"continue to sustain strategic priorities" and to provide a "liquidity buffer."
Huh?
"Strategic priorities" are, of course, "Keeping this thing going as long as
possible so that I can keep this job where I spend a lot of my time goofing off
and finagling to get the most money and benefits for myself", but what is a
"liquidity buffer"?
Well, a "liquidity buffer" is apparently a new phrase for "a pot of spending
money", as I surmise from Kristin Gilbertson, who is the chief investment
officer of the University of Pennsylvania. She says, "The whole purpose of
keeping a decent-sized allocation to high-quality fixed income is for times
like this to provide yourself with [a] liquidity buffer so you don't have to
sell assets to buy new things."
And what are these things they want to buy? Bloomberg says, "Harvard's sale of
taxable bonds on Dec 5 was used to repay commercial paper" which makes me
wonder what in the hell is going on, and then I remembered that I am really
stupid about such schemes and scams, and that is why I buy gold, silver and
oil; it is such a comforting no-brainer.
And gold has been a real winner even as colleges and universities lost their
butts, as we learn when Doug Hornig, writing here at The Daily Reckoning,
rhetorically asks, "Every asset was mired firmly in the red in 2008, right?"
which he answers by immediately by saying that for us Americans, "Actually, no.
The single exception was gold, which was up 5.6%. A modest gain in most times,
but a phenomenal performance for a year where everything else tanked."
Interestingly, he says that gold was nice to everyone around the world, and "if
you managed to invest something other than US dollars in the metal, you did
even better. Gold rose 12% in euros, 32% in Canadian or Australian dollars, and
a whopping 44% in British pounds."
And for those of us always looking for the bad news because we have such a low
opinion of our fellow man voting in a democracy to give themselves things - and
that is why we True Mogambo Cynics (TMC) buy gold - the good news is that "this
[not] an isolated phenomenon. In 2008, gold posted its eighth straight yearly
advance. Since the beginning of 2001, it has averaged a better than 16% annual
gain vs the US dollar, 11% vs the euro, and 17% vs sterling."
And as for the particular stupidity of looking to the stock market as a place
to "invest for the long-term" I will not laugh at the stupidity of anyone
thinking such a thing could be possible, and merely note that Mr Hornig writes
that "Over the past eight years, gold has added 215% (in US dollars). During
the same period, the S&P 500 lost 22%. The DJIA? Down 11%."
And if this is not enough to make you laugh "hahaha!" at the very idea of
investing in the stock market "for the long-term", in the recent Barron's
Roundtable discussion, Felix Zulauf of Zulauf Asset Management writes that
S&P earnings "could slump to $20 or $40" this year!
At this, my blood felt like it had clotted into a big, dark scab because I had
just recently been looking at the Barron's table of "Indexes' P/Es &
Yields" where I had noticed that the earnings of the S&P 500 fell again
last week, going to $45.95 from $46.10 a week ago, and which is down a lot from
last year's earnings of $78.45.
Anyway, the price-to-earnings ratio of the stocks in the S&P 500 is still
hovering around 19, about where P/Es usually are at market tops; and if the
earnings of the S&P 500 drop to $20, as Mr Zulauf suggests, and the P/E
drops to about 5, which is about where the P/E ratio is at market lows, then
the S&P 500 will sell for a theoretical $100, instead of the $890 where the
index is today, which is already down from its highs of 1530 or so! Wow! Losses
out the wazoo!
And this is not even to mention the tremendous loss in the buying power of the
dollar in the last eight years, which makes me go, "Gaaahhh!"
And yet I see that people are NOT buying gold, even in the face of massive
cheapening of their currencies and the actual results of the last eight years?
Wow! So when does stupidity become unforgivable? Hahahaha! Ya gotta laugh!
Richard Daughty is general partner and COO for Smith Consultant Group,
serving the financial and medical communities, and the editor of The Mogambo
Guru economic newsletter - an avocational exercise to heap disrespect on those
who desperately deserve it.
(Republished with permission from
The Daily Reckoning. Copyright 2009, The Daily Reckoning.)
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