By William Patalon III
Money Morning/The Money Map Report
Thanks to his market insights, Money Morning's Martin Hutchinson has made the national news again.
When economics author George Melloan penned a Wall Street Journal op-ed piece detailing the shortcomings of U.S. Federal Reserve Chairman Ben S. Bernanke's so-called stimulus "exit strategy," he cited an argument made by Money Morning Contributing Editor Martin Hutchinson as part of his proof.
In a story in yesterday's (Tuesday's) edition that carried the headline "Bernanke's Exit Dilemma," Melloan, The Journal's former deputy editorial page editor, concluded that "there are very good reasons to doubt that the Fed can cope with the political problems of avoiding inflation. The technical problems don't look very easy, either."
Melloan knows his topic well. After all, he's just finished a book on the topic – "The Great Money Binge: Spending Our Way to Socialism" – that's scheduled to appear in stores in mid-November.
But in his op-ed piece, Melloan cites the thinking of Hutchinson, a former international merchant banker who's become one of Money Morning's most-popular columnists – and who also writes the "Bear's Lair" column for the Prudent Bear Web site.
Back in May, Hutchinson likened the situation the Fed was getting itself into with moves that the German Weimar Republic made in the early 1920s, when it monetized 50% of the government's expenditures – a move that sparked the ruinous hyperinflation that destroyed the German mark. As of May, the Fed had monetized 15% of federal expenditures over the preceding six months – short of the rate that destroyed the German economy, but not a negligible amount, Melloan wrote in his Journal column.
In a column of his own in yesterday's edition of Money Morning, Hutchinson carefully explained how the Bernanke "exit strategy" has sent the U.S. economy down a one-way path toward ruinous "stagflation." Indeed, in that story, Hutchinson even outlined an anti-stagflation investment strategy for investors – a strategy that included three profit plays that he said most investors should take the time to consider.
"With the economic challenges that are heading our way, these are key pieces of an investment strategy that virtually all U.S. investors need to consider," Hutchinson wrote.
This is the second time in the just the past few months that a national publication has lauded Hutchinson's predictive abilities and market analyses.
Back in the spring, when Slate magazine set out to identify the market prognosticator who called what's right now the low-water mark of the bear market in U.S. stocks, the first nominee was super economist Nouriel Roubini.
Last year, Roubini predicted that "sometime" in 2009, the Dow Jones Industrial Average would hit 7,000. Not a bad call, given that the ultimate nadir of the Dow – reached March 5 – was 6,594.44. The projection scared a lot of folks.
But how great a "market call" really was it, given that the blue-chip index was already on its way down, that American International Group Inc. (AIG) was already in trouble, and that Lehman Brothers Holdings Inc. (LEHMQ) was already bankrupt?
True, it was a good call. But it wasn't a truly great one. So, no, Roubini was clearly only the runner-up in the "Call the Bear Market Bottom Sweepstakes."
The winner was Hutchinson.
Back in June 2008, Hutchinson – turning to his oft-employed measurement of U.S. money supply – said that U.S. corporate earnings had been artificially inflated, and said the Dow could fall all the way to 7,800.
While Roubini's estimate may have been closer to the actual bottom, Hutchinson made his call and predicted a 36% decline when the Dow was well above the 12,000 level, a point in time when most folks were calling for the market to go higher, and not lower.
It's not the first time Hutchinson made such a prescient call. And it probably won't be the last.
In April 2008, long before an implosion in a derivative security known as a "credit default swap" caused the implosion of AIG, Hutchinson warned Money Morning readers that credit default swaps were a $50 trillion problem.
He was right. Credit default swaps were a major catalyst for the collapse of AIG and for the implosion of the U.S. financial-services sector.
And he wasn't done.
In a Money Morning piece back in October, Hutchinson warned again that the Dow could be headed for a low around 7,800. While that would equate to a 40% nosedive, Hutchinson argued that it actually equated to a "safe landing," since it brought stocks into fair-value territory, perhaps opening up the investment market again.
The rally we've since March may well be proving Hutchinson right once again.
[Editor's Note: When it comes to global investing, longtime market guru Martin Hutchinson is one of the very best – because he knows the markets firsthand. After years of advising government finance ministers, crafting deals with global investment banks, and analyzing the world's financial markets, Hutchinson has used his creative insights to create a trading service for savvy investors.
The Permanent Wealth Investor assembles high-yielding dividend stocks, profit plays on gold and specially designated "Alpha-Bulldog" stocks into high-income/high-return portfolios for subscribers. Hutchinson's strategy is tailor-made for periods of market uncertainty, during which investors all too often go completely to cash – only to miss some of the biggest market returns in history when market sentiment turns positive. But it can work in virtually every market environment.
News and Related Story Links:
- The Wall Street Journal:
Bernanke's Exit Dilemma: Does anyone really believe the Fed will contract the money supply as the economy starts to show growth?
- Money Morning Market Commentary:
With His Flawed 'Exit Strategy,' Bernanke Has Set the Stage for Stagflation.
- Money Morning Global Investing News:
Money Morning Expert Makes Noise with Market Call.
- The Big Money (From Slate):
Who Was Most Right About the Dow?
- Money Morning:
In the Long Run, the Dow's 40% Nosedive May Actually Turn Into a Safe Landing.
- Money Morning Market Forecast:
Credit Default Swaps: A $50 Trillion Problem.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.