Miguel Barbosa who runs the excellent Simoleon Sense investment blog was wondering about Russell Napier references that I may know of. I had mentioned in my Macro Outlook I how I had been influenced by Russell Napier without even reading his book (I plan to get the book soon.) Well, I'm looking forward to reading his book (Enlightened American is reviewing the book in parts for anyone interested.) I came across Russell Napier through a few audio interviews he had done, and was impressed with his unique thoughts. Here are the interviews with Russell Napier that I have come across:
- April 15, 2006 - Financialsense Anatomy of the Bear interview (select audio format at the top) -- Quite a bit old and dated but, boy, I can't think of a more relevant book to consider during a major bear market and the concepts may be more relevant now than back then.
- June 4, 2008 - McAlvany Weekly Commentary with Russell Napier: China, Inflation, and the Future of Equities (click on the audio button near the middle of the page) -- Mainly a pro-inflation view. The world has changed significantly since this interview.
- November 26, 2008 - McAlvany Weekly Commentary with Russell Napier (click on the audio button near the middle of the page) -- He seems to be in the inflation camp. Note that this is well after the collapse of the commodity markets and the lock up of the credit markets. He thinks massive government intervention, which will go overboard, will prevent debt deflation. He says if it were up to the free markets S&P 500 would hit 400 (another 50% down from here.) He thinks the bear market may last until 2012. In terms of a recovery, he thinks the bond market will rally before the stock market (I agree); commodities should rally and he doesn't think stocks can rally if commodities keep declining (I'm bearish on commodities so if what he says is true, the outlook for stocks is poor); he thinks copper has historically rallied alongside stocks, especially in deflationary bottoms (I think he only looked at a few major bear markets but I think his thinking is correct since Dr. Copper, as it is often known, is very sensitive to the economy.) In other interviews (the 2006 one) he says that the stock market may not lead the economy and a recovery in autos is also worth looking at (I'm not sure if his views have changed since the original interview.)
The interviewers, as well as Russell Napier, seem to be the inflation camp. I disagree with Napier and do not see high inflation in the future, barring some major policy mistake (e.g. embargo/tariff) or war or something crazy like that. As Napier speculates, it may be possible that full debt deflation, as in the 1930's or in any period during the gold standard, may not occur. Yet, the question I have for the inflationists is how do you explain chronically low inflation with bouts of mild deflation in Japan during the 90's to the present? Until I get an answer for why the Japanese experience cannot occur here, I will take the position that the $30 trillion of losses, along with further trillions not yet accounted for (e.g. bubbly commercial real estate, dubious private equity deals, etc) will exert a massive deflationary force.
I will note that value investors ranging from Seth Klarman to David Einhorn to Jim Grant seem to be shifting towards the inflation camp, with some even going for gold. But, value investors are generally not very good at making macro calls. Just like how Warren Buffett loaded up on USG, a housing material supplier, while we were heading into a massive real estate bust, I have little faith in the opinions of value investors when it comes to macro events such as the ever-persistent inflation vs deflation battle.
(I haven't recommended any blogs in a long while but Simoleon Sense is one that I would highly recommend. The blog does a nice job of collecting important articles every day. Also, it is quite unique in covering the psychological aspects of investing. Check it out.)
Tags: insightful, Russell Napier