Thursday, April 01, 2010

Sir John Templeton’s Final Words: We're Screwed

Legendary investor John Templeton, who passed away in 2008, penned a final memorandum a few years before his passing entitled "Financial Chaos", in which he predicted bad things ahead for us.

A very sharp final call from a guy renowned for them throughout his career. Here are the prescient comments that Sir John left us with:

John M. Templeton
Lyford Cay, Nassau, Bahamas

June 15, 2005

MEMORANDUM

Financial Chaos – probably in many nations in the next five years. The word chaos is chosen to express likelihood of reduced profit margin at the same time as acceleration in cost of living.

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.

Surplus capacity, which leads to intense competition, has already shown devastating effects on companies who operate airlines and is now beginning to show in companies in ocean shipping and other activities. Also, the present surpluses of cash and liquid assets have pushed yields on bonds and mortgages almost to zero when adjusted for higher cost of living. Clearly, major corrections are likely in the next few years.

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