HardAssetsInvestor

Mike Norman, Hard Assets Investor (Norman): Hey everybody, welcome to HardAssetsInvestor.com. I'm Mike Norman, your host. My guest today is Scotty George, chairman of du Pasquier Asset Management. Scotty, welcome.

Scotty George, chairman, du Pasquier Asset Management (George): Thanks, Mike. Good to be back.

Norman: Thank you. So, let's get right into it. We're seeing another very scary period in global financial markets; it sort of looks a lot like 2008, maybe; I don't know, 1987? What do you make of it?

George: Well, the comparison of ’97 is you'd have to elongate the timeline; ’87 was quick, down and dirty. It was sufficient to get a lot of the naysayers out, get a lot of the new money back in. 2008 was driven by credit, ostensibly, so we have an element of credit in this market. But we really have a lack of equity market participation. And so to that extent, this is new. Nothing is ever new ...

Norman: But is that all it is, a lack of equity market participation? What are the underlying factors, the basic conditions? Because just a month and a half ago, things looked pretty decent. We were looking at decent global growth, at least in Asia, emerging markets, South America; us muddling along here at about 2 percent, maybe a little bit less; Europe, sort of flat-ish, but not negative. Suddenly now, things look kind of bleak.

George: Well, the difference is, exactly, the timeline that you just defined. What I'm going to ask you to do, and your listeners to do, is to broaden that aperture into, let’s say, a three-, five- or seven-year time horizon. If that's the viewpoint, if that's the lens through which you're looking, then we knew this was going to happen. So it’s not about March, it’s not about the rally off of ’09, it’s about all of the elements, the constituents which made up for this market to be too expensive, too highly leveraged, the consumer to be too highly tapped, and in effect, for this to be both credit and equity driven by the fact that nobody’s willing to play the game anymore.

So no matter what the commercials look like with, as they say, the vineyards and the beachfront homes, nobody is willing to play. And therefore, you have a trapdoor through which the market is likely to fall. I'm not going to say that it’s precipitous; it won’t be an ’87 down and dirty. This is a long timeline, a timeline which in my view began some time around 2006 when the markets just became hyper-expensive.