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September 01, 2007 at 04:00 AM
There are a few people who always have a thoughtful point of view on investing, no matter what is going on in the markets. IA Senior Editor Kate McBride caught up with one of them, Frank Holmes, CEO and CIO of San Antonio-based U.S. Global Investors, Inc., on July 30, to ask about his outlook during this time of market turmoil.
What’s your outlook on the volatile market situation of the last month?
It was an extreme overreaction last week. When you look at just the math of the market, we always like to differentiate between the frequency and magnitude of moves, and the magnitude was two standard deviations on a weekly basis. Historically, noise is a move of [less than] plus or minus 2%. Opportunity is when markets move greater than plus or minus Sigma, or one standard deviation, for the S&P or Dow Jones in a week. When it moves 4% it’s usually a great time to buy or not to buy. Last week just showed that it was a good time to buy.
Now one has to ask and ascertain: Are the fundamentals sustainable? We had great GDP numbers; we see the Chindias–the global boom–as sustainable. What is this [volatility] factor? I think it comes from margin calls; that a lot of the banks and prime brokers lending money to hedge funds basically said ‘Enough here, we’re going to reassess the risk.’ And they quickly go out and start bringing money back in from Japan, and they start unwinding a trade, and so there’s volatility. The subprime debt is having its rippling effect, but in the global scheme of trillions of dollars of economic activity, I don’t think it’s going to, stop this economic machine.
How can advisors guide their clients?
